Reversal of Fortune

Companies such as wal-mart show way for tech players.

Did Wal-Mart help keep the united states from falling deeper into economic trouble than it did? Matthew Szulik, chairman and CEO of Red Hat, thinks so. "I have great personal admiration for what Wal-Mart has done," Szulik told me during a recent breakfast meeting. Wal-Marts combination of high value and low cost for the customer, thanks to precise inventory control, helped keep consumers buying during the recent downturn—and has a lot to teach the high-tech industry, Szulik contends.

Szulik may be right. In the past, it was the technology industry that was supposed to be teaching the old-line companies about doing business in a new century. Amazons ability to keep you updated about the status of your purchase led business executives to rightly question why their companys manufacturing and purchasing systems couldnt be as simple and reliable as an online booksellers operations. Now the tables have turned. As Szulik pointed out, the technology companies that can create both a lower-cost purchasing threshold and a higher perceived value for their products in the customers mind can build a gap that competitors will find increasingly difficult to bridge.

Among all the arguments about open-source software, Linux and the Microsoft desktop monopoly, Szuliks description is the most reasonable view of the current state of technology marketing.

I got a second reminder of the reversal of fortune that finds the old-line companies leading the way for the technology elite when I brought my collection of yard tools to my local small-engine shop for their yearly tuneup.

As the proprietor surveyed the motley array—busted trimmers, an ancient chain saw and a wheezing lawn mower—he gave me the knowing nod that said Id better reach for my wallet. With the service cost rising far ahead of the replacement cost, my aging (but, as my wife is happy to point out, barely used) lawn equipment is better tossed on the trash heap. It costs more to fix than buy new.

Could this same service-versus- purchase dynamic now apply to technology? It looks that way. A couple days after that breakfast with Szulik, I was in a meeting with Mark Barrenechea, senior vice president of product development at Computer Associates. As we were discussing on-demand computing and systems designed to expand or contract to meet users needs, our discussion turned to server blades.

"It is cheaper today to throw away a broken blade than to fix it," Barrenechea said. Its just like that hedge trimmer that never seemed quite right after its wrestling match with a chain-link fence.

A week later, I was on a plane headed to Raleigh, N.C., for meetings at Research Triangle Park. It was a Sunday evening, with lots of students headed back to universities and colleges in the area, and the plane was loud with talk of football games, the upcoming Womens World Cup soccer matches, and the ebb and flow of college life. It was a much different flight from those early-morning trips with a planeload of businesspeople snoozing away. That made me think of the most important lesson that businesses—and education is a business—have to teach tech companies: enthusiasm.

When I asked Szulik what was one of the reasons for Red Hats success in the face of lawsuits, free software, cross-licensing difficulties and Microsofts marketing muscle, enthusiasm for the companys mission was his first response. "Our guys call the Microsoft developers the Microsoft bourgeoisie," Szulik said. His main task is to channel the mission-driven zeal of Red Hats developers into a Wal-Mart-style low-cost, high-value business model.

In his book, "Legendary Brands," Laurence Vincent said, "Linux users interact on a frequent basis and form communities that have as their mission to improve and promote the Linux operating system."

A company bent on melding the mission of Linux with the model of Wal-Mart has something to teach all technology companies.

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