Takeaways from Cloudforce, and a Bit More

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.

MSFT loss, Changing the Rules of Engagement

What’s the world coming to?  Microsoft lost money in the software business last quarter, the first loss in a decades long string of positive earnings from the world’s biggest software company.  Sheesh!  Yes, there were extenuating circumstances that you can read about here, but the loss signals the breadth and depth of the impact that the tablet is having on the hardware market.  The iPad tablet to be precise and its economy size, iOS sharing little brother, the iPhone.  For a quick slide show on iPad’s penetration and adoption check out this presentation from Business Insider.

Last time I asked if hardware was becoming sexy again and why.  The answers seem to be “Yes” and “Because tablets have reached a new price point that opens up more emerging global markets to computing.” Tablets and their near kin, smartphones, are defining a global computing platformfor the next decade and beyond promising first world information access to many people formerly left in the dust.

The writing was already on the wall when analyst firms IDC and Gartner recently documented a stall in the PC/laptop forward momentum.  Lower PC sales means fewer operating system sales and all that goes with it.  To be sure, tens of millions of units are still being sold this year along with operating systems and productivity software often bundled in.  But growth has stalled as new customers in emerging markets are voting to type on Gorilla Glass over keyboards.

Every paradigm goes through a predictable lifecycle and the computer operating system dependent on hardware sales is another example, not an exception.  Microsoft, Intel and others invested heavily in thin, ultra-light laptop machines as the next thing that would protect the franchise and compete with tablets, but they were still too expensive and ultimately not cool enough.  If Microsoft expects to get its OS mojo back it will need to cajole its hardware partners into really being competitive with tablets.

Right now, everything is going the way of the tablet and Apple can almost do no wrong.  Even when a European judge made a finding in favor of Samsung in a patent dispute with Apple recently, he declared the Samsung gear “not as cool” as Apple’s and therefore not infringing on Apple patents.  That’s just amazing.

Windows 8 comes out later this year and Microsoft has introduced a tablet of its own, the Surface.  The game is far form over but the latest brush with reality suggests Microsoft might have been prescient in going “all in” as Steve Ballmer said of the company’s approach to cloud computing some time ago.  Microsoft is at some intermediate point in its journey from vendor of licensed software to ringmaster of a giant subscription economy.  Like many companies in similar transitions, the going isn’t always smooth but if anyone can pull this off it ought to be the guys in Redmond.

When I’ve spent time with the Redmond gang over the last couple of years I’ve been impressed with how much they get it, not just at a high level but throughout the organization.  All in, Azure, and retail stores suggest a company thinking its way through the changes.  And analytics and social networks suggest they really get it.  Maybe all in should be replaced by we get it or better, we get you, but not quite yet.

But on a cautionary note getting to the cloud or to tablets won’t be enough; this is a business model change that every company has to deal with and Microsoft has done more than many already.  Now, Microsoft’s partners have to pick up the gauntlet and evangelize more than ever.

This week (on July 25) Zuora will release a Fireside Chat video discussion that I am participating in.  It will be all about the cloud and subscriptions and I expect an important theme will be the attention that subscription companies need to pay not to selling but to service and ensuring customer happiness.  And, oh, heck, while I am talking about myself I might as well mention that my new book is coming out around the same time — “The Subscription Economy — How Subscriptions Improve Business.”

While the changes in the industry might be painful for some, they also represent innovation and creative destruction which is the hallmark of a vibrant economy.  The issue for us is not how to slow down change but how to embrace and leverage it.  Once the election clears out I think Q4 could be an important turning point as winners and losers get back to the work of inventing the future and making money.

 

Steve Ballmer

There is a very good article in the current issue of Vanity Fair (with Alec Baldwin on the cover) about Microsoft.  In “How Microsoft Lost Its Mojo” Kurt Eichenwald recounts the failures and bad decisions of the company’s “lost decade” a time overseen by current CEO Steve Ballmer.

If you are in this business you can probably recall at least some of the major inflection points related to missed opportunities and in-fighting that cost the company its market leading position.  I thought it was just me, but Eichenwald even compared Microsoft to Detroit auto makers and their past glory.  For good measure he ends with a long quote from Steve Jobs’ biography about the difference between having a sales or ops guy running the show and having a product guy in charge.  Sad.  Worth reading.

According to the article, Microsoft’s stock has barely budged over the last ten years while other tech companies flew by — Google, Facebook and of course Apple.  In one recent quarter iPhone alone made more money than all of Microsoft.

The article quotes Ballmer saying he wants to remain at Microsoft till 2018 but I don’t think the company can wait that long.  The article also implies that Ballmer might be a smart pick to break the company up and to take the legacy products into the sunset while more product oriented people try to salvage the core of innovation, if it still exists.

Fun fact:  According to Wikipedia, “Ballmer was the second person after Roberto Goizueta to become a billionaire in U.S. dollars based on stock options received as an employee of a corporation in which he was neither a founder nor a relative of a founder.”

Ten years of stagnation can’t be sitting well with Wall Street.  What will it take to orchestrate a palace coup?

The Next Ten Years

A door closed this quarter and another opened.  We’re now oriented on a new computing paradigm that will serve us for the rest of the decade.  There is now broad agreement on the big IT issues of our time and they can be summarized in the Four Big Buzzwords mobile, social, big data (and analytics) and real time.

We’ve been bantering these words around individually and in groups but in Q2 2012 most vendors came to a tacit agreement that these would be the issues around which marketing campaigns would orbit for the intermediate future.  Since Oracle’s CEO Larry Ellison is the original proponent of decadal cadence I will use his company as the measure of the short timeline that brought us to this moment.

April 2009.  Oracle buys Sun Microsystems.  The purchase of a failing Sun was seen as a retrograde effort.  The conventional software company buys a conventional hardware company and many of us expected them to fade into the sunset together.  It didn’t go that way.

September 2009.  In an interview at the Churchill Club Ellison said that cloud computing was a bunch of hot air.  Less sincere words have rarely left his mouth as subsequent events would prove.  No matter that by then, Ellison disciple Marc Benioff had already built a billion dollar business offering nothing but cloud computing as a delivery mechanism.  The prior decade bred an entire industry devoted to cloud computing and multi-tenancy but no matter.  Ellison had the database that drove these cloud companies and not much else.  He also had a huge installed base dedicated to conventional on-premise computing, so he was a late arriver intent on making up ground.  The first step might have been this bit of indirection.

OpenWorld 2009.  Oracle announced a new strategy and line of hardware starting with Exadata a huge database server with monster truck-like capabilities for serving data and crunching it into submission ten times faster than conventional technologies.  Exadata was followed by Exalogic, a compute server and Exalytics an analytics appliance.  There were other things too.  Before long little boys playing in sandboxes had traded their toy trucks, backhoes and other construction paraphernalia for Exatoys and Oracle had announced its engineered systems strategy.  Ok, I made that up just to see if you are still with me.

2011 Anthony Lye plus Oracle’s checkbook proved to be a potent combination as Lye developed a vision of Fusion driven applications and business processes of tomorrow.  Lye bought five companies proving that while you might not be able to buy love you can certainly buy R&D.  By the end of 2011 Lye had purchased ATG (ecommerce), RightNow (customer experience, service and support) Endeca (ecommerce and business intelligence), FatWire (web content and web experience management) and Inquira (service knowledge management software).  The combination, when knitted together positions Oracle as a contender in the Four Big Buzzword Categories.

But it wasn’t just Oracle that was making moves.  As early as late 2010 Microsoft and then others began preaching a gospel of multi-tier ERP, a strategy that would keep existing ERP systems and their pricy maintenance contracts in place while providing much of the new functionality required by the Four Big Buzzwords through a second tier of ERP from up and coming players like NetSuite and Zuora.

The approach ended a potentially disruptive moment for ERP vendors and their customers who were beginning to contemplate rip and replace on a scale not seen since four digit date formats were all the rage.  But beware ERP vendors, you are being surrounded and at some point you will be made irrelevant by the increasing functionality of the second tier and at some point there will be a bloodless coup d’état.

So what happened this quarter is that one ERP vendor after another admitted defeat of a sort.  No one any longer pooh-poohs cloud computing (even Ellison) or questions the validity of social technologies in business.  It’s all SOP today in what some are calling the post-digital era.  Post-digital doesn’t mean we’re beyond it, simply that it’s established fact and beyond debate just like evolution, global warming and a round earth are in most precincts today.  Yes, there are laggards who haven’t bought into the message yet but increasingly they are to be pitied, not argued with.

So, as they say in the reality shows, Who’s safe? And Who’s going home right now?

Well, as it happens very few need to go home provided they’re cloud oriented all ready and that they’re at least making noises about the other three Big Buzzwords.  Companies entering the market with anything that enhances the two-tier strategy will be welcome and some, like NetSuite, which has announced a defacto three-tier strategy should do fine.

In the years ahead look for the following ideas to gain primacy in business and enterprise computing as the post-digital era gains momentum.

Increasing use of the Four Big Buzzwords.  This will show up most obviously in mobility technologies but they will be supported by increasing use of centralized analytics crunching big data derived from social media.

Social will continue to be a big draw, not so much for what we know of social right now but for advances such as gamification that will become key drivers.

Multiple-tier solutions will continue to blur the distinction between on-premise, cloud and single vs. multi-tenant.

We will need to turn our attention to the internet of things later in the decade as machines increasingly talk to machines a la buy more milk, eggs and bread.

The key battleground will become platform and development tools.  Increasingly, the goal in business is to project agility through the capacity to change with customer demand.  Tools will be important but platform will be key.  Platform increasingly is the place where security, social, mobile and all the other Big Buzzwords have to be built in.  You can’t add any of them on after the fact.

Platform therefore is key and positions companies like Oracle (Fusion) and Salesforce (Force.com, Heroku, Sites.com, Database.com), NetSuite and others in the catbird seat.  Vendors with older platforms rejiggered for the cloud may not fare as well.

So there it is.  They’ve figured out what to do about cloud, as inelegant as it might seem, they’ve embraced the big Four Buzzwords and for the next several years, provided the economy holds up, we’ll see renewed competition as different vendors compete on slightly different permutations of a similar story.  We can already see Salesforce focusing on the social enterprise, Oracle the customer experience, NetSuite commerce, Microsoft catering to its large installed base with cloud versions of the things it used to sell in boxes.

SAP will do something but it’s still hard for me to figure out what.  They’re working with NetSuite according to Zach Nelson, CEO of NetSuite and Business by Design appears to be catching fire.  Never a strong marketing presence they need to get an elevator pitch for a small building.

Later in this cycle we’ll begin talking about video and voice embedded in the front office suite.  They’re about where social technologies were in 2006 and moving toward the center.

Transportation, Sustainability and CRM

Sustainability and CRM

There was an interesting article in the New York Times last week, “When Flying 720 Miles Takes 12 Hours”   about airlines but the subtext was all about CRM, or at least where CRM has to go.  If you know me at all, you know I closely attend to macroeconomics and energy issues and they are all over this article.

The story documented how small regional airlines are having trouble in an economy where fuel prices are rising and there are fewer passengers willing to pay higher prices.  The typical response you’d expect in such a situation is some combination of reducing the supply of seats and raising prices to enable the carriers to at least break even.

The article shows both but this is not a simple exercise from ECON 101.  Higher prices and fewer flights signal stress on the economy because less business is getting done and that’s a downer economically speaking.

A few years ago a Forbes editor, Chris Steiner wrote, “Twenty Dollars a Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better” that postulated what might happen to the economy as fuel prices rise.  We’re right on time with his predictions, but I think there will be much change and dislocation before we see the promised land.

With fuel heading for five bucks a gallon, we are seeing mergers and acquisitions of sick air carriers along with fewer feeder routes according to the Times article and Steiner.  As prices continue to escalate we’ll see fewer short hops and fewer long distance routes as airlines try to hang on.

But also, Steiner thinks places that exist on the end of an umbilical cord filled with jet fuel — Las Vegas, vacation destinations (think ski areas and islands in the sun) — will see a decline in the traffic that brings tourists and their cash.  The immediate fallback position is cars, but gassing up a car that gets 12 or even 20 miles per gallon has already gotten old.

The secondary default position will be to get serious about alternatives and since trains and new cars or especially more hybrids are an expensive proposition the next steep won’t be travel alternatives but conservation in the form of travel reduction.

Just a few weeks ago people were talking about the resurgence in U.S. oil production.  We went from producing 4.95 million barrels of crude per day to pumping 5.75 mbpd and French champagne started flowing.  But the sad reality is that we need 19.2 mbpd every day and while 5.75 mbpd is nice, even getting up to the 9 or 10 mbpd optimists predict would be nice but still leave us quite a bit short.  And those are today’s numbers, they make no accommodation for growth.

Even worse, in 2007 just before the financial meltdown, U.S. crude demand was 20,680,000 mbpd meaning that the recession has done as much to reduce demand as drill baby drill has done for supply.  I dare say reduced demand will be easier to come by than increasing domestic supply.

When we think we have spare capacity we lose track of the longer-term need for alternatives and we stick with what we know.  That’s one reason we don’t have a more aggressive energy and transportation policy.  But when we’re feeling sanguine about energy we’re also riding an economic roller coaster up and then down because higher prices inevitably choke off growth.  So we find ourselves in a position where the economy gets a little better then a bit worse with the peaks never reaching the previous troughs and the moving average is ever downward.

Alternatives do not simply mean smaller cars or windmills.  If you can find a way to do business with fewer energy inputs, you could call it conservation but in reality you are developing an alternative path to profits and that’s where CRM can add so much.

First off, the huge move towards social technologies is one example of using alternatives.  Social (along with analytics) enables us to communicate with and understand customers without jumping on a plane or into a car all the time for a face-to-face meeting.  But there’s more.  We are rapidly approaching a time when the videoconference has to replace at least some face-to-face meetings.  Video conferencing can be easily built into CRM applications and as a stand-alone it is a great way to communicate with people.

Some companies are using video conferencing to knit together enterprises strung together across time zones and supply chains.  Others are embedding video chat into customer service — another good practice because it produces a more intimate interaction and improves the customer experience.

Companies are looking over unified communications solutions right now but few seem to have the interest in pulling the trigger.  That’s to be expected.  Big companies like ATT, ShorTel, Siemens, Cisco and Microsoft are offering solutions though I don’t know any CRM vendor with an eye on the subject just yet.  It’s too bad because I think unified communication is where social was about 5 years ago — on the periphery but moving inexorably into the CRM suite.

Given unified communications’ upside and relatively modest down side it’s a wonder to me why more companies — vendor and customer alike — are not swarming this solution class already.  Business is a game of thrust and counter thrust and everyone must be ready for change or risk being road kill.  This is our next challenge and CRM is right in the middle.

Notes from Convergence 2012

Note to self: Write something nice about Microsoft Convergence 2012.  They did a great job in Houston and most importantly you can really see the CRM focus coming together with social, mobile, analytics, back office and a lot more.  It’s taken a long time because there are a lot of moving parts for Microsoft but Convergence was impressive.

To get a sense of all the wonderfulness surrounding Convergence you need only glance at some of the many observations made by the likes of Paul Greenberg, Brent Leary, Dennis Howlett, Josh Greenbaum and many others.  So Kudos to Microsoft.

My observations will be somewhat different.  While I also think Microsoft has made important strides and I applaud their CRM team, I want to focus on what’s around the bend.  First there’s the new CRM GM, Dennis Michalis who took over from Brad Wilson after Wilson turned Microsoft into a CRM power almost by sheer force of will.

Michalis is a find, the kind of acquisition that, if he was a stock, would have been overlooked by everyone but Warren Buffet.  From what I can tell, Michalis has spent most of his career in Europe or the Far East and did well in those market; however, he was somewhat off the radar when Microsoft saw his talent and scooped him up.  Michalis has been with the company only a few months so this year’s Convergence was still mostly the result of Wilson’s efforts.  Michalis will have to stand on some big shoulders to do better and I think he can.

For starters, he will need to flesh out the social, and to a lesser degree, mobile strategies and product lines to be truly competitive.  Microsoft is not a social powerhouse and trails in the mobility wars, at least on the mobile operating system side (and that’s a lot).  But they have a strategy to offer their CRM on multiple browsers and in fact, demoed a mobile application for the iPad, which was impressive.  Their analytics package for sales, form what I saw, is powerful and sports a nice and intuitive interface though overall the product still has a straight from the software lab look to it.

The company’s biggest advances were, in my opinion, not software related though — they more clearly relate to the company evolving from an ERP company to more of a CRM company.  This needs some explaining.

First, it was nice to see Kirill Tatarinov speak about the drivers that his organization takes into account when trying to figure out product direction.  He said they include economics, geopolitics, people and technology, and I think that’s hugely important, though I don’t think it has been the case in the past.

The business climate, the cost of fuel and raw materials, the stability of the local political regime including personal freedom and free markets, all go into what will drive demand as well as the nature and character of demand.  They drive what people will buy and the style of the technologies they will use in their personal and professional lives.  All this might seem to affect ERP more than CRM but I think the distribution of influence is roughly equal.

But those are high level ideas and truth be told, it’s an ongoing effort to get them down to street level and there are some key things that I think Microsoft can do better in that regard.  For starters, the company culture is one of a vendor selling through distribution to others who will produce a final full product.  In ERP they’ve been successful at imagining customer business practices and driving solutions to market in some key areas, especially manufacturing.  This hasn’t been the case, to the same degree in CRM and it needs to be.

Microsoft needs to do a better job now of connecting its many dots.  For example, it is still at the point where it is hitting checklist items like social — so that it can compete with the likes of Salesforce — but without offering a compelling story of how a business progresses because it adopts new technology.  Salesforce calls it the social enterprise and Microsoft has no counter.  It is still selling components, modules, and it needs to elevate its game.

Also, too frequently for my taste, Microsoft likes to show off customers who have heavily customized their CRM instance, especially non-profits.  It’s nice to see non-profits in the mix, but the focus needs to be on for profit business.  Also, this makes points for their XRM strategy which goes against Salesforce’s Force.com platform, but it is wide of the mark for a customer that wants out of the box functionality that works the way its business works and drives improvement.

Cloud computing is another area for tightening up.  Here Microsoft joins the rest of the market excepting Salesforce, in highlighting the benefits of a go-it-yourself, roll-your-own strategy of hybrid clouds in which customers get to decide where their data resides.  I don’t think this is the right strategy for any vendor and here’s why.  We see too many examples of companies who manage their own data being hacked and increasingly the hackers are not individuals with an ax to grind but nations like China stealing IP or radicals like Anonymous aiming for industrial scale mayhem.

In this world, the strategy shouldn’t be building your own bomb shelter.  Microsoft and the other vendors have a credible case to make that they can and do perform a superior job of keeping data safe and that the time for going it alone is rapidly ending.  A more credible and strategic program might be for all vendors to say, “Hey, we’re the pros at this, let us handle it.”  If I ruled the world (hahaha!) that’s the tactic I would take.  It will take some years to accomplish this education but we need to start now.  And we need to quit deluding ourselves with a cowboy ethos that individuals can do a better job of data security than an organization dedicated to the task because the evidence shows this is just paranoia.

Ok, back to Convergence.  My last point — that Microsoft needs to do a better job connecting the dots has another element.  I am sorry to keep comparing Microsoft to Salesforce, because I think the two are more different than similar, but in the area of philanthropy I think Microsoft is trailing Salesforce when it could be leading.

You know that Salesforce has this 1:1:1 model in which it donates one percent of its equity, time and product to a 501 (3) (c) charity, the Salesforce Foundation.  At major events like Dreamforce, they have charitable activities in which customers can easily donate an hour of their time to do some public good.  All this activity is always tied back to the charity.

At Convergence Microsoft tried to do the same thing and the effort was inspiring but it wasn’t tied back to anything in particular.  Volunteers worked with Habitat for Humanity to renovate a house and when attendees filled out evaluation forms, Microsoft donated a dollar to a Houston charity, which was great.  But without some over-arching program I think Microsoft misses getting credit for its largess and also for its community outreach, which is important.

Last point.  Microsoft has not been a leader in any aspect of CRM.  It has taken a less risky fast-follower approach and it has breathed in other peoples’ exhaust as a result.  It’s time for the company to take a leadership position in something if it expects to reach the highest plateau in the business.  That plateau is unified communications (UCS).

Microsoft has Lync, a UCS that it offers and also uses in-house; Microsoft people tell me it works well.  UCS is, I think, potentially the next iteration of social networking.  It has enormous potential to save companies money and improve the links with customers.  To say the least, it would be smart of the company to step up its emphasis on UCS.  The window of opportunity is closing and I hope the company takes advantage of it.

If this sounds too critical, let me end on a more positive note.  Microsoft is a rising star in CRM and Convergence polished its reputation.  It has end-to-end technology from the back office to the front and from landlines to airwaves.  It is making headway in social, mobile and analytics — the next wave.  It has a good handle on at least some of the critical business processes that its customers depend on.  Like any software company, it will always be building out functionality, but its focus now must include, to a greater degree, all the many things that go into making a whole product in the social age.

Salesforce, the Enterprise Vendor

Salesforce held its winter Cloudforce meeting in San Francisco last week.  For many the meeting seemed like a reiteration of Dreamforce and to be fair there was some overlap but each time they tell the story, the company adds new wrinkles that cause people like me to pay attention.

What caught the attention of many analysts was the emphasis on enterprise computing, the continuing roll out of the social enterprise strategy and two new products Salesforce Site.com and Salesforce Rypple.  One at a time.

Social Enterprise

We really should talk about the social enterprise first because it drives the broader enterprise discussion.  It appears from the rich videos presented at Cloudforce that the social enterprise envisioned by CEO Marc Benioff is alive and flourishing.  We heard from Burberry’s, NBC Universal, Kimberly-Clark, HP and Toyota about how adopting social business techniques has changed their businesses by giving them greater interface with customers and the chance at greater profits.

Though the language and the videos were mostly from Dreamforce, each customer company was represented this time by its CIO who testified that the effort and company direction were real.  The difference was that at Dreamforce we heard from CEOs about their social enterprise strategies.

What’s interesting is that Salesforce is not trotting out examples of companies that are much smaller than it is.  Just the opposite.  In every case, the customer company is equal in size to Salesforce or much bigger which only bolsters its case.  Salesforce has identified a need and is delivering a different, and by the testimony of the CEOs and CIOs a better, approach to doing business.  This approach appears to be becoming the social enterprise standard for the early part of this century.

Enterprise Computing

At a press and analyst Q&A after his keynote, several of us asked about the pronounced emphasis Benioff’s keynote had on enterprise computing.  In his on stage discussions with CIOs, Benioff had observed that these customers also use SAP or other enterprise solutions and he’d asked the CIOs about their experiences bringing SAP back office systems together with Salesforce.  Those experiences were generally positive, though at least one CIO stressed that simplification was still his goal.

Benioff observed that no company of any size at all buys from a single source.  “These companies like what we have in the social enterprise,” he observed.  At the same time they are committed to their back office investments.  “They’re telling all of us that they want us to work well together and that’s been our strategy.”

So now it appears that a new round of rapid adoption of the social enterprise has begun in some of the largest companies on the planet.  If this is a typical ramp up we should expect to see a stampede in the next year, which will only make Benioff’s self-appointed job of becoming a ten billion dollar company easier to reach.

Bring on Sustainability

Back in the Clinton administration, the president, at the urging of his vice president Al Gore, invited an assortment of politicians to the White house for a conference on the environment.  The Kyoto treaty was up in the air at that point (the U.S. never signed it).  But there was an urgency in many quarters to attempt to get something done for the environment by reducing CO₂ emissions.  It shouldn’t have been controversial because the approach was along the same model as phasing out chloro- fluoro- carbons, which had caused the famous ozone hole over the Antarctic.  That effort had been led by the first president Bush.

Regardless, the meeting blew up.  Rather than accept the administration’s leadership, conservatives took to the opposition as if it was any other issue that they needed to oppose and the environment has been a contentious issue ever since.  This has plenty to do with what comes next.

I am not a global warming denier refusnick (the double negative is intentional).  I believe the preponderance of the evidence and just to keep this moving, if you are on the opposite side of the discussion, please indulge me.

It struck me during Cloudforce that regardless of the political stances, businesses are hardnosed and they do what’s best for them financially.  With fuel prices again rising, the marketplace is demanding less expensive and therefore less carbon-intensive approaches to executing their business processes and vendors are beginning to respond.  That translate to travel avoidance through the use of surrogate technologies like embedded video and bi-directional communication and that’s what the Salesforce demos offered.

At the Q&A, Benioff reiterated the importance of being able to address customers through a multi-channel approach, to meet them where they are.  There was no crusading involved, just the solid business logic of satisfying customer demand and leveraging all technological possibilities to do it affordably.  That’s when it became clear for me that this is how the free market handles challenges like the environment.  Regardless of what the pols on either side think or do, sustainability is now crossing the chasm and becoming a business imperative.  It’s subtle but it’s happening.

New Introductions

The new news form Cloudforce was not highlighted that much but it is important in its own right.  The company announced availability of Salesforce Site.com and Salesforce Rypple.  I’ve written about Salesforce Rypple, the socialized employee management tool elsewhere.

Salesforce Site.com is also interesting.  The next iteration of its Sites solution, this product is a cloud-based content management system (CMS) that is part of the platform and capable of helping organizations to quickly develop social websites.

As a user of an earlier generation of CMS I can attest to how powerful it can be to define a page and let the software figure out how to fill it with content at run time.  Moreover with the social platform as an integral component I expect that the websites that Sites.com generates will enable a more engaging level of interaction with customers.  It’s also possible that with Heroku as another part of the family that what defines a website is about to be expanded significantly.

Finally, Cloudforce also filled a necessary spot in the ongoing marketing conversation.  Microsoft Convergence is happening this week and other vendors including SAP and Oracle will be having events in this quarter so it was important for Salesforce to raise its profile.  OF all the things you can say about Salesforce, you should always be mindful that this is a very good marketing organization.

It’s ASP All Over Again

One of my favorite Mark Twain quotes is, “History doesn’t repeat itself, but it rhymes.” I thought of it again last week when I read about the price war going on in the infrastructure as a service space.  Larry Dignon made the clever observation that he paid more for electricity in January than it cost to get IT infrastructure now that Microsoft and Amazon have decided to double down on the infrastructure game.

Call it Profit as an Option or PaaO.  The whole cloud computing trend reminds me of the history of the application service provider (ASP) market a dozen years ago.  Back then, applications were all client-server which meant that just about every mouse click and keystroke had to be echoed back to the host.  Networks didn’t want that much traffic and servers bogged down from all the packet handling.  I get tired just thinking about it.  Of course, the entire system went to hell in a hand basket because no body could fit enough users on a server with acceptable performance to eek out a profit.

Today’s cloud computing is different.  It has degenerated from multi-tenant, shared software and common infrastructure to paying by the drink for IT services that support conventional applications.  The part of history that repeats this time is that with more Web friendly applications you can make a profit from hosting users on a server farm — if you want to.

The part that rhymes is the direction each of the major vendors is taking with regard to pricing.  If they cut their prices for long enough they’ll be able to go out of business like their ASP forebears.  But since we’re talking about two very large companies that know how to generate cash, that won’t happen in your lifetime.  I have to wonder aloud if this kind of competition is legal.  Didn’t J.D. Rockefeller do this?

The other possibility though is that someone in the executive suite will decide that not making money is just not as much fun as its opposite.  If that happened one or both vendors could end up pulling the plug, which might cause a few of us to cry foul.  That’s the rhyme for me, the end is the same as with ASPs but the path we traveled to get there was presumably more scenic.

Why do we do this?  There are so many serious customers out there trying to make a buy decision by examining cloud computing with a microscope to ensure their precious data won’t be corrupted or stolen and the supposed adults in the room are engaging in a game of chicken.

Price wars are a common facet of business when supply is relatively high compared to demand, especially if all vendors want to increase the size of the market.  They could also decide to stop flooding the market with product so that the excess capacity wasn’t burning a hole in their pockets.  It reminds me of a Ron White line about being arrested on a drunkenness charge, “I had the right to remain silent, but not the ability.”

Lower prices probably will bring more companies into cloud computing, especially small companies trying to figure out a smart strategy for competing in a tough market.  So that’s good.  But as soon as profit flies out the window, vendors start looking for ways to lower costs and cheapen the product.  That typically means less service, more self-service and the loss of who knows what — things that were once standard in a service completely gone.  It will become apparent that we’re headed in that direction when Amazon and Microsoft start hiring executives with airline experience.

The thing that no one seems to get in this picture is that while IT services have become a commodity, they can’t, or at least shouldn’t, be commoditized because the switching cost is significant.  IT services will for a long time be less like a true commodity and much more like a regulated monopoly or duopoly of possibly several vendors.  For almost a century that’s what the phone company was — so were airlines and in many places so are electric utilities today.  Ever hear of a rate setting commission?  The Texas Rail Road Commission?

The regulated monopoly model might not deliver the lowest prices or choice of vendor and the style of service might seem homogenized in a regulated monopoly.  But these types of organization aspire to a higher good — uninterrupted service and a fair price across a wide swath of the population.

So in my mind this price war is simply indicative of a nascent market and my bet is that in the future some form of regulation that protects customers from the downside of reckless pricing schemes will come into play and the vendors will be forced to make a profit.  ASPs never got that far so that’s the real rhyme in Twain’s idea.

The Empire Comes Back

One of the more noticeable efforts by Meg Whitman since she became HP’s president and CEO last September has been the company’s effort in cloud computing.  Last week the company announced  that within two months it will begin offering cloud services.  Moreover, HP has taken the important stance of trying to be different from the infrastructure as a service companies crowding the market.

Meg Whitman, CEO HP

The HP plan is to offer an expanding suite of applications rather than raw CPU and storage.  Recently, Amazon and Microsoft have become engaged in a price war that looks like both companies are selling at or below cost, presumably to gain market share.  Each company also supplies applications but the emphasis on price makes the apps something of a sideshow and I am not sure that’s the right emphasis.  While this approach might be good for building market share in the short term, building a customer base is all about providing something that customers want and need, which is well beyond low prices for IT.

HP might have another advantage too.  Tien Tzuo, CEO of Zuora, the billing and payments company that specializes in subscription services, tells me that HP selected Zuora for its business.  That makes a lot of sense because when you are selling something more sophisticated than servers-by-the-hour, things get complicated quickly.  Amazon has a lot of free apps and Microsoft is happy to sell one-time licenses, so there are some real differences between the three.

In addition to the number of seats, customers can suddenly buy a constellation of applications in different seat configurations that demand a billing system that goes beyond a single line item.

The HP relationship will not likely challenge Zuora’s infrastructure or its ability to serve many customers — the company already has well over a billion dollars worth of subscriptions under management.  But the relationship does something very important for Zuora and for the subscription industry.  HP, with its commitment to something beyond commoditized pricing of generic services, has taken the spotlight away from the simple price war and focused it on the challenges of managing a real business in the twenty-first century.  Zuora is integral to telling that story.

Getting the Skinny on the Big Four

On an otherwise slow news week there was a story emanating from a Gartner analyst, Dennis Gaughan, at a recent Gartner talk in Australia that I found interesting on Business Insider.

The headline told the story, as good headlines often do.  “What Microsoft, Oracle, IBM and SAP Don’t Tell Customers” identifies, in Gaughan’s opinion, the primary strategies or approaches to the market employed by the big four software companies.  There’s room to quibble with this but there are also elements of truth.  I hope you’ll click the link and read the rather short piece, here are the major takeaways.

• Microsoft mainly wants to protect its Windows and Office franchises
• Oracle products don’t really work well together
• IBM wants to take over your IT strategy
• SAP confuses customers with pricing

Got that?  I wonder how many readers came away from the article saying, so?

Didn’t we already know this in our bones?  And, more important, aren’t these simply strategies for locking in customers and getting the maximum footprint in customer data centers?

IBM has been running IT strategies at its customers for a very long time.  That’s not new nor is Microsoft’s fetish over Windows and Office.  Dynamics CRM has an Outlook interface because the company tells me, that’s where people spend their day and they already understand the interface.  Fair enough, but do they understand the interface primarily because they’ve been trying unsuccessfully to use Outlook as a CRM system all along?  Client-server was a boon for windows and cloud computing is a major threat.  Why else is Microsoft trying to sell their idea of an operating system for the cloud?

And can anyone take Oracle’s claim of systems engineered to work together seriously?  A few years ago the company said that customers should use their products as they come to minimize breaking systems.  And when Oracle bought Sun they immediately extended the blanket to cover hardware.  In last week’s column I quoted Dave Yarnold CEO of ServiceMax who wondered in print if the universal devotion to SAP’s ERP (and I must say ERP in general) might be sapping companies’ ability to creatively engage the marketplaces they serve.

Nope, sorry, nothing really new here.  As they might say in court if you’re an IT executive, you knew or should have known all about this.  But what is new is that this kind of news or information is surfacing and it is surfacing at a time when people are thinking differently about their futures and companies are trying to keep up.

The legacy systems of the twentieth century that mediated the manufacturing economy have proven inadequate to the task of keeping up with the increasingly mobile and socialized customer.  Moreover the customer is increasingly turning to the cloud and to subscriptions for all manner of things that were once considered products but are now delivered as services.

The news in the article I quoted is not that the big four have tried for a long time to—legally—control their customers.  The news is that Gartner said it and the speaker acknowledged that the information was culled from Gartner’s experience with its own customers.  To the best of my knowledge Gaughan has not been reprimanded for speaking bluntly and Gartner has received no law suits for the honesty, but it’s early.

No matter, what this indicates to me combined with other things I’ve been reporting on are two things.  First, IT customers are getting restless and starting to speak out.  This may be the beginning of a cascade.  Second, the vocalized dissatisfaction rising in the market may indicate a turning point in the paradigm.

Paradigms are remarkably stable.  They may crumble for a long time accumulating pressure for change but never reaching a tipping point.  But then, seemingly without warning a catastrophic event causes a shift.  There is nothing foreordained to the effect that today’s big four will be tomorrow’s.  They have big installed bases and tremendous market presence and that might delude some people into thinking that they are too big to displace.

Alternatively, though, major market shifts don’t happen because the leading vendors fail.  They happen when the leaders become irrelevant to the problems they provide solutions for.  We haven’t been a primarily manufacturing economy for a long time yet our enterprise software is built to support it.  Hand in hand with the irrelevancy of the old regime, the free market boasts a huge number of vendors with robust solutions that are more relevant to the moment.

Multiple economic drivers are in place and that should make the new year very interesting indeed.