Thursday, December 12, 2002

IBM, Microsoft, and Rational

This report on Microsoft attempting to buy out Rational (which IBM announced it was going to buy a few days ago) is really weird.
"I just don't believe the medium-term competitive risk to Microsoft would justify some sort of huge premium here" if Microsoft were to attempt a competing bid, Sanford C. Bernstein analyst Charles Di Bona told Reuters.
I knew folks at Sanford C, and it's a level headed, smart shop, so Di Bona is probably on the money.

Some background; Microsoft makes great developer tools, and IBM makes lousy developer tools. VB is as easy to use because Microsoft worked really really hard to making it easy to use (note to Apple loyalists -- don't moan about MSFT usability until you've tried some pre-MSFT usability). IBM is a typical techno-snob and believes that if someone can't develop (or install) a platform, they're probably too dumb to have that platform in the first place. When I was at IBM over the summer, my very smart fellow interns all moaned and whined about how hard the IBM kit was to install. IBM's response? "Why are you moaning if it takes you five hours to install? It used to take five days!" *Sigh* MSFT stuff installs in five minutes.

The good news is that IBM is very serious about the software space and realizes it needs developers and good developer tools. That's why it bought Rational. IBM only has four software "brands"--Tivoli, Lotus, WebSphere, and DB2--Rational was slated to be the fifth and this is a very big deal for the company.

But why does Microsoft, which already makes such great dev tools, want to buy Rational? The only reason I can think of is to keep it out of IBM's grubby paws. This, to be blunt, is nutso. The Web standards war between .NET and J2EE is very real and very central to the competition between MSFT and IBM, but thinking you can buy your away out of it reveals an organization with lots of cash and little business sense. Office and Windows makes about 120% of Microsoft's profits, every other division loses money, and they don't seem to care. Even if XBox is viable some day, Microsoft will have spent so much money on it that the investment will have negative economic profit overall. The amount of short term advantage Microsoft may get by keeping Rational out of IBM's hands is not worth the price it has to pay for it. It seems as if Microsoft is using its monopoly money to maintain its monopoly, an example of wasteful rent seeking and a complete waste of time from a shareholder or business perspective. It also suggests that Microsoft has no ideas for how to actually grow its business.


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