The Bloor Perspective: Ganging up on Microsoft, corporate honesty and a painful storage spat

As the Lindows saga starts to build momentum, it appears Be - the creator of BeOS - is about to have its own day in court with Microsoft. It blames the software giant's monopolistic practices for its own failure and, presumably, wants some form of recompense.

The Lindows case is intriguing because it does appear to be a rather fatuous situation where Microsoft has to protect the word 'Windows' against its similar-sounding opponent. Lindows founder, Michael Robertson, does not appear to disagree with the fundamental complaint from Microsoft but, instead, is objecting on the grounds that the word 'windows' has existed for many years and cannot be seen as the property of Microsoft. At the same time, Robertson points out there have been many products using the W-word that Microsoft has not challenged.

The reality of this is that, in the software world, most products that refer to Windows in their names are enhancing Microsoft's platform rather than competing against it. The Lindows product deserves to have its go at the market. It is a WINE project that could succeed.

However, it is hard to see how it can win this case. Why not just change the name sooner rather than later and use the publicity to get the new name known? 'LindOS' would seem a viable compromise.

Be's lawsuit builds on Microsoft's earlier monopoly convictions. Its claim is that the proven monopolistic activity destroyed the Be business - the claim is that Microsoft's grip on suppliers made it impossible to establish the Be-OS.

In order to succeed this case will need to rely on a certain amount of anti-Microsoft sympathy from the judges. Fortunately for Lindows, it appears Microsoft is doing little to improve the general view of its activities.

Dodgy accounting?

Those guys involved in the Enron stuff have a lot to answer for. The general consensus amongst venture capitalists is that it is unwise to invest in a business until its accounts and accounting practices have been thoroughly checked out. Add to this rumours of dodgy accounting practices in IT businesses and the overall effect on the technology market is not too good.

The most important of the rumours circulating at the moment is that Computer Associates is due to be visited by the federal authorities who are keen to look more closely at the way it accounts for its business.

There are questions surrounding the recognition and differentiation of revenues from software sales and maintenance. CA has found itself in the middle of all sorts of discussions like this ever since it moved to pro forma accounting methods back in 2001. This change effectively removed the ability to compare years - at a time when many suspected the company was having a difficult period. Not that CA's accounting practices weren't called into question before that.

This story is merely an illustration of the nervousness now affecting the technology marketplace. Accounting practices have always been up for discussion because many public companies need to move figures around in order to maintain shareholder value. Often in the past this was achieved by recognising revenue long before any product was actually delivered resulting in misleading overstatements of profitability.

One is often wondering about those 'extraordinary charges' or 'restructuring costs' that come with acquisitions (using inflated share values).

Now the VCs are demanding greater investigations before investing. The result - a short-term reduction in funding and, perhaps, reduced growth in the industry. Any business that hints at questionable accounting practices is taking a heavy hit on the stock exchanges.

There is a volatile nature to the markets right now - something the technology area could have done without. However, those sailing a true course through the straits of accounting practice should have little to fear.

Storage: why McData is suing Brocade

When it comes to the new world of storage networking Brocade and McData immediately spring to mind. These are the heavyweights in SAN switching.

McData, once upon a time a subsidiary of EMC, the proverbial storage 800-pound gorilla, has a huge share of the high-end SAN switching market with its directors, while Brocade occupies a similarly lofty position in the mid-market switch arena.

Recently, McData launched a lawsuit alleging Brocade has infringed upon some of its patented technology. The suit demands Brocade disables certain key frame filtering functionality contained in its switches. It is likely that, if enforced by the courts, such a requirement would cost Brocade a huge amount of effort and could result in a significant delay to the launch of the company's new top-end Silkworm 12000 switch.

The Silkworm 12000 was launched recently with the aim of moving Brocade up into the territory McData regards as being very much its playground. Brocade has publicly stated it will fight the McData action all the way.

It is apparent that McData has no interest in any type of out of court settlement that might involve the payment of damages or the licensing of the contested patents. Indeed, it has been reported that McData's desired outcome is "the disablement of Brocade's products".

The result of this action will be very important to both companies. For McData, a successful case would give it at least six months in which to strengthen even further its hold on the top end SAN market while Brocade would face a string of product delays and expensive re-engineering costs.

More importantly, Brocade would lose some of the momentum it has acquired over the last 12 months as it has aggressively marketed itself as the market leading SAN brand.

Even if the case does not go McData's way, any delay it can force on Brocade will give it extra breathing space.

Either way it is clear any tension in the market leading potential buyers to worry about the future will not benefit the storage industry as a whole. With too few readily usable standards, buyers are reluctant to splash out on any expensive storage technology that might lead them down a blind alley. A round of tit-for-tat legal action and the resulting bad publicity will simply cause many storage networking decisions to be put on hold for as long as possible.

It would be very helpful if Brocade and McData could sit down together to sort things out quickly. Who'd bet both companies can maintain focus on serving customers rather than fighting legal battles?

**Bloor Research is a leading independent analyst organisation in Europe. You can find out more at http://www.bloor-research.com or by emailing mail@bloor-research.com .