Posts Tagged ‘Benioff’


At Cloudforce, New York last Friday, we heard a smattering of things we also got at Dreamforce.  That was part of the plan because Salesforce bills its regional events as a chance to bring Dreamforce to the customer.  As proof I heard that Marc Benioff and crew are off to Japan this week to do it all again and there are various other trips like Europe that they also do.  That’s quite a travel schedule.

One of the less well-known parts of both events is the press conference held immediately after the keynote for members of the technology and financial analyst communities as well as the technology press.  It’s also the most intimate part of the whole conference, the time when we get one on one with Marc and the atmosphere more resembles a graduate seminar than anything else.

Of course, Benioff has to maintain a certain reserve given his status as the head of a publicly traded company.  Questions about future earnings are not encouraged and they can’t really be answered but people still like to ask.  It’s fun to watch the non-answers.

Two ideas struck my radar in the press conference — one, the idea that Windows is “over” but also, a more mature attitude by Benioff toward competition.  First Windows.

This wasn’t the first time I have heard Marc say that Windows is over but this time it had the ring of truth rather than being more like the hyperbole of a competitor.  Benioff thinks Windows is no longer necessary and when you say Windows you might also include OSX or any other operating system whose purpose is to provide a general purpose operating environment for applications.

You know this in your bones by now.  With applications and data becoming increasingly cloud resident, a much smaller and more secure operating system that supports a browser and not much more is about all you need.  Google Chrome is a kind of new era OS and the Chromebook a new device that leverages these ideas.  So the stage is apparently being set and Benioff thinks that Windows 8 will be an important inflection point in the history of the operating system.

You can already see problems with Windows revenues especially in the latest numbers the company reported last week.  The Windows Division’s revenue was down 33% year over year and the company’s net income was off 22% with revenue down eight points over the prior year.

Microsoft has become another example of what Clay Christensen described in The Innovator’s Dilemma of a company wedded to its golden goose unable to pivot to the new revenue generator in part because the new generator would force revenues down.  New things cost less and in the ever-ongoing product commoditization cycle less means less and you have to make it up on volume — that’s the cloud.

So, devices are what’s driving the market — the handheld a.k.a. phone and tablet, which come in multiple sizes for different applications.  Devices use stripped down operating systems like iOS, Android and Windows Mobile (and Chrome) and users spend much more time in a vendor’s site or app than ever making the general purpose OS less and less necessary.

Microsoft has more or less seen the same thing coming, which explains at least on one level, the company’s rush to the cloud.  You might even say similar things for Oracle and its latest release 12c.  It goes without saying that the UI and the data center are different places and operating systems will continue to be as important in the data center as the air you breathe, at least for now.  But Oracle is showing that it understands the new reality though it isn’t necessarily playing at the same level as Salesforce, which brings us to my second point.

I also saw a more mature attitude about competition than I could see just a few years ago and I think that was at least in part because Benioff knows he’s winning.  He made the comment that the competition used to say they had a better approach than Salesforce, as in Larry Ellison’s words that cloud computing was all vapor.  Competitors used to say that cloud or SaaS was dangerous to your business, that it was not secure or any of a hundred other things designed to spread FUD (fear, uncertainty and doubt).  But that’s ancient history.

Now, Benioff noted, all the competition is saying, “They have what Salesforce has”, which is typically a variant of cloud computing designed to provide infrastructure as a service (IaaS) and thus keep customers locked in.  Nevertheless, in other words, the dynamic has shifted and the competition has learned that is has to play a new game.

Finally, one more impression.  It seems that Salesforce has now articulated three distinct ways of socializing the enterprise and they’ve done a good job of showing how their products apply in each case.  The three cases involve socializing the vendor-customer interface, socializing the employer-employee interface and socializing the man-machine interface.

The vendor-customer interface is the oldest challenge and the place where Salesforce and CRM got started.  The employer-employee interface is a bit newer and it is still being fleshed out but Salesforce and its partner ecosystem with companies like Jobscience, are populating the market with credible solutions.  The man machine interface is both the newest and possibly the thing most dreamed about for the longest time.

Much of the advancement is coming by way of Chatter, which is advancing on all fronts.  With its suite of socialized business solutions Salesforce is now able to approach its customers on multiple levels.  Socializing the enterprise will be a slow process and there is no telling which socializing approach will first appeal to customers.  For example, GE and Coke are apparently starting with the man-machine interface but it will be logical to expect success to breed success.  Success in one area like the man machine interface will give a company confidence to try something in another area like the vendor-customer interface and in so doing a company will socialize itself.  Most importantly, and this should really be in ALL capital letters, the economy will be socialized as well.

I am fond of studying macroeconomics and looking at long-term economic cycles called K-waves after the Russian economist Kondratiev.  From Wikipedia we get this on the Kondratiev cycle:

Kondratiev’s economic cycle theory held that there were long cycles of about fifty years. In the beginning of the cycle economies produce high cost capital goods and infrastructure investments creating new employment and income and a demand for consumer goods. However, after a few decades the expected return on investment falls below the interest rate and people refuse to invest, even as overcapacity in capital goods gives rise to massive layoffs, reducing the demand for consumer goods. Unemployment and a long economic crisis ensue as economies contract.

If that sounds at all familiar you understand my interest.  So my big question as I continue to watch and report on the evolution of the Social Economy is simply to try and understand if social is the new K-wave or at least part of it.  It’s not the only contender and things like raw materials and resource management and alternative energy development seem to be more germane as fundamental K-wave candidates.  But social will at least be an important substrate for the next K-wave linking together people and, increasingly, devices and that’s why I go to events and try to listen carefully at press conferences.


This week Zach Nelson, CEO of NetSuite, a.k.a. Larry’s other company, took over the Marc Benioff chair as guest antagonist but given the relationship between the companies the vibe was more sedate.  For instance, no one went to the talk at the Lam Theater in Yerba Buena Gardens wondering if Nelson would be controversial or if he would utter the words, “We come in peace,” as Benioff once had.  That much was a given.

Nonetheless, Nelson served roughly the same purpose as Benioff; he was the emissary from the cloud.  He functioned as a third party thought leader pointing off in a future direction that Oracle itself could not for various reasons.  Nelson’s direction and his talk cemented one of the key elements of cloud computing for large enterprises contemplating — what to do about the growth of increasingly expensive and hard to maintain ERP systems.  In an era where data and decision-making are continuously being pushed down the chain of command conventional on premise ERP has a flexibility problem and that was the subject of Nelson’s talk.

For at least the last year various vendors have been talking about their two tier strategies in which they provide a second layer of ERP support or they cooperate with other vendors to do so.  Nelson used his time to describe the advantages of using a product like NetSuite in a variety of ways that demanded a second tier of ERP.

For instance, a large multi-national company might use a second tier of ERP systems to capture local or regional data, convert currencies and adhere to local regulations before rolling the results up to corporate in a more tidy bundle.  The two tiers could in practice be all NetSuite but Nelson’s point was to also support heterogeneous environments in which Oracle or SAP might be the corporate standard.

Finally, an question that is on lots of minds during a merger, acquisition or sale of a division is what to do about the financials.  I have to confess that this is not top of mind for me but I can understand how it can be for the principals.  Nelson’s point is that his product, by virtue of its cloud residency, can spin up a company very quickly and enable the separation or merger as the case may be.

The two tier strategy is a happening thing and I expect that we will hear more about it over time and not just from ERP vendors.  Much the same argument could be made for front office conversions.  As multiple conventional CRM systems begin to age out we might see SaaS CRM vendors trying to ease the transition for their own products.

Finally, two tier provides other benefits to companies such as limiting the growth of conventional ERP and initiating a transition that will move some to the cloud eventually and away from big ERP systems.  That’s what Oracle can’t say on its own because as much as it would like to surround SAP systems with NetSuite and eventually convert them, it would not like to see the same thing happen with, say, Microsoft ERP surrounding and ultimately ejecting Oracle from an account.  NetSuite has an inside track right now because it runs a complete Oracle stack which will make conversion easier while keeping it all in the family.

Zach Nelson’s talk was a success.  He presented an appealing vision of ERP in the cloud and for that I think it’s a lock that he’ll be invited back.


I honestly thought I was going to have to wait longer to hear anyone from Oracle talk about seriously focusing the company’s hardware and software lines on the Cloud.  True, they’ve been saying cloud-like things for a couple of years but the pronouncements were features and functions that added something to the cloud discussion without going “all in” as some others in the industry have said.  But last night CEO Larry Ellison did what I’d forecasted last week in a way that is uniquely Oracle but nevertheless a good, defensible (and somewhat debatable) position.

Here’s what I said last week in my forecast,

It seems this family of hardware (Exa-hardware) is built and optimized for very big jobs involving terabytes of data and gazillions of users.  That’s exactly the kind of stuff the growing cloud computing movement might gobble up.  Currently data centers are masses of commodity servers in racks running feverishly but without a layer of sophisticated management that would optimize their utilization and reduce costs…

And,

The next logical step would be to endorse the Exa-hardware as a sustainability tool for a power hungry planet.  I’m looking for some sustainability messaging from Oracle and it could even happen…

And,

Sustainability is not alien to ideas like mobility, cloud, social and analytics, you can’t separate them.  I think if Oracle wants to maintain its leadership position with many of the largest companies in the world, it needs to put a stake in the ground and become a thought leader here…

So last night, Ellison took aim at the cloud and announced Oracle 12c a database for the cloud that supports multitenancy, if you want it, and he announced the Oracle Private Cloud running on Exa-hardware and delivered as a tight bundle to customers who want to get to the cloud, simplify their lives, and not fret about managing all that stuff.  He also announced Exadata 3, which can hold up to 26 TB of data – “All your databases.” The cool thing about Exadata 3 is that the 26 TB is all silicone based memory, it doesn’t count the spindles that are rapidly becoming secondary in a high performance enterprise environment.

He made some traditional arguments about the cloud being more efficient and economic and at some points came close to claiming credit for inventing it.  Truth is he did have a hand in inventing modern cloud computing as a very early investor in Salesforce and NetSuite and as the Zen master for Benioff and Nelson.  But his skin in the game had been relatively minimal.

Now, while there is plenty to like from a sustainability perspective, it should be acknowledged that what got announced is a bunch of half steps designed to get enterprise data centers into the cloud without much disruption.  I think this means that Oracle, for the moment (which will be about a decade) will not be aggressively selling the virtualization that comes with multitenancy and as a result there will still be a great deal of wasted power and underutilization in some cloud data centers.

But in a decade we could see a switch flip and everyone will get religion about power consumption and pollution and the switch to virtualization will happen very quickly because some very large companies will have been prepositioned for the change.

Actually a decade might be a long time and 6 or 7 years might be more like it simply because Oracle has many competitors going to the cloud, most notably Salesforce, and that will accelerate the timetable.

The next step, which has to come this week, will be for the company to shift gears to software – cloud based software – that makes the cloud even more attractive.  Look for this to happen especially in the CX Summit or whatever they are calling it, on Wednesday.  That will be the day that Anthony Lye talks a lot about how the companies he bought last year – like RightNow and ATG and others – are making the Oracle cloud a serious competitor.

Achilles’ heel is still Fusion.  What’s up with Fusion?

Finally, many, if not most of the big cloud computing companies are running fault tolerant data centers using conventional racks of blade servers and disks.  That’s giving us 3 to 4 9’s of reliability but I think before we can hope to get to the 7 to 9 9’s that will make cloud truly ubiquitous and universal utility grade computing we’re going to need some re-architecting.  Regardless of what you might think of Oracle’s approach to the cloud, the hardware is an appealing approach for that alone.

Oracle likes to message that 20 out of 20 of the top banks/pharmaceutical companies/whatever, use Oracle and it wouldn’t surprise me if they’re going for 10 of the 10 biggest cloud companies.  That will take some work and given the multiple levels of competitiveness and lack of love between the players, that might take even more than a decade to happen.


Dreamforce hasn’t even happened yet and I am already wishing it was about double the time it’s set up for.  I’m arriving in San Francisco on Monday, two days before Marc Benioff’s keynote kicks everything off and I am already running late.

As has become customary, many Salesforce partners are holding user group meetings just before Dreamforce to keep their customers’ expenses down and have maximum impact on them.  This is an unintended by-product and benefit of being in the ecosystem.  To that end I’m attending Subscribed, the user meeting of Zuora, which would be worth the trip all on its own.

I have no more time for meetings and some of those on the calendar are looking dicey.  There are too many parties, dinners and coffees to possibly make all of them and there is a full calendar of really good keynotes and other meetings for analysts to attend sponsored by Salesforce.  Give me two more days!

Salesforce will be briefing me under NDA about the big news that will come out of the show so I can’t help you with anything semi-official other than to direct you to a piece by Chris Kanaracus in NetworkWorld.

According to statements made by CEO Marc Benioff, at TechCrunch on Tuesday, we can look for important announcements about a new service that’s like Dropbox, an identity management system, more information on the company’s integration with Workday and the company’s new Marketing Cloud.

That sounds like a full plate but curiously it doesn’t seem like enough.  Back in 2004, Benioff had a George W. Bush impersonator walk on stage and disrupt the proceedings with a short speech to “this Fundraiser,  Thanks Marc.”  But that was because Dreamforce was held on election day if you can believe it.

This year I don’t look for the same kind of stunts because this year there is too much information to get across.  Consider my schedule for Thursday — Sales Cloud Keynote, Work.com Keynote, Service Cloud Keynote, Chatter Keynote, Platform Keynote, Data.com Keynote, Marketing Keynote, SMB Keynote.  And that’s just the MORNING!  You don’t have a keynote without making an announcement of some kind so that’s why I think Benioff’s remarks at TechCrunch were useful but they’re just a teaser.

We could easily have two more days of this because unlike other shows where I could totally miss some ERP or other sessions that are not in my wheelhouse, everything at Dreamforce is relevant and important to cover.  So it might sound strange with Dreamforce still in the future but I already want more, maybe not more information but more time to absorb it.

Dreamforce Previews

Posted: August 29, 2012 in CRM
Tags: ,

My sources tell me that Salesforce.com will be handling its major Dreamforce announcements differently this year.  Rather than letting us drinking from a fire hose at the event, they promise to tell us much of their news before hand so that they can spend the keynotes (I assume) drilling down into more of the substance of their announcements.

So far, I’ve only been briefed under NDA so there’s not much I can report.  But the earnings call from last week gave some insight into what might be on the table in September.  During the call with analysts, President, CEO, Chairman and Co-founder Marc Benioff talked about some of the product lines and his interest in making the Marketing Cloud #1 in its space.  You can read the whole transcript here.

The Service Cloud has passed the $500 million run rate and is well on the way to being a billion dollar revenue generator for the company according to Benioff.  That’s important because the company is very keen to show it is more than an SFA vendor and half a billion bucks draws some attention.

But Benioff’s major focus was on the Marketing Cloud, which was first announced last year with the acquisition of Radian6 for $300 million and enhanced by the purchase of Buddy Media.  At the earnings call Benioff said, “We believe that CMOs are going to want their own cockpit to fly, their own fighter jets, because honestly, CMOs are going to start spending much more than CIOs in technology.”  You can’t argue with that.  But more interestingly, he went on to say “IBM has said that, a lot of companies have said that. We agree with that and we want to invest so that we can take advantage of that spend.”

All right then.

But this raises some interesting questions.  In any company there are pockets of power.  The CEO has the most but each of the C-level officers has a turf to defend.  If the CEO is king then the others are dukes and princes.  So the thing I want to know, which is unknowable now, is whether the CIO will become more like the CMO or if the CMO will become more like the CIO?  Will both positions survive?

These are interesting questions.  Over the last thirty years each of these titles has evolved out of almost nothing and, believe it or not, each has traversed roughly the same path from geeky silo to strategic thinker.  CIOs came out of MIS, which at one time was focused on keeping all the green lights flashing and writing programs for reports.  But the CIO became a player when he or she got an MBA and began contributing strategic ideas about how IT could help the company save, and especially make, money.

The CMO has a similar founding myth.  Marketing became captive of the CFO when computer based financial systems began to show the truth of the old maxim, “Half my marketing budget is wasted. I just don’t know which half.”  Over time, according to friend and CMO consultant extraordinaire Thor Johnson, CMOs have also taken the MBA route and begun talking less in the board room about mailings and hit rates and more about revenue, costs and benefits.

The glue that keeps the CIO and CMO inextricably bound is IT but IT isn’t what it was when this all started.  IT today, as Benioff’s company has been positioning it over time, is positioned more at the line of business.  The marketer has less need for IT in a world that is increasingly socialized through products that can be manipulated almost as easily as an iPad.

Also, with products like those from Salesforce and other cloud providers, costs are lower and therefore budgets can shrink somewhat.  This is not to say that IT and the CIO are becoming relics or that there are no big technology hurdles left to overcome.  Just the opposite.  But when we start to look at budgets, money is power and the dukes and princes all want more.

So that’s the genesis of my question — will the CMO become more like the CIO or the reverse?  This kind of quandary is rarely Boolean and so a dark horse like the CRO becomes very interesting.  Of course, this is all way ahead of things.  Right now we’re trying to figure out if the Marketing Cloud can generate billion dollar revenues for Salesforce as Benioff is predicting butit’a also part of a future we need to discern.

At the earnings call, Salesforce increased its guidance to analysts that it would have revenues in excess of $3 billion in its current fiscal year.  Getting service and marketing to contribute at the billion dollar level gets the company into the five billion dollar range and into the Fortune 500 with a comfy margin.

Benioff was also talking up the company’s developer platform and internal social network for enterprises of all sizes (Chatter).  So far much of what we’ll learn at Dreamforce is still under wraps but one thing being actively discussed is the raft of CEOs attending which will include Richard Branson (Virgin), Jeff Immelt (General Electric), Angela Ahrendts (Burberry).  Dreamforce has never been dull but this one is shaping up to be something else.


Doubtless you have heard of the social enterprise by now.  It is Marc Benioff’s leading salient in a world he is convinced needs his solution to modern business.  But you also know that, like many other trends, this one is a work in progress.  For every Kimberly-Clark, Burberry’s and NBC Universal there are, what?  Banks!

No, not the banks that ran fast, free and loose with investor’s money or made up mortgage backed securities and cleverly also invented derivative insurance at the same time on the theory that every boat needs a lifeboat.  No, those were investment banks.  Regular old banks that do the mundane tasks of balancing the books, offering free checking, loans and credit cards are among the late adopters of the social enterprise or so says an article in today’s Ne York Times.

According to the Times article, most banks are slow on the uptake of social technologies.  While many have social outposts like Facebook pages these banks do a minimal job of patrolling social media for customer comments and other signals that something might need doing.  Experts quoted in the article used words like “hibernating,” and “amateurish,” to describe banks’ efforts along with, “displaying tokenism attitudes.”  Ouch!

Let’s call them “Social In Name Only” or SINOs after RINOs, a group of upstanding and principled people the Republican Party apparently no longer has room for.  I’d say that SINOs are different in many ways.  For starters, they haven’t abandoned anything or been abandoned by the society at large.  They simply are late to the party.

A better question to ask about SINOs is why they are late.  Is it that they are organized top down and the message simply has not gotten up to the head cheese?  Or is it possible the intense regulatory climate that they live in (which investment banking cousins somehow evaded) has not caught up with the social tsunami due to older customer demographics?  Or is it possible that a certain amount of risk aversion keeps banks from dealing with their customers on their own terms?  The article suggests that high net worth customers under 50 might be about to lead a charge to social.

I don’t know but I expect some combine of forces is at work.  I also smell a business opportunity and it’s bi-directional.  We can figure out the upside pretty easily — better customer outreach and interaction resulting in more banking activity.  But the bigger win for banks might actually be on the cost avoidance side.  If you’ve ever tried to understand a statement or get a question answered about that check you bounced you know that many banks are still mired in phone hell caused by call center business processes that were engineered during the very first Bush administration.

Seems to me that your average bank could ramp up service AND cut costs significantly if it paid attention to social media and leveraged it like any other social enterprise would.  But then what would we call them?  Having just invented SINOs I am fatigued from my creative efforts and don’t want to think about it.  Look at how short the idea cycle has become.


There was an interesting article in the January 2012 edition of Vanity Fair a magazine I’ve come to enjoy though for many years regarded as another of those things my wife would like more than me.  But VF carries an interesting blend of current events and politics as well as the glossy pictures and stories of pop culture icons that seem to be necessary to sell a magazine these days.

I say necessary but for the exception of the New Yorker.  How those people continuously pump out the level of quality journalism that they do, on a weekly basis, always amazes me.  Malcolm Gladwell and James Surowiecki write for the New Yorker even after several books each and strong public speaking careers.  That magazine has a formula that is no longer being emulated, I fear.

At any rate, the VF article is from the issue with Lady Gaga on the cover, and is titled “You Say You Want a Devolution?”  It’s about the apparent ossification of American culture over the last couple of decades or a bit more — roughly the span of time that I have tried to be an adult.  The article’s main point is that we’ve made precious little progress in style, design and culture in that time.  One hypothesis is that our creative juices have been consumed by the tech revolution.

Internet, WiFi, social media, video, audio, telephony all running through the gadget plus DVDs and a long list of other inventions that weren’t readily available or even invented two or three decades ago have consumed that part of our waking hours that other generations dedicated to style and culture.  For emphasis, the article asks us to ponder pictures of street scenes from various decades.  If you did this you could easily discern the difference between the 1960s and, say, the 40’s, but the 90’s and today?  Not so much.

Not long ago I suggested that straight-line extrapolation from the present to some point in the future is not very good but it is what we often settle for when forecasting.  VF seems to be telling us that lately the straight line is fine.  But here’s the kicker, straight lines work best within a paradigm.  If you can identify the paradigm then maybe you can reconnoiter and find your place a few pages forward.  If you are transitioning paradigms all bets are off.

I don’t think 2012 will be like what came before.  I think ’12 will be the beginning of a new paradigm and I have no data to support this idea other than the knowledge that paradigm shifts, like unexpected guests for the holidays, don’t warn you that they’re coming.

So, what’s in store for ’12?  Well, we’ve been in a quasi recession for almost four years, unemployment is stubbornly high and in case you’ve been napping all this time, ’12 is a leap year, I mean, an election year.  If there’s one thing that galvanizes politicos of all stripes it’s an election and while everyone in Washington might hate everyone else’s guts, there will be enough collaboration to cobble together enough votes to do something about the economy.  That means a few more jobs and more meaningful growth than has been the norm lately.  Perhaps there will even be an extra bowel of gruel for us ninety-niners.

So I look for a bounce in economic activity, that’s the easy part.  What’s harder is figuring out where the bounce happens.  I watch fuel prices and note the relationship between them and economic activity.  Low prices correlate with slack demand but goose the economy and watch the price of benchmark crudes like West Texas Intermediate and Brent go north.

Note: I am not advising you to buy or trade crude oil or to do anything else investment wise with this analysis.

But if crude does go north companies that want to catch the economic rise will need to be smart about keeping carbon out of their business processes.  That means conventional business — Dare we say business as usual? — breaks down and that is where the new paradigm comes in.  Smart companies will be cranking up all the front office tools and social ideas they’ve accumulated over the last five or ten years and realize that a lot of it fits together and changes life as they know it.

The fit drives more frictionless business that naturally reduces reliance on face-to-face meetings and all the travel and expense that goes along with it.  I am not simply saying that we’ll simply substitute a social encounter for the physical equivalent and be done, though we will.  But the actual need for some of those more elaborate interactions will simply evaporate as we use social and other technologies to know more in the first place.

Marc Benioff is fond of quoting some of his company’s data concerning Chatter, one of its social media tools, and I don’t remember the exact numbers but they include categories like reductions in email, meetings, phone calls and more and the reductions are significant.  The information people need and that they’ve historically received through these older sources has been rendered in a more available and efficient format through social media.  This has yielded a new term in the industry, the social enterprise, and it typifies the paradigm shift that I am talking about.

The social enterprise is not limited to a few startups at Routes 92 and 101 south of San Francisco.  We saw companies like GE Capital, Burberry and Toyota drinking the lemonade in 2011 and ’12 will be the year they start to show results.  2012 will also be the year that middle adopters and laggards in general wonder why they aren’t feeling the warmth of the recovery and this will be their answer and motivation.

We’re fond of saying that the economy turns about every ten years and we are also fond of remembering that the year of the network actually took a decade to be realized.  These are not contradictory.  Networking’s early adopters got value right away from their investments but the economy made a dramatic turn once networking got to critical mass and I think we’re in an analogous situation with social technologies.

We’ve been messing around with social for a long time but two important threads are being woven together.  Technological dispersal and personal understanding of the technologies is meeting economic demand for better, faster and cheaper ways to do business in an era of limits.  That is what’s driving the new paradigm.

We might have to wait a bit longer to get new hairstyles, music genres and fashions but I think the thing that’s driven us in the tech era (innovation) is a live and well and we’ll see plenty of it in the new year.  Who knows?  I could even be right.

Salesforce’s Pragmatism

Posted: December 19, 2011 in CRM
Tags: , , ,

Marc Benioff, CEO of Salesforce.com, has often said that tactics drive strategy at his company.  That’s the opposite of what we think of regarding how decisions should be made especially in big companies.  The image is often of high-level decisions being refined into finer grained activities until you have tactics.  Much of this is encoded in the acronym GOSPA, which stands for goals, objectives, strategies, plans and actions.

So what’s going on when a high growth company like Salesforce decides to work backwards?  Some might say that whatever it is should be continued because it works and while that seems like an easy answer, it is quintessentially pragmatic and there is much to say in favor of pragmatism especially when it is diametrically opposed to dogma.  Nonetheless a little analysis wouldn’t hurt here.

This is all brought into high relief by last week’s announcement that Salesforce would buy a small human capital management (HCM) company, Rypple, and that Salesforce would next field a cluster of applications around HCM or HR which it named Successforce.

Critics immediately started by stating the obvious, that a single shot HCM application based on Facebook was not the rock on which to build a magnificent cloud based human capital application set.  They were right, too, but the situation was like a very good hockey ref trying to officiate a baseball game.  They missed the point by calling high sticking on the man in the batter’s box.

All of the major enterprise software vendors have at least one human capital or human resources offering.  SAP just bought SuccessFactors for $3.4 billion, Oracle has PeopleSoft solutions and Workday, headed by PeopleSoft’s founder, Dave Duffield, is also in the game.  The market is estimated at $6 billion annually, which represents a nice revenue stream for all vendors.

As the preeminent social software vendor, Salesforce bought Rypple, a social HCM solution and announced Successforce, at least in part as a means of showing that it intends to be a player in every niche that conventional software companies play in.  Salesforce could do no less because it has to show that all application areas both conventional and some not invented yet are addressable by a cloud and social solution.  This is a good and probably necessary strategy and though it may have been percolating along for some time, the tactical announcement may have been dictated by recent activity.  The announcement also takes some of the spotlight off of the SAP-SuccessFactors activity.

Starting with a social aspect of HCM makes a fair amount of sense because in one stroke it says Salesforce is in the market and no one need ask if Successforce will leverage social media to support business just as the other Clouds do.  Of course, the pressure is now on Salesforce to deliver broad HCM functionality, which may entail additional acquisitions or a rapid development process or both.  I have no idea what the company’s tactics will be but I am sure they will reflect some pragmatic thought on their part.


Every year around this time I write two columns one on the year that was and another on what I expect the new year to bring.  There is no methodology for this process and I believe this lack of method is important.  I take a blank screen and fill it up with what has been on my mind for the last year and what made it out through my posts.  Here are a few ideas that bubbled up.

Steve Jobs

We lost Steve this year and the outpouring in the media was inspiring.  For some reason, many people felt the need to try to reconcile Jobs’ fastidious and demanding personality with the beautiful products he inspired.  One who did not was Malcolm Gladwell who placed Jobs in a long continuum of people who did not invent original products but who tinkered with and improved them significantly.  The world needs all kinds.  That might have been true for the GUI but Jobs still gets high marks for things like iPod (an improvement on Walkman) and especially iPad, iTunes and the store for which there was little if any precursor.

A quote from a Time Magazine (July 10, 2011)review of GM executive Bob Lutz’s book from 2011 “Car Guys vs. Bean Counters” http://amzn.to/sZEwaq

makes an important point: “It’s interesting to note that the one area of the U.S. economy that’s adding jobs and increasing productivity and wealth is also the one that is the most relentlessly product- and consumer-focused: Silicon Valley.  The company off Highway 101 that best illustrates this point is, of course, Apple.  The only time Apple ever lost the plot was when it put the M.B.A.s in charge.  As long as college dropout Steve Jobs is in the driver’s seat, customers (and shareholders) are happy.”  Thanks, Steve.

Social, mobile and analytics plus cloud

On deck to assume the Jobs niche in the tech industry and beyond may be chairman and CEO of Salesforce.com, Marc Benioff.  To be clear, Benioff and Jobs are very different people in most respects but Benioff has the same blue ocean strategy that Jobs had and a knack for entertaining his customers.  Benioff also likes to invent things.  He has driven the rest of the industry to embrace social, mobile, analytics and cloud much faster than it would have left to its own devices.  This combination of attributes is really all any Martian would need to know to understand the market upon arriving here.  The drive to embrace these technologies first is what separates Salesforce from all other conventional CRM companies and is a big reason for the Silicon Valley quote above.

Cloud computing

We’ve been hearing about cloud computing for many years already and interestingly 2011 was a year of a dramatic demonstration of its power in reverse.  Target Stores pulled its web site from the cloud into the premises in time to launch a huge marketing campaign featuring Missoni brand clothing.  The campaign was so successful that it clobbered the site and crushed the ambitions of any other IT leaders who might still think on-prem will be a workable strategy as we go “all in” on social, mobile and analytics.  Right?

Curation

The Missoni fiasco gave me a chance to showcase curation software from Storify.  Curation products enable anyone to find and bring together relevant content from the web to produce a one of a kind package of related information that is greater than the sum of parts.  Curation plucks gems from the torrent of things rushing by in the digital river (pun!) and it will be an important part of how we use the web in the future.

The Subscription economy

With cloud computing more valuable than ever we see a new idea taking shape called the subscription economy.  You probably recognize it and consider it old by some measures.  But the interesting thing about the subscription economy is that so far it has been at best held together with bailing wire and spit.  Old style ERP systems have been a major impediment to subscriptions and many of us never realized it.  I quoted others talking about how ERP has held back business innovation but also about Zuora and others who are pushing the envelope with billing and payment systems that enable subscriptions like never before.  Zuora announced its series D round of $36 million recently and I look for them to be a major IPO in the next 24 months.

Blue ocean strategy

In a press conference early in 2011, Benioff said he had no interest in developing an ERP system to complement his company’s growing front office footprint.  Without using the words blue or ocean in the same sentence he let us know that there is too much untapped potential in the front office, often in the form of applications of social concepts and business processes that have still not been invented or fleshed out.  By the end of this year that approach seems to have put Salesforce into a category of its own as most of the ERP players I watch seem to be focused on re-selling their legacy bases.

Oracle and Salesforce

One such ERP company is Oracle, a self described fast follower, that has nonetheless made big investments in the front office.  In 2011 Oracle acquired ecommerce provider ATG for one billion bucks and followed up about six months later with a $1.5 billion acquisition of RightNow.  We’ll miss RightNow but Oracle seems to have blue ocean plans of its own regarding retail in the future.  Watch this space.

Dreamforce and OpenWorld

We got an eyeful of how competitive the atmosphere is in San Francisco and Silicon Valley when Larry Ellison disinvited Marc Benioff to speak at OpenWorld.  At first it looked like a bizarre move by Ellison but later it looked liked improvisational comedy by a couple of masters.  It was certainly entertaining.  Ellison used the opportunity to announce his own cloud computing and social strategies though true to form I was not shown much product or given a date for general availability for some parts of the product line.

CRM Idol

Speaking of entertainment, Paul Greenberg got the industry organized around the Idol theme in the first annual CRM Idol competition, which I was part of.  The concept is still rough around the edges — one wonders how entertaining business ought to be — but it brought the industry together across most of the world’s landmasses and fun was had by all.  We discovered some very interesting companies and at least one, Assistly, was bought before the competition even finished.  I think Idol has legs if we can get a better set of pre-conditions in place to screen out some companies that are clearly not competitive.  Just sayn.

What’s going to get the economy moving again?

Over the summer there was fear of a double dip as the economy seemed to slow but that scare seems to have passed and the tepid recovery continues with job growth in the last 21 months and counting.  Not enough jobs to erase a big unemployment number mind you, but progress, slow and steady.

Marketo CEO Phil Fernandez offered his own prescription for recovery saying that the revenue performance management (RPM) methodology that he and others (Eloqua, Cloud9) are promoting could generate as much as $2.5 trillion in new revenue globally.  Maybe he’s right, but…

It’s all about energy

In May I was in Chicago to give a talk and noticed the prices for gas were almost hitting the five-dollar mark.  The cost of energy, transportation and raw materials all derived from petroleum, hold the key to recovery (and, yes, European bankers and politicians).  There’s no longer any slack in the petroleum production system and when demand spikes so do prices and when that happens, the economy cools.  We’re in for some uneven performance as long as that is true.

Books I have read recently such as, “The End of Growth” by Richard Heinberg http://amzn.to/vYJesf  and “World on the Edge” by Lester R. Brown http://amzn.to/sv0pvy, tell the same story.  Nothing grows forever and on a finite planet there are finite resources, which ultimately places a cap on many things.  That doesn’t mean doom and gloom but it does mean we need to think about our next steps as a species.  Global warming isn’t going away on its own.

All the technologies we’ve been debuting in the last few years will be an important part of the next strategy, especially as we are required to pivot away from dead plants as our energy sources.  That’s one vantage point from which I will be evaluating our industry in the new year.  The business processes we use are directly related to the technologies we have to work with — the subscription economy is a case in point.  Along with helping us make money, our great new technologies must serve our need to get carbon and costs out of our business processes ASAP.

But for now let me simply say thanks for reading my column this year and for your many good observations and comments.  I hope you enjoy your year-end celebrations, however you do them.

Is Salesforce Slowing Down?

Posted: December 12, 2011 in CRM
Tags: , , , ,

I am not a financial analyst and I don’t even play one on TV.  Of course, judging by the last five years’ performance of those in the financial sector I’d say there is a serious dearth of such talent.  Of course, that doesn’t stop the sector from issuing reports and guidance about individual companies.  Heck, it’s their job.

I ran across a report today from Cowen Research about Salesforce that leaves me with lots of questions.  The report downgrades the stock based on potential future performance, which is fine as far as I am concerned.  No company and no company’s stock stays at the top all the time, that’s a given.  But I don’t understand the logic of the analysis.

The reasons for the downgrade are several but all stem from what the report sees as “…billings growth slowing faster than expectations.  In 3Q, CRM (Salesforce’s ticker symbol) missed billings expectations.  Mgmt repositioned other bookings related metrics as better metrics, yet is unwilling to provide regular details around these other metrics.”

I was at Cloudforce New York earlier this month when a financial analyst pointed this out during a press conference in a question for Marc Benioff, CEO of Salesforce.  If you are an industry analyst as opposed to the financial variety, what ensued was about 20 minutes of the most boring back and forth between the analyst and Benioff.  It reminded me of the Monty Python skit about the dead parrot. http://www.youtube.com/watch?v=e6Lq771TVm4

I am not sure anything material was accomplished other than for Benioff to reiterate his company’s guidance that it would have a run rate north of $3 billion in its next fiscal year.  I am working on memory here but I believe the issue was that the company issues revenue numbers as its primary guidance.  They could, but don’t, focus on gross sales because they are a SaaS company.  If for example, a customer signs a $20 million deal over five years that works out to a million dollars per quarter and that’s what they report on because that’s what’s current revenue.

So, no matter what the size of the deals Salesforce is signing, they only recognize a fraction of them each month or quarter.  This is effectively leaving money in the bank and the analysts have a problem with that.  This is a part of educating the financial markets about the subscription economy.  Subscriptions are so different from conventional product sales, and their revenues, that some analysts effectively try to put a square peg into a round hole when they are assessing a company.

Salesforce also recently announced that it will offer enterprise licenses to enable whole enterprises to take advantage of its sprawling product lines and the analysts have problems with that too.  Here in three parts is, in my opinion the most serious and erroneous part of, their analysis.  Let me take them sequentially.

1) Competition is catching up.  Oracle is defending the enterprise, Microsoft is gaining traction in the mid market, and SugarCRM is gaining ground at the low end.

This is true.  Everyone has a flavor of cloud computing today.  After more than a decade of having their brains bashed in by Benioff touting the benefits of SaaS and cloud, other vendors have put browser front ends on their products and shipped operations elsewhere (a.k.a. but not really, “The Cloud”).

But we all know that this minimal move does not accomplish the intent and that real cloud computing is also more sustainable because it makes far better use of storage and compute facilities, sharing gear where it makes sense.  Moving a data center to another location with dedicated servers and spindles is like moving your dirty coal fired powered power plant to another state and calling yourself an environmentalist.

Other vendors are catching up in CRM but most of them also have ERP customer bases that they are spending considerable effort defending as the industry enters a new replacement round.  Several competitors have also announced social media products and their versions of cloud computing.  Alas, announcement is not delivery but it does raise an important question:  if the market is so crowded why are so many vendors rushing into it?

2) Massive investments in Sales have over stimulated the market beyond its natural growth rate. Next year normalized sales productivity will decline, making growth even harder absent extremely aggressive investments in sales and marketing at the expense of margin.

I am not sure what the natural growth rate for CRM is but I believe you can say the same for ERP, except in the once in a decade period when everyone wants to buy the new technology.  The market for enterprise software’s existing solutions is fairly saturated.  Heck, if you’ve looked at the GDP nationally or globally lately, you understand that growth is not exactly on the march anywhere.  That’s why innovation is key.

3) The company has lost focus. Management’s obsession with the new new thing has distracted it from crisp execution in its core market, SFA. The push behind Collaboration, PaaS and Social Media Monitoring have taken sales into different and unproven categories with different buyers.

A natural characteristic of markets is that growth slows over time as demand is satisfied.  That is why companies come out with new products and services.  It’s also why market lifecycles graph out as sigmoid curves instead of straight lines.  Given this truth, number 3 above is puzzling.

Salesforce has done an admirable job of refreshing and extending its product line into uncovered areas of the front office.  The company could have easily built an ERP system and jumped into an already crowded market for back office technology.  But it chose instead to build net new products in markets that are quickly evolving and where there is little organized competition.  This is sometimes referred to as a “blue ocean strategy” after a book by the same name.  The essence of the idea is that a successful company finds unoccupied niches and satisfies the needs of those niches.

By my analysis, in the software world that means identifying new approaches to business that will help organizations reduce the friction found in all business processes.  Business today is being buffeted by credit and other financial challenges as well as soaring resource costs lead by oil but also including many raw materials especially the so-called rare earth elements that are needed to make modern technology.  You don’t need to be a chemist to understand that rare earth easily translates into expensive.

So in all that should a company like Salesforce elect to penetrate ERP or decide to penetrate new markets in a blue ocean strategy?  Time’s up.

The financial analysts see it differently.  According to them Salesforce has lost its lead on the competition and then lost focus by going after new niches.  “Management’s obsession with the new new thing has distracted it from crisp execution in its core market, SFA. The push behind Collaboration, PaaS and Social Media Monitoring have taken sales into different and unproven categories with different buyers.

If you take this at face value, the only thing for a company to do is the stand still and let the competition devour it.  Many companies have taken just this advice and obligingly gone to hell in a handcart.

How can you first say, that massive investments in Sales have over stimulated the market beyond its natural growth rate and follow it up with management’s obsession with the new new thing has distracted it from crisp execution in its core market, SFA?

Finally, there’s this weird nonsequitur: “…we remind investors that the company’s platform was built over a decade ago and is likely in need of a rewrite at some point to take advantage of the latest technologies.”

Well, not exactly.  The application set was begun more than a decade ago and through its life Benioff has stated that they’ve rewritten the platform.  Salesforce has been rebuilding the platform to expose it to the outside world incorporating other languages (Java, all of Heroku, etc.) and ways of delivering content including websites and to add functionality, especially in the social media realm.  Who else is trying to do this?

Salesforce is far from a perfect company and it’s right for analysts to be watchful of any company so that they can advise clients on investment decisions.  But I’ve been watching this company for a long time and I don’t understand how some of it’s core strengths can be seen as weaknesses.