Summits and a synthesis

Summit must be the secular name our species came up with when we decided that certain business meetings had to have the same weight as religious conversions.  I am not trying to be contentious by using this vaguely religious metaphor so please consider me a radical centrist.  But after a few months of vendor meetings for the analyst community in which each took us to the mountaintop to survey — via PowerPoint — their future visions for the valley below, I am almost all summitted out.

The religious reference struck me yesterday at SAP’s, very good, analyst summit in Boston because, like some religious conversions, there seems to be a necessary pain component intended to make the conversion stick.  In most analyst summit meetings the pain comes from sitting still for many hours of the aforementioned PowerPoint presentations.

So, what did I learn?  Well, lots though I am a CRM guy and much of what was proffered were visions of a broader valley.  The biggest impression I came away with was intramural since, having been to Oracle Open World and Dreamforce, I am in a mood to compare, contrast, synthesize and perhaps even prescribe.

Put everything I saw at these and other conclaves into a food processor, run it on high until something resembling peanut butter forms and the result, to me, looks like this.  SaaS computing has won the battle, maybe even the war, but the victory is not enough to secure a homogeneous peace.  Translation: SaaS is important and the future of software, but there are multiple reasons why it will not reign supreme, not for a while at least.

A few weeks back, I noted that there are still some 6,600 mainframe computers not only in existence but in use and it will be some time before the population dwindles to the point that, like the B-24, there is a small handful of them capable of doing what they do.  The same is likely for premise-based enterprise software.

It’s not that on-demand technologies can’t do everything that the premise-based products can, rather it is that the premise-based solution vendors have examined alternatives and decided that retrofitting their wares with some of the best benefits of SaaS is enough for the moment.  It is also because customers of some application types are not ecstatic about sending their applications to the cloud.

Such has been the messaging that SAP, Oracle, Microsoft and Sage have been selling for some time now and it has legs.  No doubt this is vendor-generated paradigm extension.  Most important to this strategy has been the effort to retrofit their products with some of the popular attributes of SaaS.

For a long time things like better TCO, near-instant deployment and great configurability characteristics were the exclusive province of on-demand solutions.  But much of that has changed so that now enterprises that that once looked longingly at SaaS solutions have some reason to put more gas in the old car and drive a while longer.

That was a strong message I got from SAP — no they don’t and won’t offer every product on-demand but they can still deliver on the hot button customer issues, to a degree.  I am still puzzled by the customer who said he has sixteen instances of an SAP system and that he schedules updates and maintenance for all of them.  The SaaS-ist in me says, why?

To be sure, I don’t see any new applications coming to market that have not been conceived to be SaaS and that marks an interesting point in software evolution.  It’s quite possible that we are witnessing the bifurcation of the software business and that a part of the business will be on-premise well into the future.  That part will continue to diminish as a percentage of all software, especially as platforms like Force.com with its more than 800 applications continue to expand.

Perhaps this even means that, for a while, new applications will be smaller and focused on market segments rather than the all encompassing front and back office systems that have occupied our attention for the last couple of decades.  For example, Twitter and Facebook have huge numbers of subscribers but they are not nearly as complex as an ERP system.

So my conclusion, after a lot of airports and hotel rooms and as the circulation returns to my backside, is that we’ve achieved a kind of status quo between premise-based solutions and the cloud.  The frontier will keep moving to the clouds but there is life in the old paradigm.  And I suspect this will be a good thing as we turn some of our attention from software wars to the substantive questions of how we do business after the bubble and crash, as liquidity remains a serious challenge and, in the wake of Copenhagen, in a world more acutely conscious of sustainability.

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.

Commoditization

Dan Jenkins, a venerable writer for Sports Illustrated and author of many novels about sport (he wrote Semi-tough, for example), coined one of my all time favorite Texas-isms.  It was a beautiful way of describing something just bordering on impossible.  In one of his books a character says that something is “Tougher than rent and alimony.”  I have long ago lost the context but even today rent and alimony are my acid test of true difficulty.

I never thought it would be possible to exceed rent and alimony for their sheer descriptive power and I believe that time will bear me out.  But to that nifty phrase, I feel compelled to add another idea because it is my observation that there is nothing more difficult than watching a product line commoditize knowing full well that your company must change while being totally unable to.  If nothing else, rent and alimony wins on brevity.

If change was easy in business, then everyone would be doing it but the fact is that it is a Herculean task.  Why else would so many major software companies watch as on-demand technology got better and better while doing nothing or next to nothing to embrace the new delivery model?

I suspect that making the technical argument for change is the easy part of the equation and the hardest part is dealing with shareholders.  As shareholders — and we are all shareholders — we play an interesting game of self-deception.  We intuitively know when change is needed but, nonetheless, we also know that often times, stock in a public company would crater if the market determined that a company’s business model was to suddenly change so that it would make less on purpose.

Far better to let the air out of the balloon in a slow deflation than in a burst.  In a deflation we all play a game of false hope, maybe the balloon will magically re-inflate, maybe we can break even and get our money back — maybe, baby.  In reality it is a one-way trip to exhaustion.  Rather than taking the decisive steps needed to save the company, albeit as a reduced revenue machine, we persevere tinkering with the old products and old business model hoping to forestall the inevitable.  More nimble competitors nibble at our undersides.

There are any number of examples today of companies or even whole industries that could greatly benefit from changing business models despite the negative potential for their share prices.  The first is the newspaper industry.  We are at a silly point in the evolution of news delivery where papers are owned by large corporations that seem to want to protect their business models more than their businesses.

Newspaper readership is in decline in America (though not elsewhere) and parent corporations are nonetheless loath to do anything to change the model of printing the news.  They give away their content on the Web afraid of charging for it despite the evidence that doing so can be profitable (the Wall Street Journal) and that recent surveys show readers are more than willing to pay for content delivered electronically.

I hear the loudest analysts say that electronic content delivery would not replace the revenues from print, but I hear very little about cost reductions in labor, transportation and printing.  There is a solution to this, which is to simply wait until the print news business further deteriorates.  Then some of the largest newspaper corporations might qualify for a federal bailout or the further reduced projected revenues of dying business might balance out with the prospects of the new paradigm.  Conversion would then become a “no-brainer” with no irony intended.

The second example is the software industry and I fear that the American software industry — the jewel in our high-tech crown — might go the way of newspapers.  For despite the fact that we have wonderful examples of forward looking companies like Salesforce.com, NetSuite, RightNow, Google, Facebook and hundreds of others crafting the software paradigm of the twenty-first century we still have too many conventional software companies watching their stock prices.

The conventional companies are big and form the backbone of global computing.  They have names like Oracle, SAP and Microsoft and while some are making good efforts to convert their business models, the tasks are great and some have barely started.  Kudos to Oracle and Microsoft for increasingly offering SaaS solutions.  You can debate whether their solutions go far enough or if they are simply extending the old paradigm but they are making progress.

Microsoft worries me at the operating system and office automation products levels though.  Google’s announcement that it was building a stripped-down operating system that gives small computers just enough functionality to get to the Internet is brilliant though it remains to be seen whether they can deliver.  Microsoft now finds itself on the other side of an equation from its position as the disrupter of mainframe markets.  In the 1980’s we were told that nothing had the power to stop mainframe computing but somehow client-server networks took over.

At risk is Microsoft’s deep penetration in desktop operating systems and office products.  Google has a plan to deliver it all over the Internet — free — which could be a big problem for Redmond.  Of course Google has to deliver but the sheer number of vendors in the SaaS space means that even if Google fails in the attempt, there will be other challengers.  It’s not impossible, but it is rather hard to beat free, so what does Microsoft do?  Wait for the threat to materialize or take action?

The standard playbook says stand pat but as playbooks go it has a disastrous track record.  Time, as they say at Apple, to think different.