It’s getting competitive in here

In the olden days, before Marc Benioff got a speaking slot at this year’s Oracle Open World, there was a little time between a company’s big announcements at its user group and the commentary by the competition.  Usually the analysts and press got the first word but now it seems that competing vendors want to get right in there before the concrete has time to set.  Such was my thinking a moment ago when I got an email from Microsoft saying in part:

“Over the next few days, there will likely be a number of cloud computing and CRM industry announcements. Microsoft Dynamics CRM, as an industry leader, will be accessible to comment on news, and will be also posting perspectives and general industry observations at the Microsoft Dynamics CRM team blog. In addition, you can watch the Microsoft Dynamics CRM Twitter account at: @MSDynamicsCRM.”

More proof that we live in a networked, instant-on, 24-hour news cycle world.

Comparing NetSuite and Salesforce

I was at a user meeting with NetSuite in Boston earlier this week.  The company has bought two companies since going public — OpenAir and QuickArrow — both of which support the professional services market.  Companies sell things as well as services and CRM has been applied most successfully to the former.  Companies that sell services have been left to their own devices to figure out how to automate and manage sales and delivery and their situation resembles that of the thing-sellers pre-SFA.

NetSuite’s idea is an integrated solution combining ERP and services oriented planning and sales modules going by the name of SRP — services resource planning — and the idea has legs.

As you can imagine there are some significant differences between selling things and selling projects.  Most importantly, services companies have bigger issues with fixed overhead because you have to have smart people on staff if you expect to sell their time.  Economists might say that supply is inelastic or certainly less elastic for the services guys than for the companies that can throttle up or down the manufacturing process.

All this got me thinking not about the two different types of selling but about the two different styles of building a company exhibited by Salesforce.com and NetSuite.  Both companies have purchased other companies when it made sense as a way to build out their offerings.  But each company also has a multi-tenant architecture and a cloud platform, which makes it easy for third parties to build or modify applications.  Nonetheless, if I had to describe each company’s strategy I would say that NetSuite is more likely to buy than make compared to Salesforce — if you include the partners.

Salesforce appears to have decided on an approach that encourages a partner community to build native applications while NetSuite seems to encourage partners to deploy and modify its core solutions though not necessarily build wholly new ones.

Now, this is a rough approximation and it looks more black and white than it is — there is a lot of grey area in all this.  But it drives an interesting question that I believe can’t be answered, at least not now.  Which approach is better?  Should the primary vendor be the only one involved in new product development or should the platform vendor simply let a thousand flowers bloom?  Certainly the existence of the platform makes the second option possible.

Part of the answer can be found in how each vendor views itself.  Salesforce is obviously looking for a big new market to penetrate that’s bigger than CRM and it has selected application development tools for the enterprise and smaller organizations.  NetSuite might have a serviceable platform but for the time being it appears to be more interested in the market for integrated front and back office applications, which is more crowded.

I don’t have any good answers here or prognostications, just these observations.  Salesforce has always been in the business of inventing the future and while they’ve been successful they have had their stumbles along the way too.  Other companies have been content to stick to their knitting, but the future rarely keeps to a script.  There are many markets just opening up, at least in part because there is reliable and low cost software available to support them and that says good things for both companies’ chances.

The big question to ponder is whether there is enough demand for in-house development to support Salesforce’s vision.  It groups are notoriously backlogged and it is unclear to me if the backlog is a result of too much demand or inefficient tools.  For decades we have argued that it is the tools and we’ve seen generation after generation of tools that promised to fix the problem.

Tools are important but if you read “The Black Swan,” which I recommend, you might get the notion that backlogs are inherent in what we do, in part because we do such a poor job of understanding and planning for future requirements.  If so, one of the next logical acquisitions for either Salesforce or NetSuite should be a company that focuses on improving forecasting and planning methods.  Does such an animal even exist?

On the road (again)

Colorado Springs is an interesting place.  Despite the name there are no “springs” it’s an arid place in a valley surrounded by the southern Rocky Mountains and Pikes Peak National Park (for sticklers Pikes really should be Pike’s but the official U.S. naming convention eliminates the apostrophe).  The springs were an invention of the railroads seeking to establish a destination for vacationers.  Good idea, it’s a nice place.

You can ride horseback through the mountains and see abandoned mines and homesteads as well as some rugged natural beauty.  Last time I was there we rode on some trails that were barely wide enough to accommodate our horses.  On one side there was forest and on the other a steep drop off.  RightNow convenes its annual user group meeting at the Broadmoor Hotel in Colorado Springs next week.  By most accounts it’s been a good year for software, especially SaaS vendors so the meeting should be upbeat.

Other commitments will keep me from attending the RightNow Summit but I look forward to hearing about their announcements.  In general there is an unmistakable move in most areas of CRM, contact centers included, to move more operations to an on-demand footing.  Whether it’s called SaaS, managed or hosted, the call center is moving to simpler surroundings — at least for the client organization, and for good reasons.

Owning and operating a call center is a big and expensive undertaking for a company.  With all phases of the operation in-house, a company has to be able to support multiple subject matter experts from hardware to applications.  The company also has the task of managing an impressive (some would say bewildering) array of gear both telephonic and computer.  The same company also has all of the headaches of recruiting, training and managing a sophisticated workforce.

So, when a vendor comes along offering to take even a portion of that big job over for a fixed price per seat, it draws a lot of attention.  In the not too distant past, the number of vendors willing to make such an offer was limited and RightNow was at the top of the heap.  The market is changing making it easier for vendors to get into the business and the fact that we are even talking about the difference between on-demand, managed and SaaS solutions is evidence of that change.

But it’s not just changing technology that is driving the market.  The core customers, you and me, are smarter and more experienced and we are beginning to draw less from our vendors’ call centers.  Since we’ve all experienced earlier generations of products we are more likely to solve simpler problems with new products ourselves.  Moreover, our recently acquired sophistication with social media makes us more adventurous when it comes to seeking out service and advice from our peers.

It was no surprise to me that RightNow acquired social networking company HiveLive to bolster its efforts in social service offerings.  I look forward to hearing what RightNow CEO Greg Gianforte has to say about his company’s direction in socialized service and support.  Should be an interesting conference.

Also on the docket, the following week Sage Software hosts its user meeting in Atlanta followed by Microsoft holding an analyst briefing in Redmond.  I wish I could make all of these events but they are simply too close together.

Sage is always surprising in part because the company’s business model — selling exclusively through the indirect channel — puts different demands on its products and services.  That has frequently meant that the company has held back on major innovations until its partners were ready to get on board.  But last year, the company announced a 2010 strategy to bring its multiple CRM products under an umbrella that will enable it to achieve greater economies of scale and better integration capabilities with its back office solutions.

Also, Sage recently announced a foray into another on-demand style solution to be delivered early next year.  Their original SageCRM.com notwithstanding, this will be something new for SalesLogix, their high end product.  This is CEO Sue Swenson’s second year at the helm and it was clear at the partner meeting in May that she’s putting her imprint on the company.  She’s tasked senior executives with ambitious plans to update key products and improve partner-facing programs.  It will be interesting to see what end user facing changes are in the offing.

Finally, Microsoft is a very important player in the front and back office applications markets today.  Their analyst meeting in the same week as the Sage user meeting should generate a few headlines and I am eager to hear more about their direction though I will not be able to be there.

All this activity makes me optimistic about next year, and if all this isn’t enough, Intel, AMD and IBM have all reported better than expected financial results for the recently finished quarter.  The semiconductor market has always been a reliable indicator of an upturn in the tech sector and I am hopeful that these results are the first signs of a general economic rebound.  But recovery means more than simply reporting better financial results especially if the increase is from a depressed level caused by recession.  It’s clearly a half full glass but that’s fine with me.

Adobe on a roll (hold the fries)

For the second day in a row Adobe made an important partnering announcement.  Yesterday the company said it had teamed with Salesforce.com to produce Adobe Flash Builder for Force.com, which will speed development of Flash-based user interfaces for Salesforce customers.  Today Adobe announced that it has concluded acquisition of Omniture, a web analytics vendor based in Orem, Utah for a whopping $1.8 billion.

It seems an obvious strategy to leverage some of Abobe’s ingredient technologies, like Flash, to make a bigger presence for itself in Cloud Computing.  The addition of web analytics is very interesting.

At this point in the evolution of CRM, if you are not already a big player the chances of starting from scratch and getting big are nugatory so the strategy has to be to buy.  But Adobe’s choice of partnering with a leading CRM company for user interface design and following up with buying analytics is intriguing.  With these two ingredient technologies, Adobe appears to be 1) betting on the future importance of understanding customer moves and motivations and 2) clearly understanding that robust simplicity must rule all software interfaces regardless of platform.

If you ask me, these are two good bets.  While there are clearly many good analytics products on the market either freestanding or embedded in business applications, my research tells me that regular users are still too confused about analytics to fully leverage them.  Ask ten people in our industry the difference between reporting and analytics and you will see what I mean.

My quibble with analytics and analytics vendors generally is that few acknowledge the effort required to capture good data.  Too often the MO is to capture large samples and get some averages, a good but not great approach that, in another setting, once left a bemused Benjamin Disraeli to list three categories of lies, “Lies, damn lies and statistics”.  There’s no substitute for understanding demographics, biases, attitudes and the like to better predict behavior.  Here’s hoping that Adobe gets it and uses Omniture to go the more rigorous route.

Fusion applications decide an argument, sort of

With Oracle’s announcement of Fusion applications, you can make a reasonable case that Salesforce.com has won an important ten-year old argument about the future of the software industry.  Notwithstanding SAP, the only significant outlier left, Oracle is the last major software company to adopt on-demand computing as a centerpiece thus awarding legitimacy and critical mass once and for all to the idea.

Amen.

But the Oracle announcement says more about business models than technology paradigms and at the model level it is not clear that Salesforce has won.  Salesforce CEO Marc Benioff’s vision of business applications delivered over the internet has won an important victory but the business model — subscription services — that makes this technology the center of the movement and exclusive delivery mechanism has not eliminated all competition.  Not yet, at any rate.

The reasons are simple enough, market reticence generated by concerns — both real and imaginary — about security or the viability of the technology model still hamper full adoption of the business model.  As a result, companies as diverse as Oracle, Microsoft and Sage have hedged their bets by offering technology that can be implemented in numerous ways including on-demand as well as by conventional deployments.  As a result vendors have effectively thrown the business model decision over the wall to the customer.

With software capable of, shall we say, polymorphous deployment, the ultimate decision about how to deploy now becomes the exclusive province of the customer as the vendors have now turned into Solomon or, in a modern interpretation, Burger King.  Customers are completely free to have it their way or ways.  They can deploy business applications in a fully SaaS configuration or in hybrid ways that are to a lesser extent owned and operated by the IT department.  As I have noted before, this is typical transition state behavior of vendors straddling two diverse paradigms.

It is no surprise that adoption of the business model lags adoption of the technology.  It has always been true that conversion from traditional software licensing to SaaS is a big step and one that for many software companies could lead to financial ruin if not handled expertly.  More to the point, there are customers who, for reasons of security, custom and preference believe that SaaS computing is not for them, at least not now.

So it is no surprise therefore that the most successful SaaS companies are those that, like Salesforce, grew organically from on-demand roots.  Other successful SaaS companies like Oracle bought their way into SaaS computing, a time honored tradition when adopting new models.

Even before Oracle’s Fusion announcement at Open World this month, the company had been a player in SaaS based CRM with Oracle CRM On-Demand due to its earlier acquisition of Siebel Systems.  But it remains to be seen if any software vendor can fully realize the benefits of SaaS — and now Cloud Computing without full emersion into the technology model.

One of the most powerful aspects of SaaS computing is not the idea of subscriptions or even Internet delivery but of a single version of the applications supporting all users.  With a single version of the code, all users have the same foundation on which to configure, modify and build new applications.  The single code set — also called multi-tenant architecture — makes it hugely unlikely that any two independent software makers would develop incompatible applications and therein lays the power of the business model.

This single idea makes it highly likely that applications built to the standards of the foundation — or platform as we like to call it — will be able to inter-operate.  Take this standard away and you have the same Babel of competing standards and proprietary designs that have been the bain of the software industry.  There is a cost associated with this lack of standardization and software customers have been paying it for decades — with rising resentment.

That cost is not measured strictly monetarily; there is opportunity cost involved too.  When everyone played by the same conventional software rules the opportunity cost problem was equivalent to a farmer experiencing bad weather.  But SaaS computing eliminates the weather variable giving a big advantage to companies under its umbrella.  So it is ironic that the decision about adoption is still left to taste.

With most of the hybrid products, the same code can be deployed in a conventional multi-tenant way or as a standalone system behind a traditional firewall.  The segregated system becomes a unique instance the moment a developer modifies the platform.  Doing that makes the idea of standards a waste of time.

But for the time being — and I am still calling it a transition state — we can expect to see a lot of deployments in which the software is SaaS ready but the deployment is decidedly twentieth century.  In the next five to ten years we will see examples of companies trying to back out of their proprietary SaaS-like systems to finally get on board with SaaS or Cloud Computing.  It will all have been avoidable and it will be good business for software consultants.

As Kurt would say, “So it goes.”

Salesforce and Adobe go to market

Salesforce.com and Adobe jointly announced that they have developed a product called Adobe Flash Builder for Force.com.  The product enables developers to build powerful UIs for the Force.com platform.

Flash is a good thing.  It provides an attractive and powerful UI environment that makes applications more intelligent, robust and fun to use.  Salesforce partners have used Adobe Flash for several years and many have already deployed next generation applications using Flash interfaces.  Today’s announcement confirms the partners’ decisions to use flash and gives Salesforce further evidence of the openness of its platform strategy.

The press release says in part, “This tight integration (of Adobe and Force.com) enables client-side data management and synchronization between cloud and client, simplifying the development of applications that seamlessly run online or offline across operating systems and devices, while taking full advantage of the proven scalability, security and reliability of the Force.com platform.

This may be reading too much into the announcement but one wonders about the importance of “seamlessly running online or offline across operating systems and devices.”  I am assuming this refers to the ability to operate on mobile devices but I need clarification.

Oracle Fusion in (financial) Context

With the introduction of Fusion applications Oracle has joined the cloud community.  You might want to argue that the company has been involved in the cloud for many years as one of the key technology underpinnings of many of the biggest SaaS companies.  That was one of Larry Ellison’s big points at the Churchill Club.  Cloud computing still needs a ground station to serve it and Oracle has been at the top of that market for a long time.  For example, salesforce.com uses the Oracle database to support its service and many other companies do too.

Because so many software company founders and executives got their starts at Oracle it was a natural for them to build on what they knew and they knew Oracle.  That may not sound like much if you stop thinking about it at the database but the community of Oracle people present and past gave many a start-up the intangible resources they needed to be successful.  Knowing who a product manager is or what is generally on a product roadmap can be useful information.  I am not saying that any legal lines are ever crossed but having been an insider and understanding the culture as well as the technology can be very helpful.

At any rate Oracle is, or will be with the full release of Fusion Applications, a member of the Cloud Club.  That leaves stragglers like SAP to still deal with the conversion and I have a notion that the pace will only accelerate from here and I expect that if cloud computing is not the dominant paradigm today it will be in the not too distant future.

Unlike salesforce.com and other companies that entered the market and developed their products as native SaaS applications, legacy companies had a great deal of work to do to convert to the new paradigm.  Changing a technology paradigm is never easy or cheap — the last time we did this we went form mainframes to client-server or was it client-server to thin clients?  But changing the technology paradigm is only half the battle.  The other, harder and more intense job is changing the business model.

Companies do not always have to change their business models when they change software paradigms.  As a matter of fact I am not sure if the majority of software companies today ever had to make a business model shift before the advent of cloud computing.  But there’s really no option at this point if a company wants to get to the cloud.

Oracle’s shift to Fusion, like many other vendors’ shifts to the cloud, buffers the business model change by effectively breaking the shift into two hard but more digestible bites.  Oracle is fortunate in that it has a large number of products and it is acquiring more all the time.  As a financial exercise, when Oracle begins selling fusion applications, at least a part of the revenue will come in the form of subscriptions and I expect that subscription revenue will grow at the expense of traditional licensing over time.

Because Oracle offers multiple products including hardware (Exadata storage systems — and servers if the Sun merger is approved) the company’s financial results will be insulated from a big hit — something that pure software companies dread when they change models, especially if they are publicly held.

So, I am not a financial analyst, but my reading of the situation is that Oracle has positioned itself and its business well with Fusion.  When delivered in a service mode, the applications will be competitive with other market leaders.  The applications ought to find a big market in other nations where software might be too expensive for local tastes.  And there at least multi-tenancy should prove to be essential.

Meanwhile, the conventional license business should continue as a viable option for customers who prefer that mode for as long as those customers want it.  Converting from the license paradigm to a more or less pure cloud paradigm will be a business decision and the required development will consist of rewriting contracts, building web sites and adjusting marketing.

This isn’t all guaranteed to happen but it looks like a promising and logical evolution.  Of course, I am reading “The Black Swan” right now and I am wondering about something highly improbable affecting this rosy scenario.

Benioff Attends Open World

Well, that was interesting.  Salesforce.com CEO Marc Benioff just completed a speech at Oracle Open World, perhaps the ultimate example of co-opetition.  It was apparent to me early on that Marc’s purpose for being there was to refute Larry Ellison’s rant at the Churchill Club in which he compared Cloud Computing to vapor.

I got a hint earlier today when someone said that the event had been put together quickly, which to me confirmed the need to refute Larry who spoke a couple of weeks ago at Churchill.  Benioff started out by graciously telling the audience that he had worked at Oracle and attended Open World many times in his 13-year career, even presenting on the same stage he was now on.  He went further pointing out that the Oracle database is one of the key components of the Salesforce service and thanked Oracle executives for the graciousness.

But there was little doubt in my mind that Benioff felt he needed to refute Ellison’s off the cuff assertions at the Churchill Club.  He did that with ease and just when you might have thought he’d reached the end of his talk, he brought up the CIO of EMC Corporation Sanjay Mirchandani to discuss that company’s hybrid CRM approach that includes Salesforce and Oracle for on-premise CRM.  It was almost as if he wanted to say that Salesforce can play the hybrid game as well as Oracle.

I guess the Open World setting proved too much of a temptation for Benioff.  It’s in the same city as Benioff’s office.  The venue was easy to get, Michael Dell another big Salesforce customer spoke at Open World this morning and was available to be on stage with Benioff for part of the afternoon.

There’s little doubt that Benioff was able to refute Ellison but the bigger question for me was why he felt he needed to.  We haven’t seen this kind of action for many years and it makes for lively times in these challenging days.

Both sides now

As luck would have it, I knew nothing about Larry Ellison’s rant at the Churchill Club on September 21 about cloud computing when I wrote last week’s piece on cloud computing.  I saw it on YouTube.

You have to admit that Larry is a heck of a showman and the video is fun to watch.  But whenever someone in that kind of situation starts to nit pick over definitions it says to me that they’re hoping no one will notice that they might be a bit threatened by a next generation technology.

Various analysts have pointed out the cloud is really an amalgamation of several technologies including Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS).  I can’t disagree with any of that though it is a rather mechanistic summation, but my reaction to all this parsing of nomenclature is, so what.

Say what?

Really, so what.

My take on cloud computing is different, it’s part cultural and part historic and the two are twisted tightly together.  The history of the technology industry is one of overcoming shortages and cloud computing is part of that progression.

When storage and memory were in relative short supply we kept data on tape and programs on punch cards.  We responded by building more and denser capacity until the shortage went away and we found ourselves with extra capacity at greatly lower costs.  We had capacity to spare and instead of wasting it, clever individuals built the relational database.

Computing power has always been short but once we got into Moore’s Law the curve kept delivering new capacity to burn every eighteen months or so.  Did we waste it?  Some did, but enterprising souls built the graphical user interface of GUI and graphics cards and they changed computing.

Along the way as these improvements became ubiquitous and cheap — then something magical happened.  We started branching out and the improvements didn’t stay in the confines of enterprise computing.  They leaked out into a plethora of unimaginable products.  Consider the iPod, for example, nothing but a tiny computer with a baby-sized disk.  Talk about unintended consequences, I know some people were thinking about these devices but there weren’t that many and look at the effect this one device has had on our culture.

iPod is only the best known example but there are many others.  For example, our cars are now bristling with processors and memory for fuel injection, ABS brakes, navigation systems (probably with a DVD in your trunk) and more.

But we are not done.

Then it was bandwidth.  Ethernet was an interesting standard but it was slow.  Bright minds turned their attention to networking, changed the way our applications use networks so that they use less bandwidth and others made more of it available culminating in the ultimate consumer bandwidth, the Internet.  Tell me that hasn’t changed your life.

What’s different today is that we have a relative abundance of everything.  If it comes to us as a service we no longer think about all of the provisioning and cost that was once part of our calculus.  Platforms and applications coming in as a service ensure that bright minds can dream big and who knows what they’ll come up with?

So far all of that abundance has enabled us to build not artificial intelligence, that appears to still be in the future, but artificial, or should I say synthetic, relationships.  I mean social media here.  The relationships we maintain through social media are available to us because the cost of maintaining them in time and effort and real dollars is so low that it might as well be free.  And the power of these relationships is that at any time, for the right reason, they can become full blown active relationships that provide friendship, information, help or anything you might expect of a friendship.  And, of course, physical distance is much less of an issue than ever.

Our advances in technology have been the sometimes-surprising results of efforts to overcome scarcity and other adversities.  Social media is a child of the ubiquity delivered through the Internet and it is still in its precocious early years.  And logically, social media is not the only advance we should expect from this ubiquity, though I can’t say what the next things will be.

So when I hear someone, even kiddingly, say that cloud computing is nothing new or that it’s just water vapor, it makes me think that someone isn’t getting it.  We only have a few faint ideas about what cloud computing will ultimately yield and that alone is why it is so important.

Fall line-up (in addition to Baseball)

I am looking forward to the fall user group meeting season.  Name a company and they’re having an event for customers and/or analysts.  I can easily count Salesforce, Oracle, Sage, RightNow, SAP and Microsoft having events before then end of the year and there are many smaller companies hosting them too.  Personal commitments are preventing me from going to all of them but nonetheless the frequent flier miles will add up.

I heard a delicious rumor that Marc Benioff will be speaking at Oracle Open World.  In fact, it’s more than a rumor but I will believe it when I see it.  Of course, Benioff at Open World makes perfect sense, it’s as natural as HP being there but I know what you’re thinking.  Why?

I think it’s a great example of that old word, “co-opetition”.  On some levels you compete and on some levels there might be a vendor-client relationship.  For example, Salesforce uses the Oracle database heavily and is one of a small group of  companies on the planet that gives Oracle a heavy duty workout.  No disrespect to others, but Salesforce occupies a unique place for while other companies might have more users in, say, an e-commerce setting, Salesforce operates a very different paradigm that we all know is becoming the center of the IT universe.

I am looking for big things from all the majors — announcements that I hope will propel our industry and the economy as a whole as we gear up to get out of this recession.

• Oracle has to deliver on some of the promises made during its acquisition phase a few years ago.
• Salesforce can easily announce some new initiatives in CRM and Cloud Computing.
• Sage announced recently an initiative in cloud computing and I am looking forward to details.
• RightNow made a play for HiveLive thus getting into social CRM and they’ll no doubt have more to say late in October.
• SAP has been quiet lately so it would be a natural for them to break out with an announcement in December in Boston.
• Finally, Microsoft is having an annual analyst event in November and I expect them to keep up the momentum of recent CRM announcements.
• On the next tier several companies are also planning smaller events and it will be interesting to see what they do too.

The smoke signals suggest an industry that is planning an early breakout from the recession.  I wish them luck and hope their timing is on target.