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Weekly Column

What Carly Will Be Missing: High-Tech is Going Through Another Revolution, and Ms. Fiorina Couldn't Keep Up

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

Usually I come up with my own column topics, but sometimes readers simply demand that I write about this or that. This week, the pull is coming from two different directions -- those who want a take on the Toshiba-Sony-IBM Cell Processor announced this week, and those who want my reaction to the firing of Carly Fiorina as CEO of Hewlett-Packard. These would seem to be very different topics, but if you stand far enough away and squint, they look nearly the same. The Cell Processor represents a technical revolution that is about to take place in high-tech business, while Carly Fiorina represents management that was poorly prepared to lead or even adapt to that revolution. It was a smart move to let her go, though the real test for HP's board will be finding a proper successor.

The technical revolution is coming for several reasons, most of them having nothing to do with technology. The economy is improving somewhat, both people and businesses are looking for new things to buy, and more of the same just won't do. We need whole new categories of products and services and they are on the way. Big IP-centric businesses like music, video, movies, and publishing sense that they are imperiled and are looking for new ways to stretch their old strengths. But most importantly, the VCs are sitting on a boatload of uninvested cash that they simply must spend. Get ready for a return to 1998 because soon you will be able to get funding for almost any hare-brained scheme. And while this process of throwing money at the wall is grossly inefficient, it inevitably leads to rapid change.

You may recall that I asked a year ago for venture capitalists, who weren't at that time funding much of anything, to start spending money if only to jump-start the economy. They didn't, of course. So why would they now start to fund every deal in sight? That's simply because their alternative is to give back the money and then some, which they will never do.

In 1999-2000 -- at the very peak of the dot-com boom -- venture capital firms were not only taking companies public at a furious pace, they were just as furiously raising new venture funds -- funds that will shortly be coming to the end of their lives. Throughout the fixed lifespan of these funds venture capitalists are typically paid 1-2 percent of the total fund per year as a management fee. If a VC raises $100 million for a fund with a six-year life, they'll take $2 million every year as a management fee, whether the money is actually invested or not. Any money that remains uninvested at the end of the fund must be returned to the investors ALONG WITH THE ASSOCIATED MANAGEMENT FEE.

Right now, there is in the U.S. venture capital community about $25 billion that remains uninvested from funds that will end their lifespans in the next 12-18 months. If the VCs return those funds to investors they'll also have to return $3 billion in already-spent management fees. Alternately, they can invest the money -- even if they invest it in bad deals -- and NOT have to cough-up that $3 billion. So the VCs have to find in the next few months places to throw that $25 billion. They waited this long in hopes that the economy would improve and that technical trends would become clear so they could do their typical lemming-like jump off the same investment cliff as all the other VCs. Well, we're at the edge of the cliff, so get ready for the most furious venture investing cycle in history.

I'm not saying this is bad, but I do find it ironic.

Companies like Hewlett-Packard are in a great position to see in advance where technology is going. Some of it comes from their own labs, but most of it comes from small entrepreneurs who are looking for partnerships or investors. The venture division of every big company sees every deal. There are no secrets. So HP, just like IBM and Dell and Microsoft, has by this time a fairly good sense of what will probably be hot 12-18 months from now. But what HP didn't have was a technical vision giving it confidence to make the hard decisions about what to fund and what to kill to be best prepared for that semi-inevitable future. Carly Fiorina simply could not provide that vision. This was precisely the same problem that got John Sculley then Mike Spindler then Gil Amelio fired from Apple. Frankly, it is also what got Lew Platt fired from HP before Carly was hired.

This firing, just like the hiring that preceded it, has nothing to do with Carly Fiorina being a woman. This is just business and comes down to dollars and cents, not sexism.

Fiorina was a salesperson leading a company of engineers, yet not having any sense of the art of engineering. I'm not trying to portray Carly here as the bad guy and HP engineers as the good guys, because HP engineers haven't historically had any marketing sense AT ALL. It was just a bad hire. The company needed (and thought it was getting) a charismatic leader whose vision extended all the way from the lab to the marketplace. But what they actually hired was a very facile salesperson who came from a company that looked fabulously successful primarily by cooking the books (I wrote about this at the time -- it's among this week's links). Carly looked like she could walk on water because Lucent Technologies had been filled with helium.

Knowing she was not what she was claiming to be, Carly's management technique was to be charming and brutal, to throw HP through a succession of mergers and reorgs that kept any potential adversary from gaining a power base. Note that this week, there simply is no clear internal successor as CEO, nor is the company even thinking of looking inside because any talent there was run off long ago.

The big problem with running a company this way is that it always ends badly.

Now to the Cell Processor, which looks to be the poster child for the technical revolution that's beginning. The Cell is great, the Cell is powerful, the Cell is scalable, the Cell burns 130 watts. Don't look for a truly mobile Cell ANYTHING for at least three years.

And people who think because it will first appear in a video game means that the Cell is inexpensive are wrong. Two hundred twenty-three million transistors cost the same to produce no matter what they are being used for. Sony will just bury the cost of the Cell and try to make it up through game royalties.

Certainly the Cell will find its place in video games and in most types of computers. It will be for Intel and AMD the very kind of competition both those companies need and hate. As such, the Cell will be very good for consumers and for the market. But there is going to be a huge amount of confusion and many missteps before the Cell is broadly absorbed. This will be a transition roughly comparable to object-oriented computing and remember that took half a dozen difficult years. Until then, Cell will be one of those keywords that populate every high-tech business plan. This week, every PowerPoint stack is getting a new slide showing where the Cell Processor fits. And that includes at Apple, no matter what signals the company is trying to send to the contrary.

My recommendation to entrepreneurs is to quickly leverage the Cell buzzword. Propose the first Cell router, first Cell super-mega-ultracluster, first Cell database, first Cell printer, first Cell video camera. But do it in the next 7-10 days before someone else does.

Now back to the coming tech revolution. It must go beyond VCs hurling buckets of money out their windows on Sand Hill Rd. There must be demand, after all. And there is. The coming tech revolution comes down primarily to bandwidth -- leveraging the dark fiber that was stuffed underground in huge quantities five years ago to support communication services that weren't economically feasible at that time but we were all so stoked we didn't care. The companies that built those networks have departed for the most part but the fiber remains. And with the capital cost of that fiber having been absorbed through bankruptcies, the advent of new technologies for pumping even more photons down the line, and the inexorable force of Moore's Law, many of the things we thought we'd be doing in 1999 we'll actually be doing by late 2005.

We'll just be doing it, I guess, without Carly Fiorina.

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