VDC-OS au Paul Maritz

Leadership comes in many shapes and sizes. I especially enjoy tracking those mavericks that tend to buck the trend of mediocrity and blast through with insight and innovation. One leader on this path that is near and dear to my heart (and wallet) is my boss and President & CEO of VMware.

Meet Paul Maritz who was recently featured on the cover of Redmond Magazine entitled “Maritz vs. Microsoft”. In the below article Paul describes his vision of the Virtual Data Center Operating System (VCD-OS) and how it will change IT Administration forever.

See you in the trenches - vmsteveo

Redmondmag.com

Feature Cover Story: Back to the (Virtual) Future

With the upcoming Virtual Datacenter Operating System, new VMware CEO Paul Maritz wants to virtualize every bit and byte of your data center.
by Keith Ward December 2008

Not content to sit on its technology lead in the virtualization market, VMware Inc. has ambitious plans to push its products further onto the razor's edge. The twist, however, is that it plans to do so by turning the clock back to the days of Henry Ford, the Model-T and assembly-line manufacturing.

As strange as that sounds, it's not a contradiction. At its annual VMworld conference held in September, company officials laid out their vision, making the Virtual Datacenter Operating System (VDC-OS) its cornerstone. If everything works out the way VMware envisions, it could forever change the way IT administrators manage their networks.

When it comes to IT management, there tends to be "a lot of heavy lifting," says Bogomil Balkansky, VMware's senior director of product marketing. "Whatever operation you need to perform, it still tends to be a very manual, very custom, one-step-at-a-time process," he says.

Back to the Future
Not so with VDC-OS, which Balkansky describes as something out of that era when "Henry Ford introduced automation to the manufacturing world."

Balkansky continues the analogy, saying, "We're transitioning from swinging hammers to pushing buttons. The focus becomes what needs to happen, not spending the majority of your time executing it and making it happen. Ford introduced speed and efficiency and predictability to the [manufacturing] process." Those same elements characterize VDC-OS, he says.

The first step toward understanding VDC-OS is to properly define the term. It's not a product, but rather a category of software-a generic term for a flexible, agile data center. "Just like 'operating system' is a category no one owns, [VDC-OS] is a category," Balkansky says. "The brand name continues to be VMware Virtual Infrastructure [VI]." Balkansky compares it to the "operating system" being the category and Windows and Linux being brands within the category. "VDC-OS is the category, VI is the product," Balkansky says.

The paradigm shift will occur when an admin sets parameters for an application, and VDC-OS does the rest, Balkansky explains. "The sys admin world will be changed. To deploy an application, [the sys admin] will specify the service levels the application requires for availability, security, scalability. [Whether an application] needs five-nines availability or security, it needs to scale to this point. Then the infrastructure that supports and runs the application will interpret policies, execute and guarantee service levels and do it at the lowest total cost of ownership [TCO]. TCO is really a parameter in VDC-OS."

At Your vService
VDC-OS is complicated, but the thumbnail sketch looks like this: It's an umbrella operating system with two primary focuses-apps and infrastructure-to which VMware has added a small "v" at the beginning: Application vServices and Infrastructure vServices. Each of these areas is further broken down into sub-categories. Tying it all together is vCenter, the new name for VirtualCenter, VI's management tool.

Application vServices includes three key areas of enhanced functionality:

Availability: VMware says this will be achieved primarily through VMware Fault Tolerance, which makes a duplicate copy of a virtual machine (VM) on a separate physical server.

Security: VMware announced VMsafe last February, which will be delivered in future versions of VI. VMsafe provides APIs for third-party security vendors to write programs for VMs created by ESX. It'll allow those programs to go deeper inside VMs and detect more malware than in the past.
Scalability: While no new products were announced in this area, VMs will scale up in capacity with the ability to use double-up to eight-the number of virtual CPUs (vCPUs), as well as quadruple the amount of RAM they can use (up to 256GB).

Infrastructure vServices also has three main components:

vCompute: The main upgrade here is VMDirectPath, which allows devices like a physical network interface card to directly access a VM, cutting down on processing overhead.

vStorage: Storage is a promising area with a number of new offerings, starting with vStorage. Much like VMsafe, vStorage provides APIs for storage vendors to hook into VI and integrate their products more directly. vStorage Thin Provisioning saves storage space by allocating storage on an as-needed basis, rather than setting aside a block of storage space which may or may not get used. vStorage Linked Clones is another space-saving technology that shares common OS images in storage, avoiding a duplication of that information for each VM.

vNetwork: The most excitement in networking surrounds virtual distributed switches. One of the biggest VMworld announcements involved the Cisco Nexus 1000V switch, Cisco Systems Inc.'s first-ever virtual switch. Expect other vendors to come out with similar products quickly.

On the management side, the biggest update to vCenter, other than the name change, is the integration of AppSpeed, the fruits of the B-hive Networks acquisition. A VMworld demo showed its ability to monitor VMs at a level far deeper than formerly available with vCenter.

Architecture vs. Marketecture
Although VDC-OS is an ambitious undertaking, the announced goals aren't groundbreaking. In fact, some believe it's as much a marketing campaign as anything else. "I think [VMware CEO] Paul Maritz understands IT technology on a large scale and has articulated their IT strategy better," says Burton Group Senior Analyst Chris Wolf, a virtualization specialist. "VDC-OS allows them to group all this together under a common message."

Wolf believes the new message is less technology-focused, and he says that's a good thing. "The problem was they weren't tying their solutions back to applications and back to the user. IT decision-makers worry about [issues like], 'How do I solve this problem?'"

Rachel Chalmers, research director for infrastructure management for the analyst firm The 451
Group, agrees that much of VDC-OS is about re-branding rather than new technology. "VDC-OS is partly marketecture and signals a changing of the guard," Chalmers says, from former CEO Diane Greene to Maritz. "Greene was always very careful to say that the hypervisor is not an OS."

Maritz doesn't have those same concerns, she says: "Maritz described the new raft of releases, the new roadmap, as an OS. It's just a different way of framing the conversation." Chalmers adds that VDC-OS contains "no radical departures from the roadmap. It's exactly what you would have expected from a VI announcement."

Independent consultant Edward Haletky, a VMware specialist who has written a book on ESX, says, "VDC-OS is a concept. It's a different way of looking at the existing VMware product line. The interesting part is that it has split off the concept of compute resources, networking resources and so forth. For example, vCompute is ESX. vStorage is SRM [VMware's Site Recovery Manager]. vNetwork is a distributed virtual switch. They've announced all these products [before] -- it's just another way of organizing them."

The difference, Haletky continues, "is in layering; putting the hypervisor below all these layers. VDC-OS is everything above the hardware." He also believes that it's VMware's way of minimizing the hypervisor, which has become commoditized. "Microsoft has been touting that its hypervisor is free," he explains. "[VMware is] downplaying the hypervisor's role in all this. Virtualization is not just the hypervisor anymore. It gives a new view of the way VMware's going to design and architect things in the future."

Q&A
By Ed Scannell

2009 should be an interesting year for Paul Maritz. Hired to replace VMware Inc. CEO and co-founder Diane Greene earlier this year, it will be Maritz's job over the next 12 months to keep Microsoft from tearing away a huge hunk of VMware's share of the virtualization market. Microsoft has made it abundantly clear that it intends to compete hard in this space, but if anyone has the resume to carry it off, it's Maritz. He worked for Microsoft from 1986 to 2000, and as a result, few have a thicker playbook than Maritz on the product strategies and corporate culture of Redmond. Maritz sat down with Redmond Editor Ed Scannell to assess the challenges he faces competing against his old company, VMware's new partnership with Cisco Systems Inc. and why he doesn't want to own the cloud.

Q: How important is it for VMware to own a piece of the cloud as part of your overall strategy?

A: Well, our whole strategy actually is to not own the cloud going forward, but instead to enable interoperation between clouds and a corporation's internal infrastructure in the cloud. As we help our internal customers become more efficient -- and they often characterize efficiency and flexibility as becoming more cloud-like internally -- what that really involves is finding a way to abstract the application loads from the underlying infrastructure. As we increasingly separate those two, it opens up the opportunity for them to use the infrastructure either from inside the firewall or outside the firewall in someone's cloud. Our primary contribution is to enable internal IT customers to make business decisions about whether to employ external cloud resources or not. It's not a black-or-white issue for them whether they should migrate from what they're doing now and into somebody's cloud. That can essentially be a tactical decision they can make based upon business needs going forward.

But in so doing, we also enable a degree of interoperability between clouds. One of the problems with the cloud strategies put forward by Amazon, Google, Microsoft and others is that they likely will be incompatible.

Q: What are some of the technical problems with moving internal and external virtual machines (VMs) around and ensuring consistency between users and various service providers?

A: It's clearly a set of technical and standards-based issues you have to work through. The good news is we think that the kinds of things we need to get done -- for example, make apps run more efficiently in a virtualized environment -- are exactly the same things [companies] did to allow more interoperability with the cloud. Specifically, one of the sub-components of the vCloud strategy is the vApplication strategy. So the notion about how you describe an application in such a way that it can run efficiently, be provisioned efficiently and have a service-level agreement associated with it in an independent application infrastructure is an important one. We see the vApplication standard important both for internal as well as external use.

Q: Your relationship with Cisco is an interesting one. Talk about that relationship and the virtualized switching infrastructure you hope to create.

A: That's about blending the virtual and physical worlds and making it easier for network managers to manage things. There's a dimension of the network that needs to be virtualized. In other words, how do you handle traffic between virtual machines? At some point those virtual machines also have to communicate out into the physical world. So you have to mange the interaction with the physical networking world. What Cisco will do is basically insert into our virtualization layer a reimplementation of the basic virtual-switching software that we have. We've encouraged them to do this because we believe that our layer should be a true platform where you can plug things into and out of it. So what they've done is plugged into our platform a virtual software switch that looks-from a management perspective-just like a physical Cisco switch. So a network admin can manage their network in a uniform way and do so independently of whether it's physical or virtual.

What things can you take from Microsoft's playbook-which you know so well-to help you compete better against them?I certainly have a great deal of respect for Microsoft and take them very seriously, but I'm not overawed by them. When you're competing against Microsoft, you have to be firmly convinced of your value proposition and then execute based on that. You do have to realize they can afford to make more mistakes than you. But if you set your sights on a truly differentiated value proposition, and you execute well, you'll do very well.

Q: You've made ESXi free. Are we going to see similarly competitive price drops for VMware infrastructure?

A: We're in a competitive environment, and we know we have to respond accordingly. We're not going to stick our heads in the sand. Our intent is to stay ahead on functionality.

Q: Are you comfortable with the technology to where you can tell users to virtualize everything, including mission-critical apps like ERP and CRM? Or are we at the point where some of that is still coming down the road?

A: We have many large customers who are still on the journey, which will time out in the next 12 to 18 months. Our goal is to get to a 100 percent virtualized environment. The only reason some of them may not get there completely is they have stuff still running on IBM mainframes.
How important do you think a standardized software stack being put in place for virtualization would be? What things are you doing to make that happen?That's the essence of our Virtual Datacenter OS vision-by extensive use of virtualization and related technologies, our customers can completely decouple the provisioning and running of their application environment from the underlying infrastructure. They can get close to their nirvana, which is to be able to treat all their compute resources as a single giant computer in which they flexibly provision applications for their users.

Admins as Button Pushers
An important part of that design is vApplication (vApp), which enables multitier apps to be configured, deployed and managed as a single unit. Leveraging open virtual machine format (OVF), which allows virtual appliances to be run on disparate hypervisors, vApp promises to further simplify virtualization. VMware's Balkansky goes back to the assembly line analogy: "It's how manufacturing happens nowadays; you push some buttons and the product comes out the other end."

For instance, consider a typical three-tier architecture for an application such as Oracle Customer Relationship Management (CRM). It consists of a Web server, application server and database.
"Instead of managing each tier separately, you can bundle them, move and manage them together, and assign policies to the whole instead of individual parts," Balkansky says. That involves combining multiple VMs. Using OVF, admins can specify policies for availability, security and other parameters and extend the OVF schema to define their own requirements. "It's a production line for IT, [in which administrators] automate all of these tasks in IT, and produce high quality," Balkansky says.

Security Concerns
That's a good thing, but the downside comes in increased security risk. VDC-OS has the potential of increasing vulnerabilities, which puts it at a disadvantage in the current era of HIPAA, Sarbanes-Oxley and other regulatory standards, especially when considering its central role as part of VMware's "cloud computing" strategy. Wolf says, "security is a huge problem for a lot of organizations. VMsafe should be the first product with a reliable security stack acceptable to security auditors. [VMware is] the first vendor to deliver that framework. Security auditors need to accept the [cloud computing] architecture as a security boundary, or none of this matters."

Haletky, who owns AstroArch Consulting Inc. and does a lot of virtual security work with clients, believes that without proper security measures, VDC-OS won't get off the ground. "Everyone's going to get their hands on the VMsafe APIs. More APIs means more chances to hurt a system. They have to properly secure the system, and how they'll be implemented is a major concern." That means a team effort, Haletky says. "It's not really VMware's problem in a lot of ways. They've opened it up, [so it becomes] the vendor's problem -- how do they secure it? Security's [often] an afterthought. And as long as it's an afterthought, it's a weakness."

Security in the virtual realm requires a new way of thinking, Haletky continues. "It has to change at the mindset layer for the security professional. It can't just end where hardware ends; it has to end where virtualization ends, which means ending with VMs."

The Cisco Factor: Network Virtualization Gets Real
By Tom Valovic

VMware's Virtual Datacenter Operating System (VDC-OS) is an architectural framework where storage, network and compute core elements are all virtualized as resource pools. The idea is to create the ability to optimize interaction between domains by making the pools transparent to each other. So the network, for example, gets visibility into the virtualized base of servers, which enables them to work together harmoniously in the process of moving VMs around dynamically.

To make this a reality sometime next year, VMware Inc. is working with key strategic partners on capabilities related to storage and networking aspects. To optimize network resources to better support virtualized environments for its customers, VMware's primary partner is Cisco Systems Inc., which also has a small ownership stake in the company.

A new Cisco product called the Nexus 1000V, announced at VMworld, is a key part of this collaboration. At the show, Ed Bugnion, CTO of Cisco's Server Access and Virtualization Business Unit, described the Nexus 1000V as "the first third-party ESX switch" and Cisco's "first software switch," with the latter being a significant milestone for the networking giant. Why? Simply because in the next-generation data center, moving features and functionality to software is an important step toward creating truly virtualized environments where there's full transparency between different resource pools.

Zeus Kerravala, senior vice president with the analyst firm Yankee Group Research Inc., sees Cisco doing more of this going forward. "Down the road, the network will be the orchestrator of virtual services [and to that end] Cisco is moving more towards being a software company. It's rapidly changing from a hardware and network company to a software and IT company. And to be a strategic vendor, they need to be more 'IT relevant' than they have been in the past."

So will VMware work with other network partners besides Cisco to do this? Kerravala doesn't think so. "Who else is in a position to build something like this?" he says.

The Nexus 1000V, integrated into VDC-OS, will be available next year. In the meantime, there will likely be other similar collaborative projects between the two companies, as yet unspecified. But for now, both companies expect that the new functionality afforded via Nexus will improve security, policy enforcement, scalability in VMware environments and management capabilities for VMs overall.

Another critical area of collaboration for the two companies centers on VMware Virtual Desktop Infrastructure (VDI) solutions. A critical element in any VDI deployment is the communications link, whether affected locally with a LAN or between enterprises over a WAN link. But if a WAN is involved, latency issues are more challenging, and application delivery solutions can be implemented to improve performance. Cisco is currently offering products to address these types of performance issues for both VDI and cloud computing, including Cisco Wide Area Application Services (WAAS) and the Application Control Engine (ACE).

Deadline Pressures
VMware has set an aggressive timetable to have all the pieces of VDC-OS in place by the end of next year. Balkansky says that although VMware hasn't publicly announced a release schedule, it's committed to the 2009 timeframe.

The 451 Group's Chalmers is less sure. "This is the VI roadmap. They can't ship all of it. If they do 80 percent of it, they'll be doing well. Storage vMotion has been very, very difficult to develop [and] Network vMotion is a level of complexity even beyond that," she says.

Wolf says that it's in VMware's best interest to hit those 2009 deadlines. "I have no doubt about them [hitting their shipping dates]," he says. "They have a small window of time to establish themselves as dominant in the market. They have to move extremely quickly; if they move slowly, it plays right into Microsoft's hands."

In Microsoft's Sights
Indeed, Microsoft itself has been rushing virtualization products to market; witness Hyper-V, System Center Virtual Machine Manager 2008 (VMM 2008) and the standalone Hyper-V Server, three major products out in the first 10 months of this year. Given how serious Microsoft and other companies like Citrix Systems Inc., Virtual Iron Software Inc., Red Hat Inc., Parallels Inc., Novell, Sun Microsystems Inc., Hewlett-Packard Co. and others are about the emerging virtualization space, sitting still amounts to falling behind.

VMware still has a substantial technology lead, however, and it seems intent on not just keeping that lead but extending it.

"VMware is promoting a stack, including parts where Microsoft historically hasn't gone in the past-in server storage, network infrastructure [and so on]," Wolf says. One question following VMware's announcements, in Wolf's mind, is: "How much will Microsoft chase VMware or go down its own path? In terms of features, VMware is still ahead of its competitors."

That's been Chalmers' experience as well. "When we talk to end users, VMware is still their default choice," she says. "It's not just features and functionality that are so far ahead. Skill sets are overwhelmingly [built] around VMware."

Haletky says the VDC-OS concept puts more distance between VMware and the competition, now and in the future. "I think VMware's widening the gap, and they already have a wide gap," he explains. "No Storage vMotion [for Microsoft] -- Hyper-V doesn't have VMotion," a technology for moving VMs from one physical host to another with no downtime. "Distributed Resource Scheduling (DRS) -- no one has that, other than VMware," he adds.

Haletky says that when the new features of VDC-OS are included, the chasm will grow even more: "When you add in fault tolerance, distributed virtual switches and VMsafe, I think it's just going to get wider."
Keith Ward is editor of Virtualization Review magazine. You can contact Keith about "Back to the (Virtual) Future" at kward@1105media.com.

Cloud Computing - A well done perspective on its evolution

Randy Newman said it best...

"Want some whiskey in your water?
Sugar in your tea?
What's all these crazy questions they're askin me?
This is the craziest party that could ever be
Don't turn on the lights 'cause I dont want to see..."


Companies like Amazon, Google, Cisco and VMWARE are leading the charge in this new space of cloud computing. What is it you ask? It's the next evolution in IT that is being adopted by major technology companies across the globe. The following article gives a good summation of its history and future from the "end point's" or device perspective.


On the periphery
Oct 23rd 2008
From The Economist print edition


The cloud’s communications with its clients will become ever more intelligent and interactive

IT WILL take something with a lot more bang to replace a medium that is thousands of years old. That was the prevailing reaction when Amazon last November announced the launch of Kindle, an electronic book reader the size of a paperback that can store more than 200 volumes. Yet by the end of this year Amazon will have sold nearly 380,000 Kindles, says Mark Mahaney, an analyst with Citigroup, a bank. “Turns out the Kindle is becoming the iPod of the book world,” he recently wrote in a note to clients, in a reference to Apple’s iconic music player.


It is certainly not the Kindle’s looks that explain its success. Compared with the iPod, its design looks very last century. Software and battery life, too, leave a lot to be desired. The chief attraction of the device is the ease with which it can be used to buy books and other content. Equipped with a mobile-phone modem, the Kindle can simply pull new reading material out of the air. Users do not even have to have a wireless service contract. “Our vision is to have every book that has ever been in print available in less than 60 seconds,” explains Jeff Bezos, Amazon’s boss.


It remains to be seen whether the Kindle will become a cultural phenomenon like the iPod, of which around 160m have been sold so far. Amazon, for its part, is downplaying the Kindle’s success and will not confirm any sales estimates. But it is safe to say that, once the next generation of wireless networks is up and running, hundreds of millions of devices will come, like the Kindle, with built-in radio connectivity (see chart 5). Digital cameras will automatically upload pictures. Smart meters will send readings of how much electricity a house consumes. All kinds of sensors will be able to send messages, even things like dipsticks when tanks of liquid are low.


The relationship of these devices to cloud computing may not be obvious. But if huge data centres and applications make up the cloud itself, then all the hardware and software through which it connects and communicates with the real world are its periphery. In IT speak, this is known as the “front end” or “client side”.


As the Kindle and other examples show, this layer does not have much to do with the user interface or client device of old. It will do a lot of computing itself. It will come in all shapes and sizes, depending on what the user wants to do. And it will not just distribute information, as the web does, but collect it as well. The analogy that springs to mind here is a theatre performance with audience participation: the electronic cloud will adapt to whatever it engulfs.


As you like it
Just like computing itself, the dominant user interface has evolved continually. In the days of the mainframe, when computers and their peripherals filled entire rooms, people communicated with these machines first via punch cards and then via green-glowing monitors, which were simply dumb terminals. Only with the rise of personal computers did the user interface become more intelligent, responsive and graphical.


The first version of the web was thus a brief step backward. To be sure, browsers brought colour and graphics to the hitherto text-based internet, but they were as dumb as the mainframe terminal. This has changed only in recent years. A bundle of web-development techniques dubbed AJAX and multimedia software such as Adobe’s Flash and Microsoft’s Silverlight now allow programmers to write what are called “rich internet applications” (RIA).


Whatever the buzzword, the principle is much the same. Servers no longer dish up simple hypertext markup language (HTML), the web’s early lingua franca. Increasingly, web pages are bona fide pieces of software that are executed in the browser. Users of Web 2.0 sites who venture into menu items such as “view source” in their browsers can sometimes see thousands of lines of code.

In recent months the browser has become even more of a platform for other programs, akin to an operating system such as Windows. The main driver of this trend is Google, with its huge strength in distribution that can only gain from more and more software being offered as a service. In May 2007 the Silicon Valley firm launched Gears, a program that allows web applications to be used offline, and in September this year it released a new browser called Chrome. Its most important feature is that it can execute several sophisticated web applications at once.


Although for now the internet browser will remain the main vehicle for people to interact with the cloud, other forms are coming to the fore. One is the “widget”, a snippet of code that often lives on a PC’s desktop and allows the user to get a quick personalised view of a set of data. The idea is that a salesperson, for instance, should not have to fire up an entire application for customer-relationship management to find out which leads to follow up.


More importantly, there is now a greater variety of hardware through which to access the cloud. Already, desktop and laptop computers are starting to lose their monopoly for surfing the web as smaller devices such as smart mobile phones and various forms of portable computers start to compete with them.

Asus, a Taiwanese computer-maker, started the trend when it launched a small, cheap laptop called “Eee” a year ago. Now there are dozens of these devices. Gartner reckons that 5.2m of these “mini-notebooks” will be sold this year, 8m next and as many as 50m in 2012.


Perhaps the best indicator of things to come is Intel, a huge chipmaker. It made a fortune selling processors for servers, personal computers and laptops. In June the firm launched a new line of chips called Atom, designed to power what it calls “netbooks” and “mobile internet devices” (MIDs), mainly intended for surfing the web. Intel is also the driving force behind WiMAX, a technology for wireless broadband access to the internet. It wants to put a WiMAX radio chip into as many devices as possible, from portable computers to specialised gadgets such as the Kindle.


Apple’s iPhone and its App Store, which allows iPhone and iPod owners to download applications, also provide a foretaste of how important wireless devices will be for the cloud. Apple launched App Store only in July. Two months later it had already tallied 100m downloads, meaning that it took off much faster than Apple’s highly successful iTunes music store. Many of the programs on offer connect to the cloud, including news feeds, multi-player games and a service that keeps track of the latest polls for America’s presidential election.


You can take it with you
The plethora of devices wirelessly connected to the internet will speed up a shift that is already under way: from a “device-centric” to an “information-centric” world, in the words of VMware’s Paul Maritz. Up in the cloud there will be a body of data for each individual that will accompany them through life, he explains, and it will not be tied to any particular device, as it is today.
Again, what will make this possible is virtualisation—this time of client devices, not servers. With the help of software from VMware and others, some firms have already virtualised their employees’ desktop computers, which allows them to be managed centrally. Operating systems and applications will no longer run only on the employee’s PC but on a virtual machine in a data centre that can be accessed remotely, theoretically from any PC in the world. Sooner or later mobile devices will also become virtualised. Users will be able to use their applications and data on whichever gadget they have at hand.


Yet the cloud’s interface is designed not merely to provide information but to gather it as well. The future belongs to services that respond in real time to information provided either by their users or by non-human sensors, predicts Tim O’Reilly, the founder of O’Reilly Media, a publisher of technology books who coined the term “Web 2.0”. Such “live applications”, he says, will get better the more data they are able to collect—and there will be plenty as the cloud expands.


One of the first examples of such a service was Google. What originally put the search service ahead of the competition when it was launched a decade ago was its way of harvesting the information provided by web users in linking to other sites: the more links point to a page, the more useful it must be. These days most links are generated by computers, so the original form of this “page rank” algorithm has long since been scrapped. But Google’s approach is still the same: mining information provided by web users, such as their search histories, to provide more relevant search results and more effective and targeted advertising.

The direct link to users also allows firms such as Google continuously to improve their interface, something traditional software-makers were not able to do. At any given time Google is running dozens of tests to optimise the look and feel of its offerings. This makes web applications far less technology-driven and much more user-oriented, says IBM’s Mr Wladawsky-Berger. “They are much more inspired by what goes on in the real world.”


A raft of start-ups is also trying to build a business by observing its users, in effect turning them into human sensors. One is Wesabe (in which Mr O’Reilly has invested). At first sight it looks much like any personal-finance site that allows users to see their bank account and credit-card information in one place. But behind the scenes the service is also sifting through its members’ anonymised data to find patterns and to offer recommendations for future transactions based, for instance, on how much a particular customer regularly spends in a supermarket. Wireless devices, too, will increasingly become sensors that feed into the cloud and adapt to new information.


Nokia, for its part, is planning to build all kinds of sensors into mobile phones to monitor things like movement, barometric pressure or even the owner’s health, which many experts expect to become a big new trend. Sensors could also be used to record people’s activities, creating what some already term a “lifelog”—raising all kinds of privacy concerns.


As wireless technology gets better and cheaper, more and more different kinds of objects will connect directly to the cloud. SAP, the German software-maker, has launched a research project called “The Internet of Things” to see what can be done with the resulting information. As part of that project, an initiative called the “Future Factory” is now under way to investigate how intelligent tags can make manufacturing more adaptive and efficient.


More and more data get you only so far, however. In the end, Google’s search results and its text-based online advertisements are relevant to users only because the firm has devised clever ways to sift through them, says Hal Varian, the firm’s chief economist. The big challenge of the cloud will be to connect the myriad data in it and make them profitable.

Copyright © 2008 The Economist Newspaper and The Economist Group. All rights reserved.

See you in the trenches - vmsteveo

In Search Of A Good Cab

by vmsteveo

While watching Wall St. Crisis and enjoying a 2006 Hyman Hill Cabernet ($11), I thought I would escape from my leadership research and archiving studies and talk about another topic near and dear to my heart. Wine. Finding a good, inexpensive wine is like going after the Holy Grail at Total Wine or any other discount wine store of your liking. A friend of mine who's father grew up during The Great Depression would drive 20 miles to save $.05 on a can of tuna fish. Hmmm, with gas prices these days I think that can of tuna would have doubled but then again, I completely understand its all about the mission. Either way regardless of the drive, finding that good bottle of wine at a great price is, well priceless. Keeping with the theme of my previous bullitized posts, here are a few pointers when looking for that diamond in the rough:

Introduce yourself to the wine steward or shop owner - Whether its at a fine restaurant or at a discount wine shop, introduce yourself to them. Let them know where you've been and what you are specifically looking for. Let them know if this is a special occasion or an evening where you want to hang with your peeps around the TV. Most importantly, tell them you don't want to spend too much money.

Go online and research value wines - There are great wines that are under $30 online. Just make sure you are looking at a reputable rating service. As a plug for my techie hommies Amazon.com is jumping into the wine selling business. With 81 million active customers Amazon might just be the one place to go for wine variety and good prices. Other websites include Winespectator.com, Wine.com and Redwinebuzz.com. Either way there is no substitute for striking up a conversation with a friendly wine expert to enlighten you with the latest tastes and trends at the locale wine bar or discount shop.

Here are a few good ones I have had a chance to taste:

B V Cabernet Rutherford 2005
Wine Spectator Rating: 88
Price: $27
California

Bishop's Peak Rock Solid Red Paso Robles 2004
Wine Spectator Rating: 87
Price: $12
California

J. Lohr Cabernet Paso Robles Seven Oaks 2004
Wine Spectator Rating: 87
Price: $15
California

Alamos Malbec Mendoza Seleccion 2007
Wine Spectator Rating: 90
Price: $15
Argentina

Fratelli Pighin Collio Pinot Grigio 2007
Wine Spectator Rating: NA
Price: $14
Italy

Serving Wine
Some food for thought or should I say wine for thought... Allow any wine to breathe at least 20-40 minutes either in a nice decanter or if you don't have one, slowly pour into a glass pitcher then after 20-40 minutes, pour it back in the bottle. Slightly chill reds and leave whites outside of the fridge at least 10 minutes before serving.

So here's the challenge. Most of the "bargain wines" never reach the shelf of your local Sam's Club or grocery store. Why? Because the good ones are usually snapped up by restaurants looking to sell these extraordinary wines at a huge profit. If you do find them, pick up a few for parties, gifts, etc. If all else fails, walk in to the shop without any expectations other than price, what you are in the mood for (aka red or white) and what you definitely want to stay away from and chances are you will walk away with a real find. One final note, if you do buy online, stay away from the counterfeits especially with the high end wines and if you do find that diamond in the rough we hope you will share with a quick reply...

See you in the trenches - vmsteveo

Buy American. I Am.

By WARREN E. BUFFETT
Published: October 16, 2008
New York Times, page A33

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

See you in the trenches - vmsteveo

The Careful Critic: How Artful Executives Tell Someone He’s/She's Wrong

Adapted from www.execleadership.com

Here's a nice tidbit that can be used in any situation at any level of leadership....

The careful critic: How artful executives tell someone he’s wrong

No one likes to be told he’s wrong. But shrewd executives know how to deliver sharp criticism without cutting thin skin. Some guidelines:

Speak to the person’s agenda
Say nothing until you determine how your negative comments affect the individual’s self-interest. Everyone wants to be promoted, keep people off his back, get rich and be perceived as a leader. So express your opinion in terms of how his approach will interfere with his goal.

Example: “That’s CJ’s pet department. We’ll never hear the end of it if his people get upset and complain.”

Indirect ploys
If presenting your case directly strikes you as unwise, tactless or potentially ineffective, try the following:

• Ask for clarification - Let the individual work through the flaws by including them in an “If I’ve got this straight …” summary.
• Solicit questions - Tell someone something and you question his competence. Get him to think of it himself and there’s no problem. Just keep your voice neutral.
• Fill in the picture - Anyone can make faulty decisions if he has limited knowledge of the situation.
• Shift the blame - When the individual is “never wrong,” state the negatives in terms of the other parties involved. Example: “That customer is touchy.”

See you in the trenches - vmsteveo

Pat Bagley, Salt Lake Tribune, Utah

Visit Pat's site

See you in the trenches - vmsteveo

Debunking the “No ROI in Virtual Desktop Computing” Myth

Debunking the “No ROI in Virtual Desktop Computing” Myth
By Julian Weinstock
published: Tuesday, August 26 2008

Virtualization has been the hottest topic dominating the technology headlines in the last year, whether it is about server virtualization initiatives or benefits, or about new developments around virtual desktop computing. In fact, Gartner expects virtualization to be the highest-impact trend in IT infrastructure through 2012.

The leading edge of that trend is server virtualization, but virtual desktop infrastructure (VDI) is rapidly catching up based on its promise to reduce the complexity and cost of enterprise desktops, and change the way we work, However, as is the case with many emerging trends, VDI economics is still subject to different assumptions and interpretations.

The early returns hold that there is no ROI in desktop virtualization. It's a wrong, but understandable, assumption.

Server virtualization, which has already gained significant market traction, offers compelling ROI based on server consolidation. The higher degree of asset (server) utilization translates directly into considerable reductions in server capital investment (CAPEX), but has only marginal impact, if any, on the operational management costs (OPEX). The success of server virtualization has created the expectation that VDI would provide similar ROI, based on CAPEX savings. However, as some VDI skeptics have noted, this is not the case.

The skeptics' argument that there is no ROI in VDI is based on a back-of-the-envelope cost calculation along the following lines: $400-$500 per desktop investment is required for server, storage, network and other data center costs to set up the VDI infrastructure, and $100-$200 is needed for a thin client or other access device. The total cost of $500-$700 per client is too close to the cost of a rich client to provide compelling ROI for VDI, even if the useful lifetime of VDI is longer than the typical three years of distributed, rich desktops.

The fallacy of this argument is simple: the challenge with enterprise desktops today is not the acquisition costs but the total cost of ownership (TCO), according to Gartner, IDC and other leading industry analysts. Acquisition costs, which have been tracking a declining trend for a long time, represent less than 20% of enterprise desktop TCO. However, desktop management costs are rising faster than acquisition costs are declining, and represent more than 80% of the TCO. So, even if VDI did reduce desktop acquisition costs, it would be meaningless when the TCO is defined predominately by the management costs.

As the skeptics correctly point out, VDI does not reduce the acquisition costs. However, it does slash the management costs quite significantly-and this considerably reduces desktop TCO.

Management matters

VDI promises a number of benefits to the enterprise, including enhanced (physical) security and better regulatory compliance; higher availability and built-in business continuity -- with the desktop available anytime, anywhere, on any device; increased business agility -- with the ability to provision or move a desktop with a click of a button; reduced power consumption; and remarkably better manageability. Of these benefits, better manageability has the greatest impact on reducing the cost and complexity of the desktop and, therefore, the highest impact on TCO.

Enterprise desktop TCO numbers vary but, in general, industry analysts peg the cost at $3,400 - $5,900/desktop/year, depending on the extent of management, and the type of the client device. About half of the TCO is attributed to direct IT cost of managing the lifecycle of the desktop, and the other half is attributed to indirect costs associated with lost user productivity. The high management cost is driven primarily by the distributed and heterogeneous nature of enterprise desktops and the inseparable coupling of the desktop image to both a user and a physical device (and its device drivers). The majority of direct costs stem from two labor-intensive management activities: helpdesk services and IMAC (installation, moves, adds and changes). The rest come from more automated activities such as security and compliance monitoring, asset inventory, and software distribution, patches and updates.

VDI Saves 15-25% Over Traditional Desktop Environment

VDI is a centralized, homogeneous and device-independent model, with the desktop image completely abstracted from and independent of the underlying device or infrastructure. This architecture is inherently more manageable and, in fact, it can effectively reduce the top two cost line items (helpdesk and IMAC) by more than 50% each. Software distribution, patches and update components of the TCO can also be reduced by employing the pooled desktop option of VDI. Even though, to capture these gains, upfront capital investment and on-going operational expenses for the VDI infrastructure is required, in total, VDI can reduce desktop TCO by about
15%-25%.

This is quite a compelling proposition, especially when extended to thousands or tens of thousands of desktops, but it is not without challenges of its own. Acquiring and operating VDI infrastructure (server farm, storage array, network gear, virtualization platform, etc.) of any meaningful size introduces a new dimension of complexity and cost, placing VDI economics out of reach of many organizations, both large and small.

Extending the ROI Benefits of VDI

Imagine another computing model that could capture the desktop management savings and reduce OPEX without any upfront investment in infrastructure, and even without the burden and expense of operating the infrastructure. Similar to the SaaS model, whereby the infrastructure is owned and operated by a third-party and provided as a subscription service, the VDI infrastructure could be owned and operated by a third-party and provided as a service on a subscription basis.

Such a desktop as a service (DaaS) model already exists and is radically changing the economics of VDI. It enables enterprises to capture the benefits of VDI without having to own and operate the VDI infrastructure. This transforms CAPEX to OPEX and can save enterprises another 10% over internally deployed VDI, effectively saving 25%-35% over traditional desktop practices.

As you can see, the skeptics are partially right: VDI does not result in clear CAPEX savings like server virtualization does. But, let's not ignore the savings it does deliver in desktop manageability and operational expenses. That ROI is considerable, and it can be made even more dramatic by consuming VDI as a service.

See you in the trenches - vmsteveo

Fall of Freddie Mac and Fannie Mae

Source: www.execleadership.com Vol. 23 No. 10 October 2008
— Adapted from “At Freddie Mac, Chief Discarded
Warning Signs,” Charles Duhigg, The New York Times.

You probably know the pride and thrill of playing with OPM—other people’s money. Chances are, though, you wouldn’t abdicate your responsibility to those people, ignore advice and muse aloud about your own situation while losing all their money. You wouldn’t do that. It’s the opposite of leadership.

Welcome to the world of Freddie Mac and its former CEO, Richard Syron, who lost his No. 1 spot recently as the government seized control of mortgage giants Freddie Mac and Fannie Mae, taking direct control.

• Starting in mid-2004, Syron’s chief risk officer began warning him the company was buying too many bad home loans.

• That officer and others also warned that underwriting standards were becoming too shoddy.

• Syron said the company couldn’t afford to turn away riskier loans.

• Many former top executives at Freddie Mac, plus other stakeholders, report Syron ignored recommendations that might have averted the crisis. Freddie Mac said there was “little to nothing” it could have done.

• “If I had better foresight, maybe I could have improved things a little bit,” Syron remarked. “But frankly, if I had perfect foresight, I would never have taken this job.”

• Syron commented that shareholders, regulators and Congress wanted different things, and blamed Congress for making him buy bad loans. “Sure, it’s hard to deal with the pressures of Congress,” noted a former colleague. “That’s why executives get paid so much.” Syron’s compensation equaled more than $38 million since 2003.

• His former counterpart at Fannie Mae, Daniel Mudd, said the two mortgage giants were victims of circumstance.

• At a conference this spring, Syron defiantly dismissed advice to raise cash. “This company will bow to no one,” he declared. He then delayed a stock sale as the price of borrowing skyrocketed.

• A like-minded former Freddie Mac official sounded surprised that taxpayers demanded more oversight of their money. He says he expected a government bailout. “But we didn’t expect it would come at the cost of a new regulator who now has the power to burrow into our business
forever.”

• The capper comes from Syron himself: “I’ve had four other jobs as CEO and I came out of them all pretty well.”

Have you hugged your B players today?

Article from www.Execleadership.com
— Adapted from “Let’s Hear It for B Players,” Thomas
DeLong and Vineeta Vijayaraghavan, Harvard Business
Publishing, www.harvardbusiness.com.

Flashy A players often steal the scene, but in a weak economy, and especially during a retrenchment, you need the stability, knowledge and long view of your B players—the steady
performers who don’t need instant gratification or the limelight. Yet many leaders often ignore B players, focusing instead on volatile A players. The risk is that overlooked B players may leave, taking knowledge with them.

First, recognize who they are. B players tend to be:

Former A players - These highly skilled professionals hop off the fast track to raise a family or deal with a life crisis. They’ll keep doing A work if you let them do it more slowly, on their own terms.

Straight shooters - Blessedly honest, they ask tough questions that you’ll ignore at your own peril.

Go-to managers - These employees compensate for average skills with a profound understanding of company processes. They stay focused, quietly getting down to business while your A players continue to jockey for attention and advancement.

Once you’ve identified B players, keep them happy:

Accept that they’re not as driven as you are. Ask what they want from their careers and do your best to provide the conditions to help them achieve it.

Give them your time. Make sure it would never even occur to them that you might be ignoring them.

Reward them in small but meaningful ways. B players are promoted relatively infrequently, so
thank them in other ways. Tickets to a show of their choosing, dinner for two, even a handwritten note can help them feel valued.

Offer them career choices. Training, coaching and sideways promotions all can invigorate an employee’s gradual development.

See you in the trenches - vmsteveo

401k Shock

See you in the toilet - vmsteveo

Jack Welch Sees a ‘Bathtub’ U-Shaped Recession

source: www.chiefexecutive.net
By JP Donion

We’re in a recession and I don’t see a V-shaped recovery--more like a bathtub U-shaped recovery which will last deep into the second half of 2009 before we start to come out of it,” said former GE CEO Jack Welch speaking at the World Business Forum in New York City. In a 40 minute on stage conversation with The Wall Street Journal’s Alan Murray at Radio City Music Hall before 4500 attendees, the man who led GE for over 20 years said that “the fourth quarter of this year and the first half of 2009 will be brutal.” But he added that there is an opportunity for business leaders amid the bad news. “Take care of your best people. Put a little pot of money aside for them because some of your best people—the top 20 percent of talent—will likely miss their numbers, but this is not a time to lose your best soldiers. You will need them when for the next fight when you emerge on the other side.” Welch opined that amidst the chaos competitors with cash will come poaching for the best people among companies that are struggling or laying off people. He advised CEOs to cut costs immediately and “get it over with sooner rather than later.”

Welch attributed the current financial meltdown to many causes, saying money was essentially free and that interest rates were negative causing many to “roll the dice not once but many times.” He compared those responsible to suspects on Agatha Christie’s “Murder On the Orient Express,” where every character on the train had a motive to game the system and share the blame. Switching metaphors, he added that the situation was comparable to people going to Las Vegas but gambling with their neighbors money, not their own. “It’s a crazy system when the only penalty for losing is getting a cut in your bonus instead of one on the head.”

Welch recalled “one of my worst decisions” in the 1980s when GE acquired the investment house Kidder Peabody. “We didn’t own this outfit more than seven days when I had several guys in my office proposing a $400 million deal using GE’s balance sheet as leverage.” He recalls being so apoplectic that he “nearly lost my teeth.” If earnings “seem too good to be true, it’s because they are,” he added.

Murray asked Welch about the failure of leadership during the current crisis. Certainly there is enough blame to go around Welch agreed, but it extends beyond mortgage lenders and those who created instruments where risk was disaggregated from the asset. Members of Congress who encouraged Fannie Mae and Freddie Mac to use the U.S. Treasury as a piggy bank were also contributors to the problem, he believes. However, Welch is encouraged by the actions of Fed chairman Ben Bernanke and Treasury secretary Hank Paulson, who “didn’t let ideology get in the way.” “We’re damn lucky we have these guys,” he added. “The deal isn’t perfect but we must act now.” In addition, Welch praised New York Senator Chuck Schumer for making the connection between the need to shore up the financial system as the best way to help main street. Had Japan had a Bernanke and Paulson during that country’s financial crisis in the early 1990s, he said, it would not have been as protracted as it ultimately proved to be.

The former GE chief, himself generously compensated said he had no problem with imposing limits on compensation or separation on CEOs as part of the anticipated bailout package of concerned financial institutions.

Pressed on his political views, Welch said the U.S. system works best under divided government pointing to the years in which President Reagan battled a Democrat controlled Congress and when President Clinton had to contend with a Republican Congress led by Newt Gingrich. Asked why he supported John McCain over rival Barack Obama, Welch shook his head, his voice rising with the broad “As” in his Boston accent becoming broader still. “I don’t think you can be a businessman and support someone who wants to increase taxes in a recession and who want to unionize America. I believe in jobs and creating businesses—you can tax fat cats like me all you want—but when you tax small and medium business owners you will kill of jobs. Also, we can’t have a President who is in the pocket of the unions.”

Welch identified the pending Employee Free Choice Act (EFCA) as the single greatest hazard facing business leaders today apart from the credit crisis. Under EFCA, an employer is duty bound to recognize one—or many—unions which have obtained authorization cards from 50 percent plus 1 of the workers in any given bargaining unit. At no point in the process will the National Labor Relations Board organize and oversee any election for unit members to determine whether employees actually want union representation. “If business leaders are not aware of this terrible piece of legislation, they should be. It would hurt us dramatically in our ability to be competitive globally. Think about it,” he added, “When was the last time you heard a CEO say, ‘I wish we had a union.’ ”

Welch sidestepped questions about how his successor Jeff Immelt was performing at the helm of GE, saying he was responding to many challenges and operating in a different environment. He praised Immelt’s eco-imagination strategy saying it isn’t necessary for business leaders to believe in whether global climate change was real or not because there is a market for green products and services that ought to be served.

Asked by a World Business Forum audience member what his definition of CSR (corporate social responsibility) is, he replied dismissively, “Winning!”

“Get serious! When you win you get money. If you don’t win you don’t have anything to ‘give back’ to anyone. What did the dot coms do for CSR; they burned the office furniture to stay warm.

Seel you in the trenches - vmsteveo

October is the best month of the year...

I love hot weather. I love coming home from work and enjoying daylight until 8:30pm. I love summers... but there is something special about October.

One: The weather. Its not warm or cold. Its that perfect sweatshirt weather. The air is clean. The sky is clear...

Two: Football. I know, men like football, but football in September is almost like pre-season. Its not until the temperature starts to fall... does it really seem to be football weather.

Three: Baseball. Baseball playoffs. Its the best part of baseball. Its when the games really mean something. winners stay... losers go home.

Four: Golfing. You mean more talk about professional sports. NO. I am talking golf trips. Where men and women plan their last horray and enjoy a weekend or extended week in a nice location playing fall golf.

Five: Halloween. One of the best holidays that are commercialized. Its so simple.. that is can not get out of hand.

Six: Firepits. What is better than sitting outside on a 50 degree night around a fire place or pit....

I could go on and on and on... but for me... this is the perfect time of year. Going away on a golf trip (Thurs - Sun)... golfing each day. Watching Football on Thursday night, baseball on Friday and Saturday night, hanging with some friends.... Life is good.

Come join my October club....

CNBC Interview with Warren Buffet

Adapted from a post by Alan Crippen
Audio recording at http://www.cnbc.com/id/26867866

On September 24th, Warren Buffet was interviewed via telephone on CNBC's Squalk Box regarding his $5 billion investment in Goldman Sachs. The full transcript of their conversation is posted below which gives insight of a leaders decision making prowess in these uncertain times. Since then, on October 1st, Warren Buffett had announced that he invested another $3 billion in General Electric. Talk about a guy with Sach!! So is he insane or a savvy opportunist? Read on...

BECKY QUICK: We know you get all kinds of deals, all kinds of people who come knocking asking you to jump in. You've said no to everything to this point. Why is this the right deal at the right time?

WARREN BUFFETT: Well, I can't tell you it's exactly the right time. I don't try to time things, but I do try to price things. And I've got a formula that says bet on brains, and bet of them when it's the right type of deal. And in this case, there's no better firm on Wall Street. We've done business with them for years, with Goldman, and the price was
right, the terms were right, the people were right. I decided to write a check.

BECKY: Does the backdrop of the Federal government potentially getting involved with
a massive bailout plan for Wall Street, does that have anything to do with this deal?

BUFFETT: Well, I would say this. If I didn't think the government was going to act, I
would not be doing anything this week. I might be trying to undo things this week. I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly. It would be a mistake to be buying anything now if the government was going to walk away from the Paulson proposal.

BECKY: Why would that be a mistake? Because the institutions would collapse, or because you could get a better price?

BUFFETT: Well, there's just no telling what would happen. Last week we were at the brink of something that would have made anything that's happened in financial history look pale. We were very, very close to a system that was totally dysfunctional and would have not only gummed up the financial markets, but gummed up the economy in a way that would take us years and years to repair. We've got enough problems to deal with anyway. I'm not saying the Paulson plan eliminates those problems. But it was absolutely, and is absolutely necessary, in my view, to really avoid going over the precipice.

CARL QUINTANILLA: Warren, we can almost hear you measuring your words as you speak, because what we're talking about has such gravity. There are people out there who either don't, or are unwilling, to acknowledge what exactly, how serious the situation was last week. And I'm hearing you say is that, was it the most frightening experience you've had in your lifetime, in terms of evaluating where this economy stands?

BUFFETT: Yeah, well, both the economy and the financial markets, but there're so intertwined that what happens, they're joined at the hip. And it doesn't pay to get into horror stories in terms of naming institutions or anything. But I will tell you that the market could not have, in my view, could not have taken another week like what was developing last week. And setting forth the Paulson plan, it was the last thing, I think, that Hank Paulson wanted to do. there's no Plan B for this.

BECKY: Warren, you mentioned that Wall Street could not have taken another week like that. But what does that mean to the American taxpayer who's sitting at home saying, 'Why is this my problem?'

BUFFETT: Yeah, well, it's everybody's problem. Unfortunately, the economy is a little like a bathtub. You can't have cold water in the front and hot water in the back. And what was happening on Wall Street was going to immerse that bathtub very, very quickly in terms of business. Look, right now business is having trouble throughout the economy. But a collapse of the kind of institutions that were threatened last week, and their inability to fund, would have caused industry and retail and everything else to grind to something close to a halt. It was, and still is, a very, very dangerous situation. No plan is going to be perfect, but thanks heavens that Paulson had the imagination to step up with something that is of the scope that can really do something about it. And what he did with the money market funds, that was not an idea that I had, but as soon as I heard about it, that was an important stroke. Because the money, pulling out of the money market funds and going to Treasuries, and driving Treasury yields down to zero. That -- a few more days of that and people would have been reading about lots and lots of troubles.

JOE KERNEN: People listen, Warren, when you speak. And I don't know if you watched the hearings yesterday ...

BUFFETT: I got to watch some of them.

JOE: But when the more dire it looked, in terms of communicating, with some of these Senators, the three-month or one-month bill, again, started acting similar to what was happening on Thursday. Now we averted that disaster on Thursday, but it's already been three or four days. It's almost as if these guys already forgot about the position that we were in. Do you think that accounted -- we're still susceptible to that happening again if it looked like they're not going to go through with this?

BUFFETT: No, it would get worse. Last week will look like Nirvana (laughs) if they don't do something. I think they will. I understand where they're very mad about what's happened in the past, but this isn't the time to vent your spleen about that. This is the time to do something that gets this country back on the right track. What you have, Joe, you have all the major institutions in the world trying to deleverage. And we want them to deleverage, but they're trying to deleverage at the same time. Well, if huge institutions are trying to deleverage, you need someone in the world that's willing to leverage up. And there's no one that can leverage up except the United States government. And what they're talking about is leveraging up to the tune of 700 billion, to in effect, offset the deleveraging that's going on through all the financial institutions. And I might add, if they do it right, and I think they will do it reasonably right, they won't do it perfectly right, I think they'll make a lot of money. Because if they don't -- they shouldn't buy these debt instruments at what the institutions paid. They shouldn't buy them at what they're carrying, what the carrying value is, necessarily. They should buy them at the kind of prices that are available in the market. People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments. If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually.

BECKY: Are you buying instruments like these in the market?

BUFFETT: Well, I don't want to leverage up. No one wants to leverage up in this thing. So, if I could buy a hundred billion of these kinds of instruments at today's prices, and borrow non-recourse 90 billion, which I can't, but if I could do that, I would do that with the expectation of significant profit.

JOE: But the government can do that. You can't. And that's why the private sector can't, even you, can't save the system.

BUFFETT: I can't come close to it. But they have the ability to borrow. They can borrow much cheaper than I can borrow. They can borrow unlimited. They don't have covenants. They don't have -- I mean, they are in the ideal position. So, for example, if I were hiring advisers, as I talked about doing to buy these things, I would tell those advisers, 'Look it! People are buying these instruments to make 15 percent. So if you're going to charge me any fees, I'm going to defer those fees until I get rid of these instruments later on. If I don't make at least ten percent on my assets, you know, your fee goes down the drain. Because it should be a lead-pipe cinch to make 10 percent at the kind of prices that exist now. I wouldn't try to write that into the legislation. I don't think you should -- I think they should punish, in many cases, the people -- I would think they might insist on the directors of the institutions that participate in this program waiving all director's fees for a couple of years. They should, maybe, eliminate bonues. They may wish to do some of those things. I don't think you should try to write it into the instrument, though. I think that gets so damn complicated and ties people's hands. But if I were administering the program, I think I'd be fairly tough about some of those things, and I'd make sure that the advisers earned me a return that was well above my cost of borrowing before they got paid a dime.

BECKY: Would you administer the program?

JOE: Yeah, can you be on the oversight board? (Buffett laughs.) Can you be on the oversight board?

BUFFETT: I'd love to administer (laughs). I'd love to administer it for nothing, but I would really love to administer and get some kind of an override in terms of the profits, which is naturally the way Wall Street thinks. No, it's not my game to do that, but I will tell you that the buyers of the instruments these days are going to do better than the sellers. And the big buyer, if they -- they shouldn't pay any attention to the cost of these instruments to the selling institutions. They shouldn't pay any attention to the carrying value. In fact, one thing you might do, is if someone wants to sell a hundred billion of these instruments to the Treasury, let them sell two or three billion in the market and then have the Treasury match that, for what they pay. You don't want the Treasury to be a patsy. But I'll tell you, with Hank Paulson on top of it, you couldn't have any better guy to do that. The important thing is that if this program extends into the next administration is to have somebody in the next administration that has similar market savvy.

CARL QUINTANILLA: Separate from the bailout, Warren, people obviously this morning want to look at the Goldman deal, I guess on top of Mitsubishi-Morgan, which happened yesterday and wasn't nearly as popular, at least from a market point of view. But they want to point to you as the 'canary in the coal mine.' Is that fair? Do you have a problem with that?

WARREN BUFFETT: Well, as long as the canary lives, I'm fine. (Laughs.)

CARL: I'm guessing you're going to live. At least, you're guessing you're going to live?

BUFFETT: Yeah, I think so. (Laughs.) This is, you know, from our standpoint, we've had a lot of cash. And we now are seeing things that, you know, give us a chance to use that cash sensibly. And this was a five billion dollar opportunity to, I think, deploy cash sensibly. I understand, incidentally, that there will be another five billion. In other words, they mentioned 2-1/2 billion, but I think they're going to allocate it down to five billion additional. So Goldman will have ten billion, I believe, of new money coming in.

BECKY: In that capital offering. In the release, they said 2-1/2 billion (of common stock would be offered in addition to Buffett's investment.) You're saying you understand it's five billion?

BUFFETT: Yeah, I think they have quite an outpouring of orders, so I think -- They'll be allocating it down, but I think from all over the world. So I think there will be five billion of additional common stock sold. That will be determined and announced, I believe, before the opening.

JOE: How much do you know about AIG and their books right now, Warren?

BUFFETT: Well, I think I know a fair amount, but I don't think anybody knew what they needed to know, including the management. The troubles there were in the subsidiary, AIG Financial Products, and they had hundreds of thousands, I'm sure, hundreds and thousands of derivative contracts. And I think that top management did not have their mind around what was involved with those contracts. And you can do a lot of damage on Wall Street with a pen and a piece of paper.

JOE: How many of those units are going to end up under the Berkshire umbrella?

BUFFETT: Well, we would have an interest in a couple of 'em. And actually over that weekend I expressed an interest in one or two, but the pressures were such, and the hole was deep enough, that they simply couldn't get it worked out. And some of those units, most of those units, I believe, will be for sale over the next year or two. And we would be interested in a couple of them. I think they'll probably do a pretty intelligent job of selling them, which means we won't be as good a buyer.

BECKY: You know, Warren, we've been trying to figure out -- I have to admit that I was shocked when I heard the news yesterday about this deal with Goldman, because you haven't put any money into an investment bank since 1987, Salomon. And that was a deal you had to get personally involved with later in 1991 when you went to run the company for almost a year. It was a very difficult experience. I'm shocked that you would get back in with another investment bank. Why do it?

BUFFETT: (Laughs.) Well, the pain has worn off. That won't be happening with Goldman, but I -- That was a very unfortunate experience, and it was actually caused by just a couple of people out of a workforce of 8000 that got the company into big trouble. And I had the help of a lot of people at Salomon in getting out of it. But I don't think this experience will be similar. Goldman has been extremely well run. My experience with Goldman goes back, when I was nine or ten years old my parents took me back to the New York World's Fair, and by an odd chance I got to sit down with Sidney Weinberg, who was the dean of Wall Street then, and he talked to me as if I was a grown-up for 45 minutes. I've never forgotten the experience. Gus Levy (who later ran Goldman in the 1970s) was a good friend of mine when I worked in Wall Street. In 1955, we only had four wires to Wall Street firms and one of them was to Goldman Sachs and Gus was on the other end of the phone. So I've had a long experience with Goldman and they've done a lot of things for me recently.

JOE: I just assume you know what was going on at all of these firms because I know everybody probably came to you and you made your decisions one-by-one on what to do. When you look at the way some of these assets were marked, could you tell that, for example, Lehman still wasn't facing reality and perhaps Merrill Lynch was more in the real world?

BUFFETT: Well, I think that turned out to be the case. I was approached on Lehman back in, I think, maybe it was April or March. But the first round of financing when they raised the four billion, and, yeah, it looked to me like it was pretty unrealistic where they were marking things. I feel good about the Goldman marks, incidentally, that's one of the discussions I've had. And -- You can be pretty fanciful in marking positions in Wall Street, particularly when things aren't trading. The one thing you want to make sure, when the Treasury is buying things, is the marks they have don't make any difference. Like I said, it wouldn't be a bad idea, if you're buying ten billion of a security and you're the Treasury, to have them sell five-hundred million, or something like that into the market, so you find out what the real market price is and then buy the other 9-1/2 billion at that price. I really think, I really think the Treasury will make -- I think they'll pay back the 700 billion and make a considerable amount of money, if they approach it in that manner. But I don't believe in trying to write that into some legislation. I think it gets so unworkable. I think you have a smart person in charge, and have them treat it like it's their own money, and the taxpayers' money, in terms of behavior, and I think it will work out very well. I think it's not comparable to the RTC.

CARL: A lot of people who are watching us Warren, and even people who have just started watching us over the past week or two, look at the stock market every day and are confused. They want to use it as a metric for how we're doing, or at least the progress we're making on big issues. I'm guessing you don't think it's reflective of anything that's based in reality right now?

BUFFETT: Well, the stock market in the short -- my old boss Ben Graham said that in the short-run the stock market is a voting machine, in the long-run it's a weighing machine. As a voting machine, it responds to people's emotions. There's no literacy test for voting. You vote according to how much money you have, not according to how smart you (are.) So the stock market does some very silly things in the short-run. Over the long-run, it behaves quite rationally. And, you know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well. But they shouldn't own it on leverage. That's what people have learned in this period, that you've got to be able to play out your hand and it's a big mistake to let somebody else be in a position where they can sell you out.

BECKY: Warren, when you first invested back in '87 in Salomon, I believe your partner, Charile Munger, was not as enthusiastic about the idea as you were. Is that true?

BUFFETT: That's true. Of course, he's never as enthusiastic about my ideas as I am. But I would say he was even less enthusiastic. (Laughs.)

BECKY: How does he feel about the Goldman deal?

BUFFETT: Well, I'm glad you asked because I, (laughs), didn't tell him about it until after it was done. (Laughs.)

CARL: How rude!

BUFFETT: (Laughs.) Yeah, it is kind of rude. But Charlie's wife had a bad fall and he's (inaudible) and I called him last night about an hour after I committed it, or something, and I called kinda like a little boy ... (laughs) ... bringing into the house something he was a little worried about. But, Charlie's all for it. (Laughs.)

BECKY: He's all for it.

BUFFETT: Yeah. Now I'm really worried.

BECKY: Uh-oh. For the last nine months, Berkshire has spent a lot of that cash it's been hoarding over the last several years.

BUFFETT: That's right.

BECKY: I was trying to figure it out. I think it's about 24 billion dollars you've spent in the last nine months?

BUFFETT: Yeah, we've spent a lot of money. The money, the money we've spent, you know, we've found things we like to do. It's nice to have a lot of money, but you don't want to keep it around forever. I prefer buying things. Otherwise it's a little like saving up sex for your old age. (Laughs.) At some point, you've got to use it. (Laughter.)

JOE: Uh-oh.

BECKY: Twenty-four billion dollars. Is that a right guess and how much cash do you have left?

BUFFETT: You know, it would be 6-1/2 for the Mars deal, there's five for this, there's five for Constellation, there's a couple of other things. So, yeah, your addition is fine, Becky.

BECKY: How much cash do you have left?

BUFFETT: Well, I've got enough. (Laughs.) I don't really look at it every day. I look for opportunities every day, and then if I find opportunities, I see if I've got enough cash around to take care of them.

JOE: Well, by my calculation, if you lever that up thirty times, Warren, you can really get serious here. (Laughter.) Maybe you don't want to do that, I don't know. (Laughter.) What about, how are we going to deal with this looming 50 -- we just had (New York State Insurance Commissioner) Eric Dinallo on, I don't know if you were watching, Mr. Buffett. He talked about, he can, maybe New York and his unit can look at the twelve billion, or trillion, jeez, we've got to add a T. I'm finally getting used to Bs, now we have to add a T. But what we are going to do with that 50 trillion and how, having that still around, all these credit default swaps, how serious is that, and how are we going to unwind it and deal with it?

BUFFETT: Yeah, well, it goes beyond credit default swaps into all forms of derivatives. But the derivative genie got out of the bottle, and it's a huge genie, and it will never get back into the bottle. It is a terribly tough problem because they are not homogeneous items. It's one thing to have a clearing house for the futures in Chicago, or something, and every morning have everybody post to market and that's a very efficient system. It's very hard to do that with derivatives where you can derivatives based on the New Zealand money supply or the number of babies born in Japan, and all kinds of things as the variables. And they're often very complicated. I applaud Dinallo. He is an outstanding insurance comimssioner. But getting regulation around the entire derivatives market is really tough. I've thought a lot about it. But it's important. Derivatives have been an important part of the problem in financial markets. And they continue to be part of it. And in AIG's case -- AIG would be doing fine now, I think, if they'd never heard of the word derivative.

BECKY QUICK: Mr. Buffett, the front page of the Wall Street Journal and other media organizations around the globe have been picking this up, your move yesterday into Goldman Sachs, as a vote of confidence in the banking institutions across the globe. Is that fair?

BUFFETT: Well, I'm not buying a cross-section of banking institutions. But I certainly have confidence in Goldman. And you can say it's a vote of confidence in the Congress to do the right thing with something that's being debated before them right now.

CARL QUINTANILLA: You know, Warren, some might say, 'OK, we know Buffett is a pure capitalist. he's in this to make money and nothing else.' But also you're a philanthropist, you have interests in seeing the country do well over time. Some might say he's doing this, he's timed this to help get the package through. Is there anything -- is that even close to reality?

BUFFETT: No. I timed this because Goldman Sachs yesterday came up with something that made sense to me. I'm not brave enough, to try and influence the Congress. The other way around, they influence me. And I am betting on the Congress doing the right thing for the American public by passing this bill and not trying to doctor it up with a hundred things that, you know, emotionally they feel should be on the bill but as a practical matter will gum things up.

CARL: When do you think, Warren -- I don't know if you even have an answer to this question -- When is the absolute deadline by which you think this needs to happen? Is it this weekend? Can you be that specific? Or if this thing were to bleed into next week, or if they had to reconvene a special session, would that be disastrous?

BUFFETT: Well, I think anything that makes it look like it's in doubt is what causes the problem. So if they said on Friday we're absolutely having a vote on Monday, or something of the sort, I don't think that would be a problem. But if they went home on Friday and there was doubt about whether they were going to do something on Monday, I think you'd see some things you don't want to see in the markets and they would have some effects on the economy.

JOE: You were watching yesterday, and I don't know, maybe I don't know the ways of Washington. Maybe they say one thing and maybe they're really planning -- you know, they have to look good for their constituents. But I wasn't convinced they really understood the seriousness of the situation, Warren, and that was after they said, look, Greenspan says we need this, Volcker says we need this, Bernanke, Paulson. Now we have you. I don't know. Do you think they get it?

BUFFETT: Well, I think they will get it. I think enough of them will get it. You know, it's not like Pearl Harbor where you could look at what happened with your own eyes and decide you had to do something that day. But this is sort of an economic Pearl Harbor we're going through. And I think most of them will get it. And I do believe they will do what's right for the country. They may vent their spleen a little bit by getting mad about the people that brought us into that, and I don't blame them for that. I might do that privately, too. But in the end, you know, Republican, Democrat, I think they've got the interest of the country at heart and I think they will do the right thing. But I hope they do it soon. (Laughs.)

BECKY: Warren, how long were you talking to Goldman Sachs and how significantly did they have to change the terms of the deal to get you interested?

BUFFETT: Well, what they -- they had talked with me -- almost every financial institution has talked with me, that you read about, over the past few weeks. But, but, they were serious yesterday about doing something. They said, in effect said, 'What would you do? What would Berkshire do? And I laid out something. And they said, 'That makes sense to us.' And we had a deal. It doesn't take long.

JOE: You were kidding Becky when you said that you did this just 'cause you knew we were going to ask you when you were going to do something in financials again and you wanted to have an answer.

BUFFETT: Joe, Joe, I was not -- you know, I was trembling with the thought of you asking me again, 'When are you finally going to do something?' (Laughs.) So this was definitely an attempt to get you off my back.

JOE: It was a cheap way, a mere five billion, so you'd have something to show us this time.

BUFFETT: That's right. I mean, your withering questioning is just too tough for me. (Laughs.)

BECKY: You know, you mentioned earlier, in the grand scheme of things, it's going to matter who the next Treasury Secretary is going to be. Are there names of people you think would be sound in either administration.

BUFFETT: Becky, if I were running things, Republican or Democrat, I would ask Hank to stay on. I mean, you don't get talent like that very often in any administrative job. And the guy pays an enormous price to do it. He's probably sleeping three or four hours a night. He knows the market. He's got the interests of the country at heart. So I think if I were either Barack Obama or John McCain and found myself in the White House in January, I would go down there and say, 'Hank, do me a favor, stick around another year.'

CARL: And Warren, if you believe, as a lot of people do, that we are in for several years of this unwinding process, the government's going to play a huge role. If you were called to do something on the public side, would you do it?

BUFFETT: Well, I would certainly be glad to help in any way that I could. You know, I would be looked at as having conflicts-of-interest, I'm sure. But anytime I can be helpful on something -- For example, in terms of what you might do with institutions that participated in this program, I think the Treasury can, they can lay down some terms for these people. I don't think they should be in the legislation, but I think -- And if anybody wants my opinion on it, I'd be glad to help them out.

BECKY: Warren, if ...

BUFFETT: They can make money on this deal. I can tell you this. I would love to have 700-billion at Treasury rates to be able to buy fixed-income securities now that they're in distress. There's a lot of money to be made.

JOE: It's just that, you know, they want these details, Warren. They said -- Paulson says there's the hold-to-maturity price and there's the firesale price. We're going to go somewhere in between, get a much better price but still leave enough for the people that are buying it to make some money. That can be done in principle? There's a way to do that, do you think?

BUFFETT: I think what I would be looking for -- I heard that hold-to-maturity price. I'm not as excited about that. I basically like a market, or something very close to a market-related price. And there are ways to determine that and I don't think that Uncle Sam should be in the business of paying somebody a whole lot more than it's worth in the market today. And if the guy that bought it doesn't like it, he doesn't have to sell it, and it was his problem, he bought it in the first place. I think a market price will enable people to be leveraged. The problem they have now is that some of the institutions, they're loaded with this stuff, they're having trouble funding, and they're worried about being able to sell a ton of it. But take the Merrill Lynch deal. Merrill Lynch had to take back 75 percent of the sales price. Well, they didn't want to take back that 75 percent. I would let 'em sell it for the same price, but I'd pay them the whole thing in cash. So they'd be a lot better off if they could have sold the whole thing at that same price but gotten paid a hundred percent in cash instead of having to take back 75 percent. And I see the government fulfilling that kind of a function.

JOE: All the outrage we're seeing in these comments from viewers, and obviously the senators are hearing from constituents. If we take your word for it, that the government could even break-even, or only lose 50 billion, that 700 billion dollar number is out there in the public, and people think that we're spending that.

BUFFETT: Yeah, they think that, yeah.

JOE: It seems crucially important to get the point across that, in your view, we could, the government could actually end up making money and saving the taxpayer from much worse, a much worse outcome if we didn't do this.

BUFFETT: The government is getting 700 billion worth of assets, assuming they spend the 700 billion, they're getting 700 billion of assets at what I regard as attractive prices. And they've got the staying power to hold those things. If I could get 700 billion, if I could borrow 700 billion on the government's terms and buy these assets I'd be doing it myself. But unfortunately I'm tapped out. (Laughs.)

BECKY: And yet, Warren, Mayor Mike Bloomberg, I heard him making comments this morning, and he's someone I know you've spoken very highly of ..

BUFFETT: I admire him.

BECKY: You admire him. he says this morning we should not be giving a blank check to have something passed in the dead of night. How dire is this situation?

BUFFETT: Well, I'm sure we didn't want to go to war on December 7, 1941, maybe, in the dead of night, or whenever we did it, in the middle of the afternoon actually. But there are time when events force timetables on you, and force action, and you have to be -- You know, it's just like in my business. I might like to think over buying something for a month, I'm not that type anyway. But in the end, if somebody offers me something that makes sense, I better decide whether to act or not. And if it makes sense to me, I usually don't attach unnecessary conditions, you know. It would be nice to have the luxury of thinking about this for three months. But I will tell you, if you think about this for three months, you're going to have a situation where -- If you think about it for three weeks, you're going to be facing a situation that's far different, and far more difficult, than if you do something now.

See you in the trenches - vmsteveo