Business software maker SAP’s shares closed down almost 8 percent in Frankfurt Friday after the German company announced preliminary quarterly results that disappointed investors.

Shares of the Waldorf, Germany-based SAP closed at 39 euros on the German stock exchange, its biggest one-day slump in four years. Late Thursday evening, SAP said license sales in the United States and Asia had missed expectations.

The slowing growth of giants like SAP and its largest rival Oracle is an indication of the general slump in the software market, analysts said.

SAP’s fourth quarter revenues rose around 7 percent to 2.95 billion euros compared to revenues in the year-ago quarter, which was half as much as analysts expected. Analysts’ were most concerned that SAP’s license revenue was 1.26 billion, below the consensus estimate of 1.35 billion euros. License revenue is a common growth indicator in the software industry because it reflects how much new software customers are buying.

SAP’s results were particularly slow in the United States, one of the largest markets for business software companies. During the fourth quarter, SAP’s U.S. revenues grew 15 percent quarter over quarter, the company’s weakest performance in three years.

Merrill Lynch analyst Kash Rangan said software stocks could be under pressure in 2007 because of a boarder slowdown in software spending.

Oracle’s recently announced quarter showed similar slowing U.S. growth. The RedwoodShores, California-based company’s mid-December report also disappointed investors and drove down its stock (see Oracle Disappoints Investors).

Analysts also said SAP faces growing pricing pressure from Oracle, which has been on an acquisition spree since 2004. “We believe the competitive environment is getting tougher,” said Cowen & Co. analyst Peter Goldmacher in a research note.

Slowing market growth comes as the German group tries to get customers to switch from its older products and strategies to a newer technology called Service Oriented Architecture (SOA), said AMR Research analyst Bruce Richardson.

Business software companies are in between new product cycles and customers want to wait before they upgrade. SAP is also moving its into the mid-sized corporate market after focusing for years on large corporations.

“There is very less that is exciting for the buyer—nothing that is going to improve their competitive positions or margins,” Mr. Richardson said.

SAP may also be distracted by speculation about the fate of CEO Henning Kagermann, who turns 60 this July and may retire to make way for a successor. Mr. Kagermann has been leading the company since 1998 and board members recently said they would renew his contract for another year at a board meeting in February (see SAP Keen to Keep Kagermann).

Contact the writer: Fbhuta@redherring.com

Developers abuzz about Apple’s iPhone are wondering when the company will open up the software powering the slick new phone to third-party applications.

Cupertino, California-based Apple is known for tightly-closed gadgets that limit how much third-party developed software can run on them—such as the iPod. The music player runs on its own operating system and has limited outside applications. Similarly, the version of the OS X operating system that runs the iPhone will for now only run software developed by Apple, say developers.

“The biggest disappointment is that, at this time, Apple is not going to open up the platform for third-party developers,” said 451 Group analyst Raven Zachary.

Apple already promises iPhone will offer a slew of useful and innovative features, but analysts say the company would be better off opening up its operating system to third-party applications.

Apple CEO Steve Jobs at Macworld on Tuesday showed off the iPhone’s email, Safari browser, Google and Yahoo web search, and maps. Some other features are visual voicemail, which lists all your voice mail on the iPhone’s 3.5-inch widescreen display that you can check in any order that you like. It has a 4GB and 8GB storage capacity for all your music files.

The iPhone’s biggest selling point is its sleek design. However, there are several applications that currently run on smart phones such as Palm’s Treo and Research In Motion’s BlackBerry that will not be available on the iPhone.

Mr. Jobs in his keynote said Apple would like to grab 1 percent of the mobile market by 2008.

If Apple wants to attain these numbers, it will have to make sure that it opens up the platform for third-party application development, Mr. Zachary said.

“I think it will be a huge financial mistake for Apple to keep the iPhone closed to software development,” he said.

Apple representatives did not return calls for comment.

Apple has enforced similar restrictions on the iPod since 2001, when the music player was released, but Mr. Zachary said the iPhone is not the same as the iPod because it does more than just play music and videos.

UK-based software developer Bernard Leach agrees that Apple should open up the iPhone platform for outside developers, just like it has with the Macintosh computer. The number of software developers and the third-party applications created for the Macintosh is enormous.

“If Apple were to open up the iPhone to Mac developers, the potential is huge,” he says. Since the iPhone is seen more as a mobile computer, Mr. Leach thinks it’s very important to make it an open platform.

For example, it would be nice to have the iPhone enable banking software that could help users track their bank account or make payments using the advanced features of the GSM network, he says.

iPhone Linux?

Mr. Leach is one of the creators for the iPod Linux project, which helped put the open-source Linux operating system on the iPod.

However, Mr. Leach is not sure if he will work on a project to put Linux on the iPhone as it will be tremendously difficult because of the complexity of the platform.

Putting Linux on the iPhone will be an unfruitful exercise that would require a lot of work from the community, Mr. Zachary of the 451 Group says.

“The power of the iPhone is in the user experience, and installing Linux would be a major step backwards,” he said. “Any serious Linux effort for the iPhone would require a tremendous [amount] of development and design that would, in the end, fail to approach the work that Apple has already done. If Linux users want a phone platform, they should look elsewhere.”

Software Reliability

While it would be nice to have outside developers create software for the iPhone, some analysts think that the quality and reliability of the software running on the device should be kept in check.

Cell phones are held to much higher standards than PCs and are not expected to crash like PCs do, said Rob Enderle of the Enderle Group. For that, the applications running on the iPhone have to be reliable, and unless Apple certifies them, they should not be allowed to run on the device, Mr. Enderle said.

“For the first year or so, it will be wise to keep it closed to assure that the initial reliability is there,” he said.

Looks like Henning Kagermann just got an extension. The CEO of German software giant SAP was asked to keep his job for another year after he turns 60 in July.

The business software giant’s policy is to renew a CEO’s contract on an annual basis once he or she turns 60. However, with SAP chairman Hasso Plattner telling German newspaper Sueddeutsche Zeitung that the company’s board will offer Mr. Kagermann an extension, his place seem secure for another year.

Nevertheless speculation continues about who will lead SAP next. The succession plan at SAP has long been a sensitive area. Chai Agassi and Leo Apotheker, the two most talked about possible successors to Mr. Kagermann, are known for very different styles. And following Mr. Kagermann’s act will be no easy task.

Mr. Kagermann has had a huge impact on SAP. Since taking the job in 1998, Mr. Kagermann has led the company through a tech bust, which saw the company’s stock plunge from $52 in 1998 to $11 in 2002. He has since led the company back and SAP’s revenues have grown to more than $10 billion in fiscal 2005 from $7.7 billion in 2002. As a result, SAP’s shares are trading in the $55 range once more.

Those successes only make the question of who will succeed him more urgent. Mr. Apotheker is the Paris-based, gray-haired sales expert who has been at the company since 1991. By contrast, the 38-year-old Mr. Agassi is a technologist and an entrepreneur, who came to the company in 2001 with the acquisition of his company, TopTier.

The board members will next meet on February 15 and one of the items on the board meeting agenda will be to discuss Mr. Kagermann’s contract, as confirmed by a spokesman.

Shares of the Walldorf, Germany-based SAP fell $0.48 to $54.13 Wednesday.

A service launched by a search startup is bringing some different abilities to the world of mobile search.

Palo Alto, California-based 4INFO unveiled its new mobile search engine Sunday at the International Consumer Electronics Show in Las Vegas.

4INFO expects to deliver search results instantly to users with mobile devices. The company aims to bring mobile search capabilities to a slew of small businesses that otherwise could not afford the technology.

Several services such as Google and Yahoo already offer mobile search and let users search for information as they would on the desktop.

However, 4INFO CEO Zaw Thet said traditional search engines are not optimized for mobile search and make the user experience frustrating because of multiple keystrokes and slow download times.

His company’s mobile search engine offers a menu of the most frequent searches via a search bar, offering a single source for answers to questions instead of making users click through numerous web pages, Mr. Thet said. Users can get answers through the least number of clicks, he said.

However, the service is currently restricted to only about 30 popular search topics, such as traffic information, driving directions, weather, and stock quotes.

“4INFO is not meant to be something that replaces Google for your biology project in high school,” said Mr. Thet.

Until now, the startup has been using text messages to deliver information. For example, users would send a text message with a short code and the service would respond with the answer.

That has led the venture-financed company to become one of the top mobile search providers, although it has a long way to go to catch up with Google, Yahoo, and Microsoft’s MSN.

The Gannett newspaper group has invested with 4INFO, and the startup provides alerts and information to the newspaper chain’s readers via SMS (short message service). A user sends a text message to the service with a short code, such as “44318 weather SF.”

Reaching Customers

Recently, 4INFO opened up its technology to small and medium businesses that can use its infrastructure to keep in touch with their customers.

Mr. Thet gave an example of a blog that reports on celebrity deaths. Users can sign up for alerts on the web site, which then uses 4INFO’s infrastructure to deliver the alerts via SMS to users. The process to set this up for a site takes about five minutes and does not require developer skills, Mr. Thet said.

“We’re basically removing all the barriers to entry in this market,” he said.

Several other businesses such as restaurants and DJs are using 4INFO’s system to keep in touch with their customers and fans, said Mr. Thet. The service is available for free. 4INFO makes revenue via advertising. Every text message that the startup sends out carries an advertisement, usually related to the type of content in the message.

In another instance, a surfer from Santa Cruz, California made his surf blog available via mobile so his friends could text a short code with a keyword and learn about beach conditions.

In the case of messages sent to subscribers of business customers, 4INFO shares half of the advertising revenue with them, giving the businesses a chance to make some money off the promotion. About 400 such services are being created on the system every month, said Mr. Thet.

The startup was founded in July 2004 with funding from Draper Fisher Jurvetson, Gannett, and US Venture Partners. It has yet to turn a profit and is aiming for a breakeven point by 2008, Mr. Thet said. One of 4INFO’s main customers is TV Guide, which is using the service to keep in touch with customers about TV listings.

Julie Ask, an analyst with JupiterResearch, said 4INFO is targeting the right market as the short code phenomenon is taking off.

Yahoo may have fallen behind Google on the desktop, but Yahoo is looking to strike back in the fast-moving mobile search business. The two web companies made simultaneous announcements at the Consumer Electronics Show in Las Vegas Monday about their plans for the mobile search market.

Sunnyvale, California-based Yahoo announced the Yahoo! Go for Mobile 2.0 on Monday, an upgraded mobile search service that will be available to users on more than 70 devices starting now and more than 400 devices by the end of the year. Meanwhile, Mountain View, California-based Google announced a partnership with Samsung that will provide easy access to Google on Samsung’s phones.

The stakes are high. Cell phones are becoming a dominant device in a consumer’s life. The number of mobile devices worldwide outnumbers PCs by more than 12 times, according to Yahoo. And with consumers in the developing world getting their first taste of the Internet on phones, rather than PCs, whoever dominates mobile search will get first crack at some of the world’s fastest growing markets. The market for mobile advertising is expected to reach about $2.5 billion by 2010, said Oppenheimer & Co. analyst Sasa Zorovic.

“A lot more people have mobile phones than computers and the trend is only continuing particularly in fast-growing economies like India, China, Russia, and Brazil,” Mr. Zorovic said. “So reaching people on their desktop isn’t really where the action is, it’s really the mobile phones.”

Little wonder Yahoo plans to become the top provider of mobile search services. With Mobile 2.0, Yahoo is offering a feature called oneSearch that will give consumer instant answers to their questions. The service will allow users to get instant answers to their question when they search on mobile phones as opposed to getting a list of web sites they have to click on to search for answers. The service is available starting today.

Yahoo also announced closer ties to handset makers Motorola, Samsung, and Research in Motion (RIM), who will put Yahoo’s services on their phones. At CES last year, Yahoo had made similar announcements with phone makers Motorola and Nokia to install Yahoo search on their devices.

Yahoo is also working with software companies such as browser-specialist Opera. Oslo, Norway-based Opera said Yahoo would become the exclusive provider of mobile search on its web browsers for the mobile phone.

While Yahoo is moving quickly, Google isn’t standing still either. Its new partnership with Samsung will allow users to search for information, find locations and check email in early 2007. Samsung has already launched one of its models, Ultra Edition 13.8, with Google mobile search and Gmail.

Obstacles

Even as Google and Yahoo fight it out for the top spot in mobile search, however, problems remain. Neither company will likely be able to generate significant revenues until 2010, Oppenheimer’s Mr. Zorvic said. In addition tiny keys and dinky screens pose ease-of-use problems that will be hard to overcome.

As a result, the mobile Internet market in the United States remains confined to a small slice of the overall mobile telephony user base. the According to Jupiter Kagan survey in 2006, 10 percent of cell phone users in the United Sates browse the Internet on their mobile phones, 3 percent browse on a regular basis, 3 percent use text messaging to do text-based search, and 5 percent are using one of the main Internet portals to do mobile search.

Finally, Yahoo and Google are not alone in the race to win the mobile search market. Competitors such as MSN, AOL as well as wireless carriers and handset manufacturers are trying to get a piece of the pie.

Those carriers could prove to be daunting competitors. While Yahoo and Google may strike deals with handset makers, carriers may object to pre-embedded software on phones which compete directly with the services they provide, said Julie Ask, analyst with Jupiter Kagan. “[Mobile carriers] want to control the experience and they don’t want to do things that will conflict their own business models,” Ms. Ask said.

The number of startups founded by immigrants to the United States has shot up sharply over the past 10 years, according to a study released Thursday by DukeUniversity.

The new study, started by a team of researchers at Duke’s Pratt School of Engineering, says the percentage of startups founded by immigrants in Silicon Valley has grown to 50 percent in 2005.That’s a sharp rise from 1999, when a professor at the University of California at Berkeley found that immigrants led 24 percent of all technology businesses started in Silicon Valley between 1980 and 1988.

About one in four technology startups in the U.S. have at least one key founder that was foreign born. On a nationwide basis, about 26 percent of startups were founded by immigrants in 2005, the study says. Foreign-born skilled workers are making large contributions to the technology and engineering industries in the United States. Immigrant-founded companies produced $52 billion in sales and employed 450,000 workers in 2005, the study said. About 80 percent of the immigrant-founded companies were in just two industry fields of software and innovation and manufacturing-related services.

One of the main researchers behind the study, Vivek Wadhwa, said the study was fueled by the current debate in the country surrounding immigration and outsourcing.

“The debate is about illegal workers who jump over the borders,” said Mr. Wadhwa, executive in residence at Duke’s Pratt School of Engineering. “The bigger issue is the skilled immigrants who build value, skilled jobs, and provide [intellectual property] that will fuel growth in the United States in the next decade.”

Currently, the Congress has a cap on the number of temporary work permits for skilled workers and green card issues for immigrants and that needs to change, he said.

“We need to have more [skilled] immigrants,” he said. “We want these people to come and build businesses, to think like Americans and build like Americans; we need high fences but big gates.”

India-born Mr. Wadhwa himself has been a technological entrepreneur founding two companies in the Research Triangle area in North Carolina and immigrated to the United States in 1980.

Indians lead the pack Another interesting finding of the study was that Indians founded more engineering and technology companies in the U.S. in the past decade than immigrants from the U.K., China, Taiwan, and Japan combined, creating 26 percent of all the immigrant-founded companies.

Manish Chandra is one such Indian-born immigrant who is the founder of a Silicon Valley startup called Kaboodle. The 39-year-old entrepreneur came to the United States from India in 1987 and worked with several technology companies in Silicon Valley before founding his Santa Clara, California-based social shopping web site in March 2005.

“We as Indians, because of our culture, are entrepreneurial in nature,” Mr. Chandra said. “The systems and processes in our mother country are not so well-defined so we have to take the steps in carving out our own destiny.”

Some other factors in the success of Indians as entrepreneurs are social and technological ecosystems such as TiE that nurture other business-minded people. TiE is an organization for Indian entrepreneurs that provides resources and networking to its members and has chapters worldwide. The TiE Silicon Valley chapter, however, is one of the biggest in terms of members and activity.

Since its conception, TiE has helped a few hundred startups get off the ground with funding or guidance, Mr. Chandra said. His own startup acquired seed funding and guidance through networking at TiE, he said. The contribution of the Indian Institutes of Technology by providing its bright graduates was another factor in the growth of Indians as entrepreneurs in the United States, he said.

California at the Top

Some other observations from the study said that California was the state with the highest number of immigrant-founded companies (39 percent), followed by New Jersey (38 percent), and Georgia (30 percent).

Immigrants were not far behind in filing patent applications. Foreign nationals residing in the U.S. were inventors or co-inventors in more than 24 percent of international patent applications filed from the U.S. in 2006, according to the World Intellectual Property Organization patent databases. The largest group of immigrant non-citizen inventors were Chinese (Mainland and Taiwan-born), followed by Indians, Canadians, and the British.

The DukeUniversity researchers sourced the information from a list of engineering and technology companies founded in the U.S. in the last decade from Dun & Bradstreet’s database. There were 28,766 companies in that list with more than $1 million in revenues and 20 or more employees, and company branches with 50 or more employees.

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Q: What do you think went wrong?

A: The problem was Novell was so eager to other parts of the deal that they didn’t care enough about the patent part of the deal and that was the only part of the deal that Microsoft wanted. What they want is to be able to threaten other Linux users. In my mind Novell gave it away cheap. If you want to sell out, you should ask for more. [Microsoft will pay Novell $400 million]

Q: Do others at Novell have the same sentiments as you?

A: I really can’t answer that one. I don’t think people at Novell are bad or awful people. They just made a very bad mistake and treated their main suppliers very, very shabbily; [they are thinking] well, we did it because it gives us more money.

Q: Do you think the Microsoft/Novell deal will be successful?

A: The people who are using Novell Linux [some of them] will continue to do so. I think the proof of the pudding will be in the market share. I don’t think it will improve the market share in terms of how much Red Hat and Ubuntu have. [Novell and Microsoft] did that to get more market share and that will not happen, so in that case, it will be failure.

All this has done is put things so much under a cloud… I have a lot of friends there, I really enjoyed the work. I said to them: I’m not leaving Novell, you guys left me. If I would have stayed, I would have broken my principles.

This is going to simmer and die with the GPL version3 coming out in the March timeframe. I would not be surprised if this falls apart. I think a lot of projects will actually adopt the GPL v3 more aggressively simply because of this deal. [Novell and Microsoft] have found a legal hack on the GPL v2, they have found a bug in the code, and so the GPL v3 is a fixed version of the license.

Q: What was the reaction at Novell when you told them that you were leaving?

A: They asked me to reconsider. I had a lot of discussions with executives and we agreed to disagree. My boss wasn’t surprised when I told him and he’s a great guy.

Q: Why did you decide to go to Google?

A: I had a really, really, hard decision to make. [Mr. Allison was considering several offers]. To be honest, Google is doing some very interesting and exciting things and I think Samba can be an important part of it. I’m not speaking on behalf of Google, and I don’t know what product plans they have. Samba will be used in a very interesting and creative way.

Q: What do you think about Google’s efforts to implement open source?

A: Google’s entire back-end infrastructure is Linux-based. It’s making money by squeezing costs out of those systems and the [by tailoring] Linux to work the way Google needs it. I think Samba will be used in the same way.

By Falguni Bhuta

Jeremy Allison is a hero in the open source community these days. After spending two years at Novell, he decided to leave the Waltham, Mass.-based software company for reasons of principle right after the Linux-vendor signed a deal with Microsoft (see Microsoft, Novell in Linux Pact and Open-Source Guru Goes to Google).

The agreement will allow Microsoft and Novell’s customers to use the other firm’s intellectual property without being sued. As a result, Microsoft will pay Novell $400 million. However, Mr. Allison and other open source believers argue the pact violates certain rules of the GPL (GNU General Public License), a popular free software license.

Mr. Allison is best known as the co-creator of the Samba project, which lets Linux and Unix servers talk to Windows servers. Mr. Allison contends that the deal does not give equal treatment to all users of the Samba code.

Before he starts a new job at search engine Google Tuesday, Mr. Allison answered some questions from Red Herring.

Q: Why did you decide to leave Novell so abruptly?

A: The resignation letter I wrote said pretty much why I was resigning. The fact that it

[involves] Microsoft is completely irrelevant. I’m leaving Novell out of respect for the terms of the GPL.[Novell has] argued with me that it strictly doesn’t violate the terms of the GPL (General Public License) and Microsoft’s lawyers have gone over that very carefully. But it obviously is a violation of the intent of the GPL, which is that everybody has the same rights to the software and nobody has privileged access.

Q: How long did you consider it before resigning?

A: I found out about the deal about five days before it happened. I feel like this whole thing is a personal failure. When I first heard I was excited, it was groundbreaking and [I thought] Microsoft was taking open source seriously. The more I looked at the patent provision, the less comfortable I got. I really, really want to like this deal. [I told them] ‘tell me why isn’t a GPL section violation’—meaning you have to pass on the same rights to the software that you received. You cannot say that my customer and I are exempt and anyone that they pass the software to is not exempt. [They] got more and more technical about it but it looked like a patent license without actually using the hideous words, it was just legal sophistry. It was playing with words to go around the intent of the license.

Q: Do you think you could have made a difference?

A: I wanted to like the deal but I should have complained earlier, and that’s my failure. I let it go and when the actual event itself happened, I watched it on streaming webcam from England, I realized how damaging it was. I have an incredible objection to Microsoft saying ‘Buy Novell and leave everything else.’ I thought [Steve Ballmer] insulted the Novell people. He basically said if you buy anything else you will have to look at serious IP issues. He issued a threat at the event.

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Taking a trip into space hasn’t been Mark Shuttleworth’s biggest challenge. Instead the one-time space tourist counts building an open-source company and working to hook users on the Linux as his most testing venture.

Mr. Shuttleworth founded the Ubuntu project in 2004 to distribute afree desktop operating system based on Debian Linux that would compete with Microsoft Windows.

In 2002, Mr. Shuttleworth took a trip into space becoming the first South African in orbit and the second space tourist ever. The entrepreneur previously founded Thawte Consulting and sold it to Verisign for $575 million, has headed a venture capital firm, and has finally settled on pushing open-source software as his next career move. The Ubuntu project is controlled by UK-based Canonical, where Mr. Shuttleworth is the CEO.

Mr. Shuttleworth spoke with Red Herring about recent developments in the world of open source and his plans for Ubuntu.

Q: How are the events in the open source industry in the last few months affecting Ubuntu, if at all?

A: There were two big strategic announcements that were made this year by non-Linux players. Oracle [said] that they will be providing support for [a version] of Red Hat Linux without the trademark and Microsoft and Novell would collaborate in a number of areas, and that announcement had some interesting intellectual property considerations so those both have been significant for us.

On the Oracle front, it hasn’t really changed our position, because we remain the only group that’s focused on providing Linux free of charge but on a commercially sustainable basis. So Oracle competing with Red Hat may be the cause of the commercial distress without really impacting on our strategy.

The Microsoft announcement is potentially more interesting. It is setting us up for a situation where it will be almost impossible potentially for Linux to remain a free platform, if Microsoft is able to assert a considerable level of intellectual property ownership of a Linux account. That will have a very significant impact on developer participation and innovation in Linux, we feel that it is a very significant challenge.

Q: So are you saying that if Microsoft finds a way it’s going to be hard for Linux stay as a free piece of software?

A: Microsoft is going to claim that deploying Linux anywhere, unless you pay Microsoft a patent fee, is a violation of their patent and they haven’t proved that yet. But they certainly seem to be positioning themselves in such a way that they could do so.

They are really trying to get something to legitimize their claim, so the deal with Novell had a lot of money attached to it. And as a part of that deal, Novell is lifted up in its stand to legitimize much of its claim. So it’s a very interesting strategic move and there are a lot of people on the other side saying that there are absolutely no intellectual property issues with Linux that this is kind of a game.

Q: What are your thoughts, do you think that they have enough Intellectual Property to threaten Linux users to sue them if they don’t use Microsoft?

A: It’s very possible that Microsoft does have a patent amongst hundreds of thousands of patents out there, which covers something that Linux does, but until they come out and say which patent it is, it’s impossible to know. No one is ready to overrule the patents out there [and] no one could possibly make a decision about that other than Microsoft.

The other thing of course is that as soon as it’s clear, if there is some sort of infringement of Microsoft intellectual property, usually it’s very easy to work around that, essentially by re-writing the PC software in question. So a lot of people are very confident that even if there is something that is an infringement of a patent it could very quickly be resolved. So Microsoft didn’t actually want to be on the hook for saying this is a specific patent that is infringed, because then the Linux developers would work around it.

On the other hand, what they do want to do is they want customers to feel slightly nervous of Linux. I think Microsoft is certainly sort of becoming a smarter operator into how they interact with Linux and with free software. They spent a lot of time saying it doesn’t exist, it is a toy, it is a cancer, and it is dangerous, and calling it anti-capitalist, and now they seem to be engaging in a much more realistic competitive pragmatic fashion to that problem.

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A:  We would never pay a patent license fee to Microsoft, because we don’t believe that there are any patent issues, and our economic model is essentially to make the software freely available. And if you are making the software freely available, you can’t obviously pay a patent license to somebody else for a copy of the particular version. So while Novell may feel that they can do a deal like that, Ubuntu would absolutely never do it.

I think obviously we will be leading the charge in terms of showing the weak points in Microsoft’s assertion.[I]t also means that we will be able to represent at least a threat to Microsoft because not only we will be competing for an end product but we will also be competing with their way of doing business [because] we have a different economic model, fundamentally different from theirs. There is no per-seat license fee.If they call they can negotiate with us in the same terms that they would negotiate with someone like Novell.

Q:You said it has been a big year for Ubuntu. Why do you say that, what are some of the milestones that you have reached?

A:Couple of milestones, this is the year that we put out our first release in enterprise.We still have a reputation over the last of two years of focusing very heavily on the desktop so that made us a very popular version of Linux for people who are Linux power users. We have grown to the point where those power users were starting to say ‘I would really like to start using Ubuntu on my servers at the company where I work. But in order to do that, you need to provide support for a much longer period of time and so this is the year that we put out our first enterprise quality release.

Also, that was the year where we formed a couple of very significant partnerships and alliances. Our relationship with Sun was very significant; for Sun Microsystems, it was a pragmatic way to embrace Linux.They had some very interesting new hardware technology in the form of a massively multi-core chip. The Sun guys are coming up with processors that have six to nine cores. So they wanted to be able to take advantage of that hardware in the Linux base, and we were able to work with them on that.

Q:What about growth in adoption rates, any kind of numbers that you can give me?

A:We know now that there are probably at least 8 million [Ubuntu] users.

Q:Do you think 2007 is the year of Linux on the desktop?

A:It’s been the next year for the last five or six. I certainly think that we are seeing an acceleration in interest in the open source community solving desktop type problems.If you’re back five years or six years, the people writing the core software in Linux were all people who were responsible for service [Now] we are seeing a real shift in that the opens source community themselves suddenly want to solve the desktop problems.They want to show that innovation in free software on the desktop really can demonstrate exciting ideas that people expect from their Windows or their Mac.

Microsoft and others, a lot of them say that free software and open source is all about copying what was being done before in proprietary software, and for a lot of time that was true.The world we are seeing is that, as soon as the free software reaches a point where it’s as good as the proprietary software, suddenly all the innovation shifts to the free software. Original innovation, and we saw that for [browsers] where once the Firefox had reached the level of parity with Internet Explorer, suddenly it became this hotbed of innovation, and now it’s Microsoft that’s scrambling to catch up with the free software browser.

Now, what may happen in 2007 is that we suddenly feel desktops being very hot ground for innovation, and new ideas, desktop style ideas, coming through in Linux suddenly made the proprietary software guys feel like they have to catch up. Which is different of course [from] saying that 2007 will be a year when all suddenly really want to switch to Linux, but it could well be the year when suddenly Linux starts to pull ahead in terms of innovation with the pace of developments in change.

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Open source came out on strong in 2006.

Open-source web browser Firefox gained market share against Microsoft’s Internet Explorer with more than 200 million downloads. OpenOffice.org, the open-source productivity suite, was used on desktops by more than 200 million people.

Open-source advocates are promising more to come in 2008. Here are some of the predictions open-source experts are making for the coming year.

Open source gains ground on the desktop

Consumers will get used to using more open-source applications on the desktop, says Jeremy Allison, a high-profile programmer at Novell who recently left for Google (see Open-Source Guru goes to Google). They are already using Firefox and OpenOffice and will start deploying the Linux operating system on their desktops in 2007, he said. While it is not certain if 2007 will be the year of Linux on the desktop, Ubuntu founder Mark Shuttleworth said 2007 will see a large amount of innovation from developers for desktop Linux with new styles and features (see Linux: Ubuntu Founder on Microsoft “Challenge”).

More momentum in developing countries

Open-source software’s transparent nature and low-cost will make it more popular among developing countries such as China and India (see India State: Linux In, MS Out). Marten Mickos, CEO of open-source database company MySQL, says the fast-growing BRIC countries (Brazil, Russia, India, and China) will be breeding grounds in 2007 for interesting open source startups because of the large market and talent. “China and India are so large together, like they have become the physical goods factories of the world, the same will happen with open source,” Mr. Allison says

More Linux-friendly hardware

Linux is already very popular in server rooms. To build on that success, hardware makers such as Dell and HP and chip makers such as AMD and Intel will build more servers and processors that will run Linux more easily, says Bruce Perens, vice president at open-source startup SourceLabs. Last August, for example, Intel released open source software that will give Linux full-fledged support for 3D graphics. Until then, Linux users had to use proprietary driver software to use graphics acceleration chips and hardware for improved graphics performance.

Vista flops in wake of open source competition

Open source advocates would like to believe that Vista, the new version of Microsoft Windows operating system, will fail to appeal to businesses and consumers because of its high cost, security issues, and closed nature (see Linux Faithful: Vista No Threat and Vista is Bad for You, FSF Says). “Vista won’t set the world on fire,” says open-source supporter Eric Raymond. “It will limp through 2007 looking lamer and lamer as it becomes evident that it’s not more than a glorified service pack, and one that completely fails to solve Microsoft’s security and reliability problems.”

More fun with intellectual property issues

The open-source industry will be rife with intellectual property issues in 2007, Mr. Perens of SourceLabs says. It all started with the SCO Group filing a lawsuit against IBM in 2003 claiming that Big Blue’s contributions to the Linux operating system violated UNIX patents owned by SCO. That lawsuit will continue into 2007. But Mr. Raymond says SCO won’t win anything against IBM. “In fact, I suspect IBM will sue to recover their legal costs—and win,” he says.

Q: 2007 also saw the launch of Microsoft Vista: how is that going to affect Linux on the desktop especially. Do you think that Vista will kill Linux on the desktop, or do you think it will actually make more people adopt Linux?

Q:Well, that’s going to get into a very complicated set of factors. On the one hand, Vista is a very polished product, [it has good] features there and [Microsoft] needs to be credited for that work.On the other hand, it is expensive, more expensive than previous versions of Windows. The way they have priced it and the number of different versions of it, you will figure out what most people are going to end up paying, it’s gone up.

They are going to try to enforce their licenses much more aggressively in parts of the world where that pricing is an issue, where people do have until today continued to use pirated versions of Windows.Suddenly [they will] have to consider other options, and we do see that in emerging markets in particular, Linux is taking off because people want a stable platform that is cheaper. So in that sense, yes, Linux might well benefit from the release of Vista from a pricing and licensing control point of view.

In other senses, Vista is going to drive a whole round of applications development, a whole round of other things, which will become incompatible with Linux. In Vista, Microsoft has taken steps to break compatibility with pieces of the Windows’ infrastructure, which Linux has already reverse engineered.So if you look for example at the pop-sharing capability in the previous versions of Windows, Linux is very compatible with that. So you can easily deploy Linux in the same environment as Windows, and Microsoft has taken some very specific steps in Vista to make that hard for Linux to do, so one thing, it is going to be something interesting and competitive. I was somewhat surprised at the low-key nature of the Vista release, I don’t know if you are seeing a huge amount of publicity of the same, virtually nothing yet.

Q:What are your feelings towards Microsoft?

A:It is difficult to have a simple opinion about an organization of about 75,000 people, they are always going to be individuals there with very bad ideas and other individuals with very good ideas.

I think that they should be credited with competing with software developers, and if we go back to the days before Microsoft, software was enormously expensive because everybody customized their product. [They] turned it into a real commodity for computing and for software development, and at the same time they are a convicted monopoly.

, I think there is an interesting thing that Microsoft is going to learn and that is that maybe in the eighties and nineties most efficient way to produce software was to hire the smartest guys in the campuses far away.but maybe in the year 2000 and beyond, the most efficient way to produce software is allowing people to gravitate to the parts of a software environment that they are most interested in and then to choose to collaborate in real time from wherever they want to be in the world

Which is why I am so interested in 2007, potentially, as the year in which Linux innovation on the desktop starts to up-shine the innovation of Apple and Microsoft. You’ve got to see that getting brilliant people scratching their niches from anywhere in the world collaborating on the Internet is not just a great way to make cheap software, it is a great way to way to make a phenomenal, surprisingly good, and unexpected software, breakthrough software.If you look at the great companies that have been produced over the last ten years in the technology sector, it is hard not to see that the vast majority of them have found deep relationship with open source, such as Google, Yahoo, Ebay.

[These companies] and others are fundamentally driven by open source and they were built by people who were empowered to do what they could do with open source.

Q:What is the way for Ubuntu to expand the use of Linux on the desktop? Do you think working with proprietary companies to port their codecs to Linux for multimedia use such as video and audio is necessary?

A:Sure, anything like that helps the extent that software people are familiar on Windows or on the Mac is also available on Linux that we have and that can cut both ways. One thing is to go to the proprietary software companies and get them to port to Linux, but the other way to do it is to take open source software and make that available on Windows and on the Mac.

Having said that, this is by far the most complicated thing I have ever been part of. I often sit here and wonder, will the world switch even if we can produce a platform that is more exciting and more robust and more distinctively virus-free, that is likely to get spyware and completely made every single measure better. Will the world switch? I don’t know.

Q: Is it more complicated than, for example, going into space?

A: No, I have very specific responsibilities in the crew once I was certified and trained for those responsibilities. In this case and in many instances what we tried to do has never been done before. We are trying to change the way people think about the economics of software fundamentally, not just substituting one product, a $99.99 product with another product that is $49.99, to change the way people think about the economics of software and change the habit that the people have with computers. So today I am privileged to be a part of it.

Q: What is your next big challenge other than open source and Linux?

A:I don’t have a list. I am not going to be multitasking, I would like to go deep into one problem and [get a] conclusion. I love this project, so I hang out with many interesting people and I think we are changing the world, so I don’t daydream a lot about other things that I am not doing at that time.When the Linux project is done, whichever way it works out, what I’ll do is take a look at the state of the world and see what problems are interesting at that time. Everything in life is contextual partly in place and partly in time, what’s interesting today is not going to be interesting when I have the time to see it.

For many shoppers, the 2006 holiday shopping season has just ended. Retailers, however, are only halfway done. More than one in three consumers will return at least some portion of their gifts this holiday season, according to a survey conducted for the National Retail Foundation.

As a result now is the time when retailers, online and off, will see if their systems can run in reverse, accounting for a massive backwash of unwanted gifts. The result has been an explosion in demand for a once obscure category of technology known as business process management (BPM) software. Market research Gartner estimates the worldwide market for BPM software is $2.5 billion in 2006, up 108 percent from $1.2 billion last year.

The stakes will only grow higher as sales continue to shift towards massive chains of big box stores such as Best Buy. Those businesses are selling increasingly complex gifts, too, such as gaming consoles filed with complex electronic parts. A recall or widespread dissatisfaction with a hot product could easily overwhelm an unprepared retailer, sinking their entire quarter.

“You really don’t get bitten until days and weeks after the season,” said Patrick Morrissey, senior vice president of marketing at BPM software vendor Savvion. Retailers, he said, just aren’t ready to handle the returns this season.

The venture-backed company is not the only BPM vendor vying for a piece of the retail market. Gartner analyst Janelle Hill said there are several startups and established players benefiting from the BPM boom. Smaller companies like Lombardi Software, Pegasystems, Metastorm, and Global 360 are competing for customers with well-established public companies like IBM, Tibco, and BEA Systems.

In the case of the retail industry, BPM software sits over and above the older software retailers use to track sales and helps them automate the movement of information between workers. For example, if a consumer returns a product twice, BPM software can help the store cashier track the information for the entire transaction from beginning to end in real time so he can help soothe what may well be a very angry customer.

BPM software can also help integrate warehousing and logistics software with sales and order management systems. In the case of Netgear, Santa Clara, California-based Savvion is centralizing the return process on one system so Netgear can track a return from say, Best Buy, and have questions answered such as which store a return came from and the reason for the return, Mr. Morrissey said.

And, apparently, retailers have a lot of questions. In the wake of the holiday shopping season, Savvion is already starting to see more inquiries about their software. Ten percent of the venture-backed company’s customers are already retailers, Mr. Morrissey said. If Savvion and other BPM software can answer even those questions, you can bet that despite it will be one purchase that won’t be taken back.

Novell’s Linux pact with Microsoft has cost it open-source guru Jeremy Allison, who left in protest to take a position at Google.

Mr. Allison, one of the creators behind the open-source project Samba, left Novell after two years to join the search king because of objections over the agreement in November (see Microsoft, Novell in Linux Pact). The deal has not sat well with the open-source community either.

The Microsoft-Novell deal was “a mistake” that “will be damaging to Novell’s success” in the future, he said in his resignation letter, which was leaked to open-source legal affairs blog Groklaw.net. At Google, Mr. Allison will continue on Samba open-source work  that allows Linux and Unix servers to talk with Microsoft Windows servers.

“Whilst the Microsoft patent agreement is in place there is nothing we can do to fix community relations. And I really mean nothing,” Mr. Allison wrote in the letter.

The Microsoft-Novell partnership will allow Novell SuSe Linux customers to use the software without being sued by Microsoft for patent infringement. The agreement will also make it easier for the two companies’ operating systems, SuSe Linux and Microsoft Windows, to work together more easily. Under the deal, Microsoft will pay Novell more than $300 million.

Mr. Allison said the deal violates the general intent of the open-source General Public License—the most popular license for free and open-source software—giving equal treatment to all users of the code.

“Even if it does not violate the letter of the license, it violates the intent of the GPL license the Samba code is released under, which is to treat all recipients of the code equally,” he wrote in the letter. “The Microsoft patent agreement has put us outside the community, and there is no positive aspect to that fact, and no way to make it so. Until the patent provision is revoked, we are pariahs.”

The deal has upset open-source community leaders such as Bruce Perens, vice president at SourceLabs. He has posted an open letter to Novell CEO Ron Hovsepian critical of the Microsoft agreement, saying it betrays the authors of the software Novell remarkets and their users for commercial benefit.

Until now, more than 3,000 people have signed the letter on the web site techp.org.

Mr. Allison, who will be joining Google in the new year, declined to comment on his leaving Novell but said that in his new job he will be pushing Google toward using more free software. Mountain View, California-based Google has been using open-source and free software increasingly to run its massive infrastructure and has initiated several open-source projects.

“I’m hoping to help Google find more interesting projects and evangelize free software,” Mr. Allison said in a telephone interview. “It’s irritating that I have to leave [Novell], I thought we were winning but you know …”

These events could encourage other executives at Novell to oppose the Microsoft agreement, said Pamela Jones, author of the open-source legal affairs web sites Groklaw and an active member of the community.

“I know there is a lot of internal discussion and turmoil. Whether others will have the courage to do what Jeremy did is unknown to me,” Ms. Jones wrote in an email.

Novell CTO Nat Friedman has also been an open critic of the agreement with Microsoft.

Ms. Jones of Groklaw said Novell is willing to violate the clear intent of the GPL so they can profit from the research and development that the community provides free of charge.

“But they forgot that there is a price for GPL code. The price isn’t money. You must pay for the code by respect for the terms of the license that comes with the code, the GPL,” Ms. Jones said.

Experts say this agreement is going to cause more legal harm to Novell than they expected with Novell losing its stand in the community.

Mobile software maker Dexterra said this week it will get as much as $25 million in additional funding and has hired former Siebel Systems CFO Ken Goldman to be the group’s new finance chief.

The Bothell, Washington-based company, which is expected to formally announce its new funding and finance chief in January, told Red Herring its new round could top $40 million. Mr. Goldman ran Siebel’s finances from 2000 until the company was sold to database software giant Oracle in 2005 (see Oracle Buys Siebel for $5.85 billion).

Four-year-old Dexterra, which had already raised $52 million, makes software that enables companies to transfer customer relationship, inventory and billing programs and data to their employees’ mobile devices. Dexterra earlier this year received a fourth round of $18 million.

Motorola, Intel Capital, Canaan Partners, and Sigma Partners, already investors in Dexterra, participated in the company’s latest round, in addition to other unnamed parties. Customers include Motorola, IKON, Dell, Vodafone, Telstra, and Emirates.

Dexterra’s revenue has grown at an annual rate of 250 percent over the last for four years, making it one of the fastest growing in the mobile business software sector, said Gartner analyst Michael King.

Mr. King said the mobile infrastructure market could become the hottest software sector in coming years, reaching $1 billion worldwide by 2010 (see Serving the Mobile Workforce). IDC projects the number of mobile workers will grow by about 30 percent from 650 million worldwide in 2004 to more than 850 million in 2009—about one-quarter of the global work force.

CEO Rob Loughan, who sold Octane Software to E.piphany for $3.2 billion, hopes to build Dexterra into one of the top four mobile business software makers and take it public by early 2008.

But it will have to contend with numerous independent rivals as well as giants such as Nokia, IBM, Sybase, SAP, all of which have deep pockets and far more clout. Nokia bought mobile infrastructure provider Intellisync for $430 million in November 2005, while IBM is tuning its WebSphere integration software for mobility and SAP is doing the same with NetWeaver.

Gartner’s Mr. King also noted that groups such as Oracle or Microsoft, both of which have fallen behind in the mobile software segment, could be eyeing companies like Dexterra as takeover targets.