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For the past 2-3 years I have been a pain to IBM, correctly pointing-out a number of policies and actions by the computer giant that have shown a pattern of disrespect to employees and customers alike. I can’t argue with IBM’s financial performance but I can argue that this performance has come at a cost that is too high for the people of IBM and even for IBM customers, which is why my 2010 prediction for Big Blue is Customers in Revolt.

Top management at IBM has nearly always come from the sales side of the business and it is that sales side that has been outdoing itself quarter after quarter helping IBM earnings to grow even in a recession. It doesn’t hurt, of course, that lots of IBM revenue comes from its international operations and has benefited from a weak dollar. But a fair amount of this success — at least on the services side — comes from very aggressively bidding for work.

But what happens if your bid is too low to actually make money for the company? At IBM, ironically, that’s not a problem for the sales people. It is a problem for the people charged with actually performing the services.

According to IBM customers I have spoken to, the company seems unable to create a solution and put a price to it that anyone would accept so the sales organization appears to sell almost anything at whatever price they can get. They collect their commission and move on to the next deal, leaving behind a mess for the service organization to deal with.

Dealing in this case means cutting costs to the point where the contract is profitable even if not truly fulfilled. Because there is such a big disconnect between the price of the contract and the cost needed to deliver it, crazy things are done, starting with offshoring on a massive scale.

While offshoring is not intrinsically bad, it leaves almost nobody working in the data centers, which are necessarily back in the U.S. When the server folks are thousands of miles from the equipment, how does the equipment get installed? Who does the hands-on work? If a machine breaks, how long does it take to get someone there to fix it?  IBM customers are learning the rueful answers to these questions.

IBM is also building several new “global delivery centers.” One of these is in Dubuque, Iowa. Why Dubuque? It is my understanding that IBM hopes to reduce its labor costs and one way to do this is by choosing remote locations like Dubuque with few locals who could qualify to be IBM techs or engineers. Experienced IBMers being downsized in places like New York won’t move to Dubuque, so they can be replaced with cheaper (and younger) labor. Dubuque’s lack of native talent means IBM can staff the centers with mostly foreign H1-B personnel, again so they can pay them less and have no long-term benefits exposure.

I find it difficult to see how customers benefit from these global delivery centers.

But wait, there’s more! The offshoring, the spin off of network work to AT&T, the “global centers,” the new internal processes are not much compared to the latest IBM ploy I’ve heard about — the use of used equipment. To save money on its outsourcing contracts, I have been told that IBM is refurbishing old equipment and substituting it for new. The customer pays a service/lease rate for new, but in the IBM data center what’s actually in the rack is used hardware. Since IBM holds the title and lease and customers never visit the data centers anyway, the customers don’t know.

Only I guess now they do know.

If I was an IBM customer leasing hardware that was represented as new I’d darned well want to verify that’s the case. Send somebody to the data center and check serial numbers. What can it hurt? You might save some money on the contract or score some new equipment or both. It’s worth a shot.

Corporate America will tolerate a lot of this kind of behavior, but there are limits, especially when deadlines are consistently missed and deliverables fail to perform as promised. That’s why I predict troubles for IBM in 2010 with customer satisfaction.

Take a look at that contract, Mr. or Ms. CFO (not the CIO — he or she sometimes can’t be trusted in these things), verify the number of machines and bodies that are supposed to be involved. If IBM is using only half the promised labor or half the promised hardware (or both) then raise some Hell.

Remember, it’s your money.

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More 2010 predictions, this time for Google, which is reeling right now from cyber attacks in China and customer attacks in the U. S. where the Nexus One is getting an underwhelming response from early adopters.

Here’s word from a friend of mine — a smart phone whore — who had a Nexus One for a month and didn’t tell me until this morning. Still, his reactions are informed and represent a month of experience. “I’m not too impressed with it as a phone, ” says my friend. “It’s basically a wash. Google is screw’n it big time with the horrible plans they are dishing it out on t-Mobile and the price is ridiculous. To beat all, it’s radio is horrible, so bad that I literally gave it back and returned to a clunky G1. There is no decent smart phone out right now except the Moto Cliq unless you are lucky enough to have good AT&T coverage with an iPhone, which I don’t.”

Early Nexus One users hate the phone, hate the plans, hate the network, hate the price, but what they hate most of all is Google’s lack of customer service. Shouldn’t Google have seen this coming? Of course, but the company operates in a bubble that market realities often can’t penetrate. Eventually Google will be good at this stuff, but how long will that take? Too long?

What amazes me is the bad radio given that this is an HTC product and HTC is a very good mobile phone manufacturer. Taking a guess about what’s happening there I predict that HTC warned Google about the radio problem but there were so many IQ points jetting around the conference room at Google that nobody bothered to actually listen they were so much in love with each other. Sometimes just being smarter is not enough. In fact just being smarter is never enough, even at chess – a lesson Google will have to learn the hard way, I suppose.

Now to China where hackers or spies or who-knows-who have been attacking Google and the search giant is threatening to take its ball and go home, leaving completely the Chinese market. What sense does this make? It makes no sense to me. Google is going to have zero impact on China — zero — by abandoning that market, which Microsoft and Yahoo will gladly fill. so threatening to walk away is simply stupid.

Of course Google couches all this in terms of rejecting Chinese government censorship, which is a good thing, but we’re still left with either posturing that isn’t real or stupid-ass behavior that is real but shows this isn’t likely to be the Google Decade after all.

Here’s a better approach for Google to take. Stand in front of a bank of cameras and microphones my very impressive friend Tiffany Montague (Google’s link with NASA, keeper of the Google G-V parking spaces at Moffett Field, and internal space expert) to have her explain how Google is going to launch a satellite Internet service similar to one I described in a recent column, specifically to bring freedom of information (and advertising) to totalitarian regimes everywhere.

The technology exists, Google could finance it, and China couldn’t stop it.

This assumes, of course, that Google has some guts, which I doubt.

Otherwise, 2010 looks like a good year for Google mainly because Internet advertising will recover somewhat and Google should make some progress in phones, browsers, operating systems, apps, and the cloud in general. In those areas they are still ahead of the curve and ahead of the curve is a great place to be.

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Back to my 2010 predictions, this time mainly about Apple, the PC company that fared best in 2009 and is likely to fare best in 2010, too. Though I also wonder at what point we take Apple’s hint and stop thinking of them so much as a computer company?

Over the past years Apple has brought out successively better and ever more solid versions of OS X. They’ve completed a transition from PowerPC to Intel processors that could have killed a lesser company. They’ve built a dominant line of professional apps and a competitive line of productivity apps, pricing them reasonably compared to Microsoft. They re-invented the media player and the smart phone. They revolutionized the record business. And having once vilified the very idea of Apple stores, they changed their minds and showed the world how stores ought to be run. The company is absolutely at the top of its game despite a CEO who was absent for months near death. How do you top that?

In 2010 you do so by entering new markets and turning on old friends, sometimes simultaneously. That’s likely to be the case with the coming iSlate tablet, or whatever it will be called, which definitely won’t be running exclusively on AT&T. You can see that from AT&T’s sudden embrace of Android, which never would have happened if Steve Jobs hadn’t first made a preemptive move of his own for the iSlate, probably to Verizon.  The Apple/AT&T marriage is now one of convenience only.

The iSlate (or whatever) will be Steve’s idea of a new category of computing, or at least that’s the way he’ll spin it. Not an ebook reader, not a tablet computer, not a pen computer, not a handheld, not a smart phone, the iSlate will be something else and I’d say that something will depend on: a) the content deals Apple can announce, and; b) whatever Steve decides to claim for the product, whether actually true or not.

So expect lots of print deals for newspapers, magazines, and books. Expect, too, audio and video deals for the iSlate. Expect some major UI gimmick too, because that’s always at the heart of one of these advances. “It isn’t an MP3 player! It’s an AAC player with this tuning wheel thingee!! ” See what I mean?

Apple will under-promise and over-deliver for the iSlate. And if for some reason they don’t, then they’ll just declare it to be a hobby, like the AppleTV.

Apple as a content company will move into subscription music based on its recent Lala Media acquisition, but don’t think this embracing of streaming means Apple will be abandoning downloads, no sirree. Remember that while Hulu, for example, has been making a lot of news delivering streamed TV and movies, Apple has been making a lot of profit downloading both for sale and rental.

The downloading-streaming-downloading pendulum is about to turn direction, I think, with the advent of true 1080p video on the net. Years ago no network was fast enough for high fidelity streaming audio, much less streaming video, so everything was downloaded. Then networks got faster and people streamed. Then video came along (and Bit Torrent) and people downloaded again. That’s when iTunes rose to power for those of us who actually pay our bills. Then YouTube made streaming again popular. But now 1080p files are just so darned big that downloading is, again, where it’s at.

So what does that say about Apple’s vaunted rejection of Blu-Ray disks? I’ve maintained in the past that Apple refused to offer Blu-Ray as part of its agenda to take control of downloadable HD video standards. and I think I was right. But here’s news: Apple’s new line of iMacs were supposed to ship with Blu-Ray drives, but didn’t. What gives with that? Maybe it was a technical glitch, maybe a last minute pricing problem, maybe Steve didn’t get enough blood or flesh from some corporate partner (Sony). But I think it means that the fight over HD was won by Apple to the extent that they feel they can start listening again to their professional customers from the video industry who have been screaming for Blu-Ray.

So look for Blu-Ray drives to start appearing, shortly, in Apple computers along with Blu-Ray support in all of Apple’s professional applications. Look also for Apple to offer some higher level of HD download, probably with expanded device portability courtesy of Disney’s new KeyChest technology, which I am sure came from Apple.

And then there’s the iPhone. The iSlate will be a bigger iPhone, but in 2010 we’ll surely see at least two next-gen iPhones, too — a smaller form factor in the Nano tradition and a 1 GHz processor on something like the current model. Apple will remain atop the smart phone market, where Android may eventually threaten, but not yet.  As we see from the first Nexus One reviews, Google has a lot to learn.

More about Google and the Nexus One tomorrow, as well as an interesting theory about Apple and Nokia.

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This is my second predictions column for 2010 with more to come. This column is about homeland security, which is something our government isn’t very good at and I predict won’t get any better at this year because of a systemic inability to do correctly even the most basic things to protect our society, our privacy, and our way of life.

President Obama this week proposed some changes in how homeland security is managed following that Christmas Eve attempt to explode an airliner as it was landing in Detroit. These changes are minimal but I doubt they’ll even be implemented because this is a system that inevitably reverts to little fiefdoms run by idiots.

Can you tell I’m pissed-off?

I saw this coming. Here’s something I wrote in this space on September 13th, 2001, two days after the World Trade Center and Pentagon attacks:

“…. The most important reaction to terrorism that a free society can show is to not give in to it. But not giving in takes many forms, and I fear that some of the official reactions to the events of this week will take the form of effectively giving in if they also mean that we give up our freedom. “To a man with a hammer, everything looks like a nail,” wrote Mark Twain. In the current, context this means that the organizations charged with reacting to this catastrophe will do so by doing what they have always done, only more of it. Congress, which controls the budget and passes laws, will want to pass laws and to allocate more money, lots of money, forgetting completely about any campaign promises. The military, which is the nation’s enforcer, will want to use force, if only they can find a foe. The intelligence community, which gathers information, will want to be even more energetic in that gathering, no matter what the cost to the privacy of the millions of us who aren’t thinking of terrorist acts. And agencies like the Federal Aviation Administration, which regulate, will want to create more stringent regulations. Now here is an important point to be remembered: All these parties will want to do these things whether they are warranted or useful or not…. ”

That was more than eight years ago, yet not much has changed since then except the names of the agencies and the length of the queues. The current crisis is one that should have been foreseen, officials from the President on down admit, and the fact that it wasn’t worse comes down to terrorist incompetence, citizen bravery, and nothing else. The government had all along the information to stop this guy but they didn’t do it.

Instead of just complaining, let’s take a look at the issue from another angle. Contrast these three situations: 1) you are sitting in a hotel bar in Mongolia and want to use your Visa card to buy a round of drinks for your friends, and; 2) your Mom is at the check-out counter at a Sears store when the clerk asks her if she wants to apply for a Sears credit card and save 10 percent on her order, and 3) a possible terrorist with a dubious travel record and suspected al-Qaeda connections is standing in line at a European airport waiting to board a flight to the U.S. that leaves in an hour. What happens in each of these cases?

In Mongolia the bartender takes your card and authorizes it in seconds across a 12,000-mile round-trip. At the Sears store the transaction is not only authorized in less than a minute, but a new account is created and both your Mom’s identity and her creditworthiness are established and calculated on the spot, along with her discount. Meanwhile the airline, airport, local security, European police, Interpol, Transportation Security Administration, Department of Homeland Security, Customs Service, FBI, CIA, and NSA can’t between them figure out in an hour whether this guy standing in line in Holland should be allowed on the plane or not.

How is it that we can run our credit card operations so well and our national security so poorly?

I’ll answer that in a moment but first another anecdote from my files.

I wrote a column awhile back in which I explained that while the U. S. Government has little to no idea how many illegal aliens there are in America, the big credit reporting agencies know exactly how many:

“… The credit reporting agencies have a handle on total numbers and have a lot of information on specific individuals. So members of the gray economy are, for the most part, not invisible at all, just difficult to identify as individuals. But thanks to data mining down at the credit bureau, it is getting harder and harder to hide. A lot of this sleuthing comes down to a surprising artifact, the Social Security number. One would think that surprising for an economic class of people best known for not having Social Security numbers. Ah, but they do have Social Security numbers, just not their own. You need a Social Security number to sign up for utility services, for example. No Social Security number, no electricity, gas, phone, or satellite TV. So what’s a poor alien to do? They go down to some local hangout and buy a Social Security number to give to the utility. This has to be a legitimate number or it won’t fly with utility computer systems, but does it have to be the customer’s own number? Good question. Here’s where we have an interesting business ethics issue. Say you are the electric company and someone tries to set up service using a Social Security number that already exists in your database and is clearly borrowed, bought, or stolen. What do you do? Most utilities go ahead and set up the account, because to them what counts is whether the new customer will actually pay that bill and it turns out that people operating on such borrowed numbers are more reliable bill payers than the rest of us. They can’t afford to get in trouble with the electric company because that would draw attention to them. So there is a tacit agreement between the parties that a Social Security number must be provided because that’s the rule, but if it happens to be someone else’s Social Security number, well that’s okay. The funny thing about this is the impact it has to have on the person who was originally assigned that Social Security number by the U. S. government. Rather than hurt their credit it actually helps because there is so much evidence that they are good at paying their bills! Of course the credit bureau notices something and that’s why they are so able to estimate numbers in the first place. They know what Social Security numbers are being overused and can probably even trace the genealogy of that number as it makes its way across the country. Here’s an amazing fact: some individual Social Security numbers are in use right now by up to 3,000 people and it isn’t at all unusual for a borrowed number to be used by 200-1,000 people at the same time… ”

Okay, that’s interesting and weird, but let me tell you about the phone call I got later about it from the U. S. Department of Homeland Security.

“The credit bureaus can really do that? ” Mr. Homeland Security asked. “Do they really have that kind of data? Who can tell us more about this? ”

I am not making this up.

That was in 2007 — six years after 9/11 and the people who had already spent billions of dollars making us safer by gathering information had no idea at all what kind of information was already being gathered.

I don’t know what happened after that but I can make a good guess. My guess is that the folks at Homeland Security if they actually bothered to follow-up on the contacts I gave them probably decided they needed to spend more billions and build a similar information system for their own use — yet another fiefdom — and that system will be operational sometime this decade.

I have a better idea. Why not outsource the whole screening process to the credit agencies? Don’t build a new system, just throw a few extra fields in the existing records — fields like “terrorist associations” or “U. S. citizen” — fields that can be populated only by that long list of agencies I mentioned up the page. If there are security or privacy concerns then encrypt these new fields and limit access.

Of course credit agencies make mistakes, too. But it is a generally functional system, which is more than I can say for the way we’ve been running Homeland Security so far.

Sadly I can predict, too, that what I suggest here will never happen.

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This should be my 2010 predictions column and it is, sort of, but if you’ve noticed I’m writing shorter columns these days but posting more frequently. There’s no way I can do a comprehensive predictions column in less than 3000 words. So what I propose to do instead is to write several prediction columns today, tomorrow, and maybe even the next day, covering in some depth what I think is happening and where we are going in the coming year as a technological culture. This first 2010 prediction column deals with Microsoft.

In the simplest terms what we’ll see from Microsoft in 2010 is more of the same. The company will continue to push its strengths, which are Office, with a new release, Windows 7, with an upcoming service pack and tablet support, the Bing “decision engine,” xBox, which has become a clear winner, Sync, the automobile technology that should expand beyond Ford, and a number of other products and technologies that are less visible but just as important to Microsoft. All these developments follow a theme that I think has been generally missed in the press and that is the continued maturing of Microsoft into its ideal — IBM.

IBM doesn’t even make PCs, remember? They sold that business to Lenovo for not very much money because it hadn’t made any profit for Big Blue in many  years. Yet IBM continues to thrive by offering a broad menu of products and services for its core customers. Microsoft does, too.

At this point I wouldn’t say Microsoft has many serious business vulnerabilities. Their efforts to diversify their business seem to be going in the right direction.

For every corporate desktop, Microsoft gets:

$50 for Windows, give or take

$200 per PC for Office per year

$2200 per Windows server

$30 per user Client Access License (CAL) to access the Windows server

$3700 per Exchange server

$65 per user CAL to access their Exchange server.

For any company with lots of employees, these numbers — which don’t even include any client or workstation apps other than Office –  quickly add up to a lot of money.

For a company with 10,000 employees, setting them up to use Microsoft technology will cost you $3,360,000. Over half of that will be for Office and you’ll pay that Office tax every year.

These are enterprise sales — a market that Apple, for the most part, doesn’t even address. So in the popular scheme of Apple nuking Microsoft, no Apple nukes yet exist in this space so they can hardly be a threat… yet.

Yes, there is strong motivation for corporations to cut costs and if good alternatives to Microsoft products existed, they’d jump all over them. The problem is there are few good alternatives and no comprehensive ones. The quality of Microsoft software is now pretty good. It works for the most part. Microsoft is supporting its products pretty well, too. For corporations to switch there needs to be a cost savings, a quality alternative, and low risk.

Open Office is getting progressively better, but it is not there yet. Red Hat and its Linux competitors do not offer a comprehensive alternative for enterprises. Understand, however, that Linux already dominates industrial-strength Internet applications and is likely to continue to do so.  In that space Microsoft is the little guy and unlikely to get bigger.

Apple has too many holes in their product line to adequately replace Microsoft at this time, nor do they appear to be making any serious attempts to address the enterprise market.

Microsoft CEO Steve Ballmer knows his first obligation is to these enterprise customers. That doesn’t mean, however, that Microsoft lacks ambition in the client and consumer spaces. Look at Bing for example. It is nice to see some creativity and innovation coming from Redmond. Even if you never use Bing, it will still help you, giving Google an incentive to try even harder.

Where Microsoft appears most vulnerable is in the mobile space as I wrote a few days ago. Windows 7 Phone (Windows Phone 7?) may not be enough.  A Microsoft purchase of Palm would be interesting, especially if they let WebOS live and grow. Or they could buy Palm to kill it, too. We know all about that Microsoft technique. A more aggressive move would be Microsoft buying Research In Motion (RIM). I see this as unlikely but not impossible and I’d frankly love to see it happen, not just to shake up the smart phone market, but also to throw some Waterloo DNA into Redmond.

As far as standalone and client applications are concerned, it is a whole new ballgame thanks to Apple’s App Store archetype. If the new platforms will be smart phones and netbooks, then they will need new applications. It will be hard to use the old applications on these new platforms. The iPhone gives us a good view of the future of applications, what works and what doesn’t.

Another area where Microsoft has been quiet of late is communication services. This begs an interesting question — when do the telcos become irrelevant? As Google and Microsoft (and Yahoo?) bulk up their ability to support smart devices, what value add does an AT&T or Verizon really offer? What if Microsoft (or Google) bought, say, Sprint and converted their network to purely data? They could use VoIP with QoS for all voice calls. They could hook their giant information and application infrastructure directly to the data network. It could change the game.

In one sense such a bold move is more likely from Google or even Apple than Microsoft except for one thing — its likely negative effect on earnings and stock price. Neither Google nor Apple can afford the hit of absorbing Sprint’s lousy profit margins. But Microsoft, whose stock has trailed the market for much of a decade, probably wouldn’t be hurt as much by such an acquisition. Heck, it might even be viewed as a bold move despite the earnings hit and drive Microsoft shares up.

These latter ideas require scale and financial muscle and I think that fairly characterizes where Microsoft is headed. Bill Gates is gone and Redmond is settling into a comfortable middle age. While this may not be good it was probably inevitable as Steve Ballmer rebuilds the company in his own image. What’s sad is it probably means an end to changing Microsoft strategy over a weekend and sending the company into a tizzy as Gates liked to do. Recent layoffs at Microsoft, for example, have much more to do with remaking the internals of the company in a new, more pinstriped model, than with cost savings.

Mature companies don’t have tizzies and Microsoft is becoming just that — a mature company — but they’ll remain a significant player for another decade at least.

Next Topic — Homeland Security.