The Schwartz Is Strong With This One

Johnathan Schwartz is my favourite CEO. If computer industry CEOs were available as trading cards, I’d have Schwartz, Steve Jobs and maybe Mark Shuttleworth and stop my collection there.

What makes Schwartz such a good CEO is that he is a nerd. Business schools like to push the line that a “good” manager (where “good” is defined as “alumnus of our school”) can manage and lead any company in any industry. Essentially the argument is that management transcends technology, regulation and the like: that business is a spotlessly abstract activity that can be performed anywhere.

What rubbish. I don’t dispute that business and management are disciplines unto themselves, but it’s a bit rich to pretend that any Harvard graduate can waltz in and run a successful firm in an industry they know nothing about.

This is especially true in IT. This industry is driven by the development of new technologies, including a lot of pure research that never gets out of the lab. This costs a lot of money — you need to hire expensive brainiacs — that may or may not show an ROI next quarter.

To many B-school graduates, this seems to be utterly nuts. Why fund something that’s essentially a gamble? Especially if you don’t know what you’re funding. For all you know, those sneaky nerds are ripping you off and playing Doom all day. Best to outsource all your R&D expenses by shutting it down and relying on Microsoft and Intel to do it all for you.

Which is essentially the model that the IT industry adopted in the mid to late 90s. Instead of focusing on the core R&D effort to leapfrog competitors, some companies essentially gave up on it. Carly Fiorina did this to Compaq and Hewlett-Packard and killed off some of the most advanced technology ever devised (especially the famous Alpha family of CPUs).

Johnathan Schwartz, being a bit of a nerd, understands what the R&D is heading to. It also helps that his undergraduate degree is in economics. When he discusses Sun’s upcoming R&D results he usually frames it in terms of economic trends. His latest entry is a case in point. He talks about the relative cost of storage technologies. Traditionally this has been in dollars per gigabyte. But the rising tide of data means that purchase cost is becoming dominated by the price of the electricity to run datacentres — the trendline of dollars per gigabyte maintained is crossing with the dollars per gigabyte purchased.

What makes Schwartz a great CEO is that he sees both sides of the coin: the changing economics of the field and where his company’s portfolio of technologies fit into it. A lot of CEOs see the economic side, but very few understand their portfolio of technology. Even fewer post blogs. And as far as I know, Schwartz is the first CEO in history to link to source code in a blog entry talking about his company’s technology.

This entry was posted in Economics and public policy, Geeky Musings, IT and Internet. Bookmark the permalink.

20 Responses to The Schwartz Is Strong With This One

  1. JC says:

    B

    ut the rising tide of data means that purchase cost is becoming dominated by the price of the electricity to run datacentres the trendline of dollars per gigabyte maintained is crossing with the dollars per gigabyte purchased.

    really, so the cost of energy has become a big enough factor? huh?

  2. Jacques Chester says:

    It has, in a very big way. Large data centres can have thousands of power-hungry servers and the electricity bill adds up quickly. That’s why there’s a big interest in technology like virtualisation and low-power CPUs. Both technologies which Sun is into pretty heavily into as it happens.

  3. David Rubie says:

    It’s that kind of thinking that put John Sculley into the CEO role at Apple. Perhaps he was just 20 years too early before the industry had matured.

  4. Schwartz is the first CEO in history to link to source code in a blog entry talking about his companys technology.

    Jacques you geek.

    Time to get back to irc.oz.org:6667 #coders

  5. mmh on reading that link.

    re power. I did some work for a large ex fully gov owned au. telco last year – new 3G – big problem with air con and power supply in existing exchanges all around the nation. Big problem was getting old skool designers and engineers to recognise unbelievable ramping up of data demands with mobiles –> power needs.

    re flash – I was under the impression that flash was a bit unreliable but is that related to the cheap hardware?

  6. Andrew Leigh says:

    Splendid post. Did you hear that Fiorina is now a senior adviser to the McCain campaign?

  7. Jacques Chester says:

    FXH;

    It’s a lot more reliable than it used to be — it’s overtaking spinning media in terms of MBTF because of write-levelling. In any case ZFS is able to recover pretty handily from errors.

    Its main advantage is that it’s solid-state, so it reads and writes faster and uses far, far less power. You don’t need to keep it spinning for one.

    Andrew;

    I did not. Going on past form, her advice will be for McCain to stop talking about his Vietnam experiences and outsource all of his war memories to Jim Webb.

  8. David says:

    her advice will be for McCain to stop talking about his Vietnam experiences and outsource all of his war memories to Jim Webb

    lol. If she runs his campaign as well as she ran HP, Obama’s a shoo-in.

    Thanks for the reminder about Schwartz’s blog btw. I’ve read it a couple of times in the past and he’s a very interesting bloke.

  9. Jacques Chester says:

    David;

    I have him on my feed reader. His stuff only turns up every few weeks but is usually quite thought provoking. I really must get off my bum and get some shares.

  10. JC says:

    If she runs his campaign as well as she ran HP, Obamas a shoo-in.

    The stocks highs were the day before she took the job. It was a long set of stairs down finally to the firms net asset value.

  11. Craig says:

    I buy the anti-business school line. The trouble with the counter-example is that SUN’s profits have stagnated for the last few years. They haven’t gone bust like some suggested, but they haven’t done that great

  12. Jacques Chester says:

    Yeah, they got fairly brutally savaged by the tech wreck. However they’d be circling the drain if they hadn’t come up with Niagara chips, DTrace and ZFS (inter alia) in the last few years. And those projects had a big lead time.

    It’s possible to be a pure commodity manufacturer in IT these days, as Dell and HP demonstrate. But there’s very few companies who can compete in that space and the margins are atrocious. You need to be first or second for it to work and you never get to leapfrog the competition on features because you rely on the same upstream technologies as they do.

    I see Sun as the Apple of the server space at the moment — struggling to come back, but with a really neato portfolio of technology that will bring them back into the spotlight. They captured a lot of geek mindshare with ZFS in particular, and that will pay out down the road in datacentre purchasing decisions.

  13. Jacques Chester says:

    I suppose I meant I see Sun today as Apple around the time Steve Jobs came in as the “temporary CEO” in the dark days of 96-99.

  14. David Rubie says:

    I suppose I meant I see Sun today as Apple around the time Steve Jobs came in as the temporary CEO in the dark days of 96-99.

    That suggests Sun will need some kind of breakout product like the ipod to survive rather than slowly becoming irrelevent through a decreasing ability to innovate. If my recent dealings with the local arm of Sun are any sign, they seriously need to ditch their resellers, and pronto, and move to direct sales. Some of Suns resellers still seem to think it’s 1988 and they’ve got a hot product no-one else has a competitor for, despite Sun increasingly moving to commodity hardware.

  15. Jacques Chester says:

    Yeah, on second thoughts I’m really thinking of how OS X brought a lot of mindshare from geeks. Apple circa 99 is a bad example because one thing Steve Jobs did was axe a lot of previous R&D efforts!

    On the other hand, I think my point about Sun stands: without the fruits of deep R&D they’d be well and truly up a creek filled with manure right now.

  16. Henrik says:

    A Sun + Apple partnership/merger/marriage would be an interesting thing… Could be a way for Apple to really get into the enterprise side of things.

  17. Jacques Chester says:

    Henrik;

    I don’t know. There’s lots of places they have potential *shudder* synergy, but in terms of branding and culture … I dunno. At this stage they are able to cooperate through cross-pollination of technology, which I think is the best bet for now.

  18. Mark Hill says:

    “What rubbish. I dont dispute that business and management are disciplines unto themselves, but its a bit rich to pretend that any Harvard graduate can waltz in and run a successful firm in an industry they know nothing about.”

    Wharton grads are better. MBAs may be an example of a Giffen good.

    Synergy is real. It can be measured and is important to horizontally diversified firms with economies of scope advantages. Don’t shudder.

    But yes I still shudder when non economists say synergy or paradigm. Typically they mean “perpetual motion machine”, “money tree” or “panacea”.

    I think that there is a degree of portability of skills, but this is reliant on tacit knowledge. Some managers have it and some don’t.

    Donald Rumsfield was good in multiple management fields, but ultimately he made too many mistakes after some success as Defence Secretary. Mc Namara was good at both business and defence chief of the US.

    Warren Buffet makes his money from understanding good management when it comes in. But he couldn’t run a bank (even as a finance guy) and sold it off.

  19. Jacques Chester says:

    Synergy is real. It can be measured and is important to horizontally diversified firms with economies of scope advantages. Dont shudder.

    I’m shuddering at the abuse of the term. I do think it exists because I can see it in computer technology and assume that it must exist in other fields as well. But you can’t just say “synergy” in a hand-wavey way to justify a huge merger, in my opinion. It’s just nuts.

    The Microsoft-Yahoo thing, for instance. There wasn’t synergy, there was massive duplication. Much cheaper to licence Yahoo technology if you need it, or hire away their best and brightest. $40 billion in cash and debt? Nuts.

    Sun have bought a few companies lately; most recently they bought a small firm that makes distributed filesystems as part of a push into the HPC market. That’s an example of synergy, because the technology they bought will become more potent when married to their own ZFS.

    I suspect that portability of management skills would be on a continuum. And that the best managers are prepared to take advice. There was a great anecdote about Henry Ford wherein he said he was smart because he retained smart people.

  20. Jacques Chester says:

    And if I were Sun I’d try and buy these guys for having some really nifty stuff that would fit perfectly into their HPC push.

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