Enterprise Anti-matter

August 12th, 2008

Expensive Oil, Stupid Trade Groups, and Pending Enterprise Software Growth

Posted by Joshua Greenbaum @ 9:13 am

Categories: Uncategorized

Tags: Oil, Enterprise Software, NAM, Manufacturing, Joshua Greenbaum

USA Today had an interesting article today that calls into question a few of the doomsday scenarios that have dominated US policy-makers and those for whom policy has been made over the last decade or so. And in the process America’s newspaper debunks some stupid policy issues on the subject of offshore drilling, offshore manufacturing, among others.

The gist of the article is contained in the following statement:

“Shipping a standard 40-foot container from Shanghai to the U.S. East Coast in May cost about $8,000, vs. $3,000 eight years ago, when oil was around $20 a barrel.”

This little nugget contains the essence of a potentially enormous shift in the U.S. manufacturing economy that may effectively reverse the decades-long practice of off-shoring. And in the process the article signals why enterprise software is going to do very well over the next few years, regardless of when the current recession wanes or even if there is ever a massive shift back to on-shoring that the USA Today article postulates.

The amazing thing about this almost three-fold increase in shipping costs is not that it’s happening, but that it’s coming in the context of two other factors that are tending to push manufacturing back to the US: The first is the growing inflation in less-developed manufacturing countries that has begun to push labor and other costs higher, making off-shore manufacturing less cost-effective than it was when the trend started. Simultaneously, the disastrous quality issues that emerged in the off-shore manufacture of toys (leaded, despite policies and regulations to the contrary) and drugs like heparin (contaminated, despite polices and regulations to the contrary) have spurned more than a few manufacturers to reconsider the cost of off-shoring in light of the costs of quality control and the risk of a fatal loss of customer satisfaction.

What is clear is that with shipping costs increasing, quality threatened, and manufacturing costs rising in less-developed countries, off-shoring is starting to look less like the no-brainer it seemed to be at the outset of the trend. Or as USA Today puts it:

“… the calculations that drove a doubling in global trade volume since 2000 and the establishment of far-flung supply networks might require rethinking. Orders might be placed with factories closer to home. Shuttered assembly lines could be given new life. And suddenly, the confident claims of globalization’s cheerleaders that distance doesn’t matter would ring hollow.”

So, what’s the impact of this. First is that U.S. manufacturing looks like it will be a major beneficiary of this change in the value equation of off-shoring. Spurred by expensive oil – and reinforced by quality and inflation problems in offshore countries – companies all over the world may look to bring manufacturing closer to the world’s largest market. This boost to U.S. manufacturing may take some time to have an impact, but, with oil prices not expected to go back to the glory days of sub $100 per barrel, time is on manufacturing’s side.

The second beneficiary will be the enterprise software vendors that build the supply chain, logistics, and ERP systems that optimize manufacturing strategies. The shift in the value of off-shoring will engender a major analytical push by manufacturers to ensure that product X is being built with the lowest possible energy – and while we’re at it, carbon – footprint. This means building more sophisticated enterprise transaction and analysis systems in order to make the strategic decisions needed to know when to offshore and when to onshore. It’s going to be a major boost for a software sector that has thus far weathered the current recession well, precisely because of its ability to assist in optimizing the use of resources in the enterprise regardless of which way the economic wind is blowing.

Meanwhile, this trend may also help get US manufacturers out from under some of the moribund policies that are being promoted by one of the top manufacturing trade groups, National Association of Manufacturers, which has been run over the years by a team that believes that carrying water for current administration policies trumps promoting good policy choices for its constituents. NAM’s position on energy policy is a good case in point: the organization has pushed hard for more oil drilling, first in the Alaskan wilderness, and now offshore, on the short-sighted premise that the only thing good for US manufacturing is cheap oil.

Meanwhile, as the USA Today article shows, there are actually some real net gains for US manufacturing from expensive oil, and that’s not counting on the growth of energy-related manufacturing that is based on mitigating the impact of higher energy prices. The growing use of photovoltaics and wind-based energy resources, new products that support more complex energy conservation processes, and all manners of green construction products are part of a growing manufacturing push that needs expensive oil in order to succeed. This trend has been happening in Denmark since the 1970s, and, as the New York Time’s Tom Friedman reports, this energy-efficiency manufacturing sector generated $10.5 billion in export revenues last year in Denmark. Not too shabby, to say the least.

Indeed, one of the main beneficiaries of expensive oil may be the rebirth of the nuclear power industry in the US, which would portend a major building boom and would, in my opinion be worth the investment even considering the potential safety issues (which I believe are largely comparable to the problems associated with mining coal, which not only claims many more lives per year on the mining side than nuclear energy development in the US ever claimed, but also has a largely similar long-term environmental impact in the form of global warming and associated issues.) In all fairness, I should point out that, when it comes to nuclear, NAM and I agree.

Regardless of whether nuclear power makes a comeback or not, the fact is that rising energy prices are having potentially very positive impacts on the manufacturing sector. This is not to trivialize the problems of rising energy costs, but to emphasize that cheap energy – which isn’t coming back anyway – isn’t necessarily the panacea we need to strive for. Indeed, US manufacturers are going to find that there’s a silver lining in high energy prices, and if they can, the smart ones will exploit it to their benefit.

The scenario is almost mind-boggling: if the upshot of higher energy (along with inflation and quality problems in less-developed manufacturing countries) results in increased domestic manufacturing, we’ll emerge from the current recession stronger in more ways than we ever thought possible. And so will enterprise software, which will benefit from this boom regardless of the actual net increase in domestic manufacturing that results.

So, inside the wild ride we’re going through with energy costs is a potential silver lining that may, in the long run, have a greater net benefit than anyone could have imagined. Will this benefit balance out the negatives? We’ll have to see. But, with some sound policy management, hopefully from the manufacturing trade associations themselves, and some good strategy management, we may get to make lemonade out of this energy lemon yet. It’s definitely possible, it’s up to all of us to make it happen.

July 29th, 2008

Friendly Fire: SAP Flubs the Maintenance Business

Posted by Joshua Greenbaum @ 11:47 am

Categories: Uncategorized

Tags: Maintenance, Customer, SAP AG, Roi/Tco, Public Relations, Software Upgrade, Finance, Managerial Accounting, Marketing, Corporate Communications

You’d think, based on the timing, that Oracle was trying to deliberately make a PR run on what was looking like, and turned out to be, some pretty good news for SAP. The day before SAP’s nice looking Q2 earnings call, Oracle upped the ante in its lawsuit against SAP by claiming more direct executive involvement in the alleged theft of Oracle support IP by the now defunct TomorrowNow. It was a classic attempt by a determined rival to spoil some otherwise good news.

But if SAP has something to worry about in the PR department, they should look no further than their own backyard. There, smoldering like a summer fire in California, is a PR problem of major proportions, and one that isn’t likely to get under control for some time to come. A problem that, like most fires, is entirely man-made, or in this case, SAP-made, and perhaps equally avoidable.

The problem is SAP’s recent announcement that it plans to gradually increase maintenance fees up to an industry-standard of 22 percent, a move that was greeted with near universal opprobrium. Coming shortly before the announcement that SAP was killing off TomorrowNow, and today’s news of a very success quarter driven in part by a 29 percent (non-GAAP, constant currency) increase in support revenue, SAP’s move looks like nothing more than a blatant attempt to grab more revenues from customers who feel trapped into an unfavorable relationship by a greedy vendor.

It doesn’t have to be that way, but, trust me, that’s how many customers feel. I spoke to one recently who was basically furious at the maintenance hike: “We’ve already done our 2009 budget, and this sure as hell wasn’t planned,” she told me. For her company, a long-standing SAP customer that has deployed pretty much everything SAP has to offer, this change to 22 percent is not a trivial matter: “We’re talking hundreds of thousands of dollars here,” she told me. Needless to say, this user asked to remain anonymous.

While it’s specious to say that there is no way to hike maintenance without getting blasted by customers, there was another way to go about the maintenance hike, one that, while it might not have staved off all the criticism, due and undue, would have helped mightily in softening, or at least explaining the blow.

Here, in a nutshell, is what SAP should have done.

Start by defining carefully the value of the new maintenance program in terms of total cost of ownership, particularly when it comes to the upgrade process that is part of every SAP’s customer’s on-going plans. Customers I’ve talked to said they weren’t told whether there was any more value in paying 22 percent over 17 percent, though one assumes there might be something to be said by SAP about response times, more personal service, and other metrics that should be part of any discussion about raising maintenance rates. Somewhere in there could be the start of a “get more bang for your maintenance buck” discussion with customers.

Once there are some metrics on the table about why enterprise maintenance at 22 percent is designed to be better than the old 17 percent maintenance, SAP could start to talk about the value of its enhancement packs (EPs) in terms of upgrades and total cost of ownership. The EPs allow customers to perform complex functional upgrades using the much lower resource requirements typically used for more simple technical upgrades, and by doing so SAP is increasingly able to lower TCO by lowering the burden of an upgrade – the cost of which is up to the customer to bear, with maintenance fees only providing the actual software upgrade for free.

These EPs are part of a well-known SAP roadmap that should do a lot to change the TCO equation for SAP customers – and provide some strategic differentiation in the maintenance fee business: If SAP can articulate that EPs make it easier to upgrade, that might software the blow significantly when it comes to paying for a 22 percent maintenance hit.

Then SAP could look at bringing some of its partner ecosystem products into play by making them part of the maintenance/TCO equation, and thereby help promote the “more bang for your maintenance buck” notion. One company in particular, IntelliCorp, has a product set that can not only lower the cost of an upgrade but the whole life cycle maintenance of the SAP system. I’ve talked to a number of IntelliCorp customers over the last year, and every one of them tells me that this is a tool that can make a difference. The customer I spoke to whose 2009 budget just got busted by SAP’s maintenance hike is also an IntelliCorp customer, and her perspective is that this is a product that helps take the sting out of SAP’s maintenance burden.

Finally, SAP could elevate the whole maintenance issue in terms of its ecosystem and TCO, and make it more than just a service and support issue. Maintenance should be seen as much more than just a fee that pays for your support and upgrades. Maintenance is also about membership in a community – these are the dues that are paid to enjoy the rights and privileges of being in a club that, if SAP does its PR job right, has a raison d’être that includes a whole lot more than just free software upgrades and support. I personally think its high time that this concept of membership be added to the maintenance equation. Assuming a good case can be made for the value of membership, SAP would have a much easier time justifying charging more to be part of the club.

So, touché Oracle, the amended filing looks ugly. But it’s nothing compared to the friendly fire SAP laid down when it jacked up maintenance rates without spending the time and energy to make a case for an increase in value commensurate with the new 22 percent rate. The case can be made for greater value, it should be made, and then let it be judged by its merits. Because otherwise maintenance is really just a line item intended to increase shareholder value – and that’s just not good enough for SAP, or anyone else in the enterprise software industry today.

July 21st, 2008

Unintended Consequences and the Future of Maintenance Revenue: SAP Jettisons TomorrowNow

Posted by Joshua Greenbaum @ 10:45 am

Categories: Uncategorized

Tags: Revenue, Maintenance, Oracle Corp., Customer, SAP AG, TomorrowNow, Software As A Service (SaaS), Public Relations, Tools & Techniques, Mergers & Acquisitions

When Shai Agassi called me in early 2005, he asked me a loaded question: How would I respond if SAP decided to take the fight to Oracle by providing third party maintenance for Oracle’s recently acquired PeopleSoft customers? I told him it would be an incredibly aggressive move, but that SAP would have a lot of trouble proving it had a credible offering for PeopleSoft customers.

“What would it take for us to be credible?” Agassi asked me. If we had been talking face to face I might have seen him grinning ear-to-ear.

“Right now, the only company I know doing third party maintenance for PeopleSoft is TomorrowNow,” I replied. I had recently met with the company and written a column about them. At the time they had about 65 customers, including 24 of the Fortune 500.

At which point Agassi spilled the beans, under NDA, about his blockbuster announcement. The move was clearly meant to help PeopleSoft customers who might be sitting on the fence take a hard look at SAP, and to that end SAP announced a “safe passage” program whereby interested PeopleSoft customers who shifted to TomorrowNow would get a credit towards the purchase of SAP software to replace the PeopleSoft system maintained by TomorrowNow.

For the record, I saw nothing illegal or otherwise had any inkling of the issue that would embroil SAP in a lawsuit with Oracle and ultimately lead to this week’s announcement that SAP was shutting down a subsidiary that had become unsellable and unworkable as the lawsuit dragged on. TomorrowNow hadn’t invented third party maintenance – big SIs have been doing it since the dawn of time – and it seemed that SAP had an interesting, and admittedly very controversial, new way to grow its business.

The irony of Agassi’s enthusiasm for TomorrowNow is that the controversy opened up by this acquisition will hardly die with the shutting down of the SAP unit or the eventual resolution of the lawsuit by Oracle against SAP. Because the real issue at play, the proverbial Pandora’s Box that SAP opened up by buying TomorrowNow, isn’t about a little spat between lawyers about who did what to whom. The suit, which Oracle will continue to pursue until it’s wrung every drop of PR value out of it (and so far I calculate the total value to date in the 100s of millions), is really immaterial, and largely, as I just said, mostly about PR.

The real legacy of the acquisition of TomorrowNow is that a slumbering giant of a problem for SAP, Oracle, and the entire on-premise enterprise software market, was awakened: The prospect of third party maintenance undermining a very profitable, and increasingly controversial part of the entire industry’s business model.

The problem is this: With SaaS and open source offering the illusion that software can be maintenance free – bear in mind that it can’t, though both models offer a way to maintain software at a much lower cost model than traditional on-premise software – SAP, Oracle, and the rest of the traditional on-premise industry is running into a bear market when it comes to customers’ willingness to pay 22 percent per year for services that seem to return much more to the vendors’ bottom line than they do to the customers’.

This simmering controversy was joined once again last week when SAP announced it was effectively standardizing its maintenance costs to an across-the-board 22 percent, with existing customers able to pay the lower fees they contracted until they upgrade to the latest version of SAP, whereupon they join the rest of the customer base at the industry-average 22 percent rate. The announcement once again put in play the question of the value of maintenance to customers, a question that vendors have been loathe to really define.

Catalyzing this controversy is TomorrowNow’s lasting legacy, and the fact that TomorrowNow founder Seth Ravin’s new company, Rimini Street, seems to be going gangbusters is proof that customers are looking for an alternative to being jacked for 22 maintenance without necessarily knowing why. I would also venture that a lot of the early interest in SaaS is predicated on the assumption that this model helps do away with the maintenance burden, though those who believe that fantasy can rest assured that most SaaS vendors are busily making sure their fees are also turning maintenance into a healthy margin business, just not as overtly as their on-premise rivals are doing.

The problem with maintenance in general, and SAP’s announcement that it’s raising its prices, is that the value of paying 22 percent maintenance has never been well-explained by SAP or anyone else, leaving it wide open to some justified criticism. And some that’s not justified.

In the unjustified category, SAP has been working hard to vastly simplify the upgrade process, and in doing so has come up with what it calls Enhancement Packages. These are mini-upgrades that are extremely simple and easy to undertake, using a fraction of the resources that a major upgrade requires, and the customers I’ve spoken to who’ve done EPs universally speak of them as non-events. As opposed to the typical upgrade event, which is a resource hog of monumental proportions, making the fact that the software itself is free as part of maintenance a trivial cost savings.

SAP’s EPs represent an increased value for SAP’s 22 percent maintenance fee, insofar as the total cost of an upgrade goes down significantly using EPs. This might help SAP explain why it’s asking all its customers to pay the 22 percent fee, and it would definitely help SAP justify its fees vis-à-vis the competition, none of whom have anything like EPs.

Sort of. Because these fees exist in a larger context of vendor-centric, instead of customer-centric, pricing and contracting that belie the perception that vendors are mostly interested in “partnerships” with their customers. They’re interested – as the law demands – in maximizing shareholder value. Working on long-term customer satisfaction can definitely do that, but raising maintenance rates is a lot faster and cheaper.

With Pandora’s Box now open, and SaaS and to a lesser extent open source providing an unflattering perspective on 22 percent maintenance fees, it’s safe to say that the acquisition of TomorrowNow was a rare strategic blunder for Shai Agassi. Getting rid of TomorrowNow won’t make the problem go away, nor will resolving the Oracle lawsuit. The real problem is that the maintenance issue in on-premise software is broken, irretrievably, and it will be up to SAP and its competitors to fix it, or face the consequences. The time to change it is now.

July 11th, 2008

Vista To Win in the Enterprise, The Ugly Way

Posted by Joshua Greenbaum @ 10:46 am

Categories: Uncategorized

Tags: Desktop, Information Technology, Microsoft Windows Vista, Microsoft Corp., Microsoft Windows Vista (Longhorn), Operating Systems, Microsoft Windows, Software, Joshua Greenbaum

I came away from this week’s Microsoft Worldwide Partner (WPC) conference convinced, finally, that the future of Vista is assured in the enterprise. Don’t get me wrong, it wasn’t because of anything Microsoft said — the combined mea culpa/back atcha delivered by Microsoft’s Brad Brooks, the Corporate Vice President in charge of Vista’s rehabilitation, isn’t what swayed me. Nor was the rush of end-users I know who are growing to love Vista despite its foibles and obvious problems — mostly because there is no such rush of Vista lovers that I’m aware of, and I frankly don’t expect any to show up any time soon. (See Ed Bott’s prescription for fixing Vista’s image problems here.)

The reason that I now am a believer in the inevitability of Vista — or its successor, Windows 7 — is all about the inevitability of a desktop “standard” that, with the demise of new XP sales last month, has become the defacto choice for the enterprise desktop. And, having heard some of Microsoft’s partners wax eloquent again about the advantages of using XP to build “cool” new apps, I’m also convinced that the advanced display capabilities of Vista will make for some impressive, must-have enterprise applications in years to come.

While Linux penguins and Macintosh fanatics all think they have a better desktop environment than Vista — and maybe they do — neither OS is going to make major in-roads into the enterprise just because of a little problem with Vista’s user acceptance. After all, what does user acceptance have to do with anything? Enterprise IT has never run a popularity contest, and if you doubt that just look at the unbelievably crappy user experience that has dominated enterprise software since the dawn of time. IT runs an increasingly cost-conscious effort aimed at trying hard not to pay too much attention to worrying about how much its users are actually loving their software. IT wants efficiency above all, and will always opt for expediency over technical “correctness”, which means that Microsoft’s incumbent position on the desktop — combined with the significant cost-differential between a Mac and a Window PC — isn’t going to be usurped just because Vista sucks.

Or should I say sucked. There’s some evidence that the new service pack has sucked a lot of the suckiness out of Vista, and it seems that Vista is a whole lot less sucky than when it first came out. Thank goodness for small favors.

But what’s more important is that Vista won’t suck forever, and Microsoft’s desktop monopoly will endure. And PCs will continue to be cheaper than Macs. And ISVs will continue to write cool apps that need a Vista-like environment to really show their stuff. And so the march of Microsoft will continue, and Vista will one day dominate the enterprise the way that XP does today. If for no other reason than the fact that when corporate IT next upgrades its PCs, none of them will come with XP — and if that ain’t proof that monopolies lead a charmed, if unpleasing, existence, nothing is.

I can’t say that this strategy is the best way to win the hearts and minds of the user community, or IT management, but why should Microsoft be any different? If you look at how enterprise software vendors have traditionally dealt with upgrades to their software products, the general tendency has been to put the vendor’s interests well ahead of the user. Upgrades to enterprise software tend to be expensive, complicated, buggy to a degree that makes Vista look like a rock, and, by the way, force-fed on an often reluctant user base to boot.

Of course, this kind of to-heck-with-the-customer attitude could never fly when it comes to consumer products (except for the pass that Apple gets about non-removable batteries and no cut-and-paste function in even the new iPhone), and, as a consumer stuck with a Vista PC at home, I want to say categorically that I’m sorry I bought it. But enterprise IT is not a beauty contest, nor is it the place where bold moves and dramatic gestures are made. Which means that one day, like most everything else Microsoft does, they will get Vista right enough to rightly take over the largely great XP mantle. And IT, as it makes its next big waves of PC purchases, will be buying Vista machines by the millions, mostly because they won’t have any other choice. Whereupon they may even discover a business case for having a high-end visual experience on their users’ desktops, thanks to a new wave of emerging apps that require the resources of a Vista to be cool enough.

It’s a helluva ugly way to win the latest battle of the desktop. But in the end there’s going to be something in Vista’s ascendancy for users, the IT department, and corporate productivity. And once that latter issue is settled, we’ll all have forgotten how much we hated Vista when it first came out. To be sure, by then, there’ll be some else we’ll all love to hate, and the cycle will repeat itself once again. Plus ca change, as Steve Ballmer said in his WPC keynote, plus c’est la meme chose.

July 8th, 2008

Deskless Workers, Useless Services: Microsoft Online Misses the Mark

Posted by Joshua Greenbaum @ 9:31 am

Categories: Uncategorized

Tags: Microsoft Corp., Worker, Joshua Greenbaum

I spend a lot of time tracking the deskless souls who inhabit the workworld, the factory workers, nurses and others who spend more time on their feet and less time on their butts than the rest of us. So I was all ears as Stephen Elop, Microsoft’s latest Business Division head, announced a new set of online services (Mary-Jo Foley’s post on this and other announcements from Microsoft’s partner conference can be found here) with the absolutely unpronounceable category name of Deskless Worker Suite: Try saying it 10 times, much less once, without tripping up on the sheer awfulness of the term.

The needs of deskless workers are manifold, and only growing as traditional back-office enterprise software reaches out to the masses of workers traditionally underserved by the ERP and CRM systems of the world. So the concept — if not the buzz term — is a good one. But Microsoft’s initial concept of what could be useful to these workers in an online fashion — even at a measly $3 per user per month — is sadly off target.

Basically, what Elop proposed is a set of online services that provide read-only access to email, calendars and Sharepoint portals — giving employees “read-only access to important information such as company policies, training, and benefits.”

The reality is that this class of information is hardly “important”, especially to deskless workers trying to do real work, and constitutes a reality-gap in Microsoft’s online strategy that needs a little fixing.

Deskless workers do spend relatively little time interfacing with key enterprise resources, but when they do, the needs are complex, very often mission-critical, and almost always interactive in nature. Nurses need to quickly pop over to a screen in the middle of an examination to read and update medical records, order drugs and supplies, and otherwise interact with the systems that are at the heart and soul of a hospital or medical practice. And factory workers need to be able to pop off the production line, order some new supplies or report a problem, and then get back to the business at hand. There are a million more examples about what deskless workers need, and most of them have nothing to do with terms like “read-only” and access to unimportant policy and training information.

So I have to take issue with Mary-Jo’s contention that the new Deskless Online services could be bad for partners. This announcement is mostly a non-starter, and if there is harm it will come from the fact that Microsoft’s Online strategy was making a lot of sense, up until this misstep.

Luckily it’s just a little blunder, and the fact that the whole thing needs to be renamed anyway will offer Elop’s team the opportunity to rethink just what a deskless worker really wants. Hopefully, once that exercise is underway, we’ll start to see an offering worthy of the rest of Microsoft’s Online strategy, which, though nascent, has been largely on the mark until now.

June 30th, 2008

My 15 minutes with Bill Gates, and how the Web was born

Posted by Joshua Greenbaum @ 11:02 am

Categories: Uncategorized

Tags: Web, Multimedia, PC, Bill Gates, Bill, Desktops, Hardware, Joshua Greenbaum

Once upon a time, when Bill Gates still flew commercial and I was a budding journalist in need of a haircut, I had a number of opportunities to interview and otherwise interact with Bill Gates. It was often contentious, always intriguing, and more often than not frustrating as well. Part of the problem was that my job in the mid-80’s was to cover this thing called Unix and a related group of fellow travelers traveling under the rubric of the open software movement, and to say Gates and Microsoft were opposed to the whole idea would be like saying Steve Ballmer isn’t a mellow guy. Gates was rabidly anti-Unix, for reasons that are too complex to enumerate here, and as a result I was persona non amata, if not non grata, in Gates’ presence. Oh well.

As a result we sparred on a number of issues, and, to Gates’ credit he usually managed to curb his wrath enough to hear most of my questions, before ripping, or trying to rip me to shreds. But one incident remains stuck in my mind for both the audacity of my question, the cluelessness of Gate’s answer, and the resulting market forces that made Gates as right as, well Bill Gates has proven to be more often than not.

The actual date and time of the incident are lost in the fog of my memory, but the topic of the press conference is still firing on a few of my synapses: Microsoft’s introduction of their multimedia PC concept. According to Wikipedia, the arrival of the multimedia PC spec was sometime in 1990, Answers.com pegs it as 1992, but I’m pretty sure Bill was flogging the idea several years earlier, circa 1988 or so.

Regardless, we’re talking the stone age of PC computing, in terms of what you could and couldn’t do on a basic PC. Think 64K RAM, 10 meg hard drives, color monitors as rare as a June bug in December. The spreadsheet and word processor were the killer apps, Windows hadn’t even made it to its (gag) 3.0 version, and while I by then had been using PCs for a millenium or two (I had built a Heathkit 8086 machine in 1984), I was skeptical about how far Microsoft and the PC standard would be able to go, a skepticism fueled by that journalist’s paycheck that arrived in my hand every month.

So there I was, in the audience, as Bill Gates was trying to warm up the market with the newest cool thing, which he was calling the multimedia PC, and I wasn’t buying. Prior to becoming a journalist I had had a real job as a computer graphics programmer, working with some very (at the time) high end graphics systems that cost, believe it or not, upwards of $250,000. We had specialized graphics engines, specialized monitors, fancy plotters, and the like, and it cost a bundle and was hard as hell to work with, hence the need for a “semi”-skilled programmer such as myself to actually make any multi-media things happen.

And there was Gates pretending that we were all going to do all this on a PC, and that it was going to be really cool and fun and useful. Yeh, right. Then he went through the hardware and software spec that would be the foundation of this new computing platform, followed by a demo of what we could look forward to once this new era had been ushered in. As I recall the demo was a children’s game the likes of which you wouldn’t let your child near today. Not only were the graphics bad and the user experience lousy, but it was really hard to look at this and see where Gates and company could possibly take this lame little spec. Multimedia PC? For playing bad children’s game. Puh-leeeeeease.

So I raised my hand and said something fresh like, “Bill, what is the killer app that’s going to make this multimedia PC a must-have on every desktop?” I’m sure I said with a smirk, or some disdain, or a combination of the two. After all, my journalist colleagues were in the room and this kind of attitude was expected of all us.

Bill’s answer was impressively unimpressive, and it was apparent that there was no killer app that he could cite that was going to take this funny concept and make something of it. Indeed, as I recall, he fumbled around and finally said that the spec was needed to open up the unknown possibilities of multimedia, or something like that. I left with my smirk well-justified, or so I thought.

The rest, as they say, is history, and it belonged as much to Bill’s vision of a multimedia PC as anything else. As early thinking around the Web emerged from a bunch of Unix heads at CERN, it became pretty obvious to me that I had now had the answer to my question, and that, regardless of Bill’s hesitation, his vision, while clearly unable to be as specific as I would have hoped, was nonetheless as keen as it needed to be. Instead of being present at another worthless press conference, I had been present at one of the key conceptual moments in the future of computing — the World Wide Web — and Bill Gates had, once again called it right, despite himself.

So, as Bill goes off to retirement and I look forward to slaving away for another 20 years to pay for my kids’ education, I see two lessons from this experience. The first is that Bill Gates usually got things right, as long as you gave him enough time to let the market catch up. That was his singular gift, and hopefully he’ll apply it to philanthropy with similar results.

The second lesson is that, if Bill is usually right, maybe it’s time I shifted careers and got into philanthropy myself. Bill’s clearly on to something here, and, who knows, in 20 year he may have figured out a way to put philanthropy on every desktop too. Wouldn’t that be a good idea?

June 16th, 2008

Salesforce.com, Partners, and Value-Added SaaS

Posted by Joshua Greenbaum @ 12:09 pm

Categories: Uncategorized

Tags: Salesforce.com Inc., Software-as-a-service, SFDC, Force.com, Software As A Service (SaaS), Cloud Computing, Emerging Technologies, Joshua Greenbaum

As the resident Salesforce.com basher at ZDNet, it is with some smugness that I am watching the birth of a fellow naysayer on the future of Salesforce.com’s efforts to break forth from its CRM on-demand origins into its next big thing. The new critic in the Salesforce.com-watcher camp belongs to Cowboy 2.0, and his post discusses how SFDC is changing the rules — in the middle of the game — for existing partners of Force.com, SFDC’s attempt to build a platform to host third party SaaS add-ins to its CRM product.

We shall see if Cowboy has his facts 100 percent correct, though the scuttlebutt at this writing is that he has: SFDC is pulling the plug on a number of existing partners’ efforts to build on Force.com, largely in an effort to protect SFDC’s turf and stifle interesting new apps that don’t fit the development model (ie. our way or the highway) of Force.com. It’s obviously SFDC’s prerogative to limit its PaaS play to whomever it likes, but closing the door on potentially worthwhile apps that are not built on native Force.com technology (the gist of Cowboy’s problem with SFDC) is a move to limit the scope and influence of Force.com at a time when SFDC can’t really afford more limits on something that is showing very limited results already.

The move looks either foolish or desperate, or both. It showcases one of the kinks in the future plans for SFDC that I’ve been harping on for some time: SFDC’s AppExchange and Force.com, its two means for expanding beyond its rapidly commoditizing CRM base, are not happening, and have little prospect of becoming the next big play for SFDC. This basically means that SFDC won’t be able to grow organically, and will either need to buy someone (Workday? NetSuite? Somebody?) or get bought (Google, IBM, Somebody else?) to provide some version of a future that coincides with the P-E ratio this company trades at.

Which leads me to a discussion of where the future of SaaS and On-demand is going, and why, so far, SFDC isn’t heading there any time soon. The basics of my version of the future of SaaS is this: the next generation of SaaS vendors will be providing value-added services, based on the network effect that they can command as they aggregate data and processes from their customers and partner networks, that are simply impossible to provide on-premise for love nor money. It’s the effect you can find at established companies like E2Open and GT Nexus, among others: a value-added collection of services and capabilities that derive from the ability of a SaaS vendor to leverage their network and the connections that network provides to do things that couldn’t be done before. I’ve written a little more about this concept here.

This vision of value-added SaaS is in stark contrast to SFDC’s — and other’s — version of SaaS today, which is basically a lower-TCO, faster time-to-value replacement for on-premise functionality. So exciting ten years ago, so much yesterday’s value-add in 2008 and beyond.

So, insofar as Cowboy’s assertions have been largely confirmed by at least one source inside SFDC, here’s what I see as the innovator’s dilemma with respect to SFDC, which, one of its defenders just told me, is merely playing by accepted rules of the industry. If I’m a developer of a hot new app, I can use SFDC’s Force.com and AppEx, and have what is a typically disadvantageous relationship with my platform vendor, who is, due to their own limited business model, unable to provide me either with a strong marketplace for my apps nor a vision of a value-added SaaS future that I can take to the bank.

Or, I can go with a major platform vendor, who is still going to provide me with a disadvantageous relationship, but will have the massive customer base and economic model that will mean real revenues from my efforts in the near term. And who might, just might, by virtue of their size and influence, provide some value-added SaaS roadmap that makes sense for me.

Sounds like a slam dunk to me.

June 5th, 2008

Google To Get A Lesson in Security, From the Pros

Posted by Joshua Greenbaum @ 9:35 am

Categories: Uncategorized

Tags: Google Inc., Security, Joshua Greenbaum

Having just read that Google is taking up residence at Moffett Field, a storied air base in Mountain View that is home to NASA’s Ames Research Center, among others, I realized there’s a great opportunity for Google to learn a little about high end security, at least the kind that secures a perimeter, fends off unwarranted access, and punishes miscreants with true Old Testament fervor. With this comes the hope that Google will also learn that security must be taken seriously, and in the process become a little serious about changing its terms of service for its online apps to bring them in accord with accepted corporate security practice.

And therein lies a story. I had the pleasure of visiting Moffet recently to get a briefing from a most interesting little company, Apprion, and, having come in the wrong entrance (i.e. not the one on my Yahoo maps printout), I found myself wandering around somewhat aimlessly, looking for street signs and other directional indicators that Moffett seems to be too cheap, or too clever, to post. Next thing I know, lights were flashing in my rear view mirror and I was being pulled over by a cop, though not just any cop, this was a Federal police officer, as we were on Federal govmint property. Apparently, security is so tight that a relatively well-dressed, if poorly coifed, man in a relatively harmless mini-van, is jail bait if he dares to get lost at Moffett.

The encounter was pleasant enough — a misspent youth taught me to always be civil to someone with a badge — and I was let off with a warning. The crime — some Federal version of reckless driving that is a catch-all misdemeanor used to clear the roads of meandering daddy vans — was a little made up, but it was only a warning.

What my hosts at Apprion told me when I relayed the story was that a real ticket on Federal property is a major hassle, for one important reason: there’s no appeal process. Despite constitutional guarantees of due process that our Founding Fathers ensconced in our legal system, if you get a ticket at Moffet, there’s no traffic school, no groveling in front of a judge, no opportunity to explain why your pants were on fire and you had to run that red light at 70 miles per hour. Effectively, that made the cop who pulled me over my judge and possible executioner, which meant I felt especially lucky that I had washed the van that morning and cleared out the debris from a weekend spent hauling the kids around.

I later found out the real kicker: get a couple tickets from the Feds, and they can ban you from the property, or at least from driving on to the property. Wow: talk about crime and punishment. I was impressed, and a little awed at the lack of redemptive possibility that we Americans are so used to, particularly when it comes to a mere speeding ticket or two.

So, there’s a couple morals to this story. As the Gang from GOOG starts getting comfy in their new digs, it will be interesting to see how this tough love security model rubs off on them. Maybe they’ll see what no-nonsense security is all about, what a real security team means when they talk about enforcement, and what it does to the innocent (me, I swear!) when they’re faced with the prospect of true damnation. Then, maybe, Google will try to tighten things up a little so that their users could rest assured that their content isn’t going to end up in a Google marketing campaign, or worse, and just maybe Google will realize that free to the user doesn’t have to mean free for Google to use as it sees fit. Ahhh, one can always dream.

The other moral to the story? Next time I’ll use Google Maps. I’m pretty confident they’ll have the Moffett map thing nailed down before my next visit. Because, right now, searching for Apprion’s address in Google Maps yields the following result:

We were not able to locate the address:
NASA AMES Research Park, Bldg 19, Moffett Field, CA 94035

I imagine they’re planning on fixing that problem right away.

June 3rd, 2008

Taking on Excel, and Winning, Sort Of.

Posted by Joshua Greenbaum @ 9:57 am

Categories: Uncategorized

Tags: Enterprise Software, Microsoft Excel, Microsoft Office, Office Suites, Software, Joshua Greenbaum

It’s common knowledge that, when trying to find a true market leader in mid-market enterprise software, the “other” category is by far the largest, despite the efforts of Microsoft, SAP, Oracle, Lawson, Infor, and pretty much any vendor with dreams of high volume sales to capture true market dominance.

But a dominant position has already been established by the one vendor no one mentions in the surveys, mostly because that vendor’s products are so ubiquitous. The vendor is Microsoft, the product Excel, and in categories from business intelligence to supply chain management to CRM, the number one mid-market product is that little old spreadsheet. Which makes job #1 of every other software vendor to unseat this extremely well-entrenched incumbent. Or at least co-opt it.

Indeed, in most cases it’s such an uphill battle that the best strategy is to co-opt Excel, rather than fight. So enterprise software products abound that include not just an Excel “workspace”, but click and drop integration with Excel spreadsheets that even non-techies can use (which is always a rather condescending comment, but, then again, this is world in which people proudly march around with “For Dummies” books that advertise their owner’s cognitive capabilities – or lack thereof – for all to see. Go figure.)

Recent visits with supply chain management vendors, like Demand Management Inc., on-demand warehouse management vendors like SmartTurn, on-demand CRM vendors like Zoho, and pretty much every vendor I’ve talked to this year show an awareness of the Excel factor in every deal. These vendors, and this is only a smidgeon of the vendors who fit this category, have realized that Excel is everywhere, and rather than trying to pry it from the users’ clutches, they’ve sought to embrace their main competitor, even as they arguably offer functionality – and a user experience – that, pardon the pun – excels over anything that Excel could offer.

These little vendors are hardly alone. SAP and Oracle both offer various forms of Excel integration, and SAP has plans to make the joint SAP/Microsoft Duet product more Excel-friendly. In fact, the “if you can’t beat ‘em, join ‘em” mentality is so well-established that Microsoft is pushing various forms of Excel integration, even in its Dynamics ERP product line. (This is more than just eating your own dog food – they’re sleeping in their own dog food too.)

How far will this Excel-fever go? I wouldn’t be surprised if someone came up with an Internet search interface to Excel, as well as a YouTube and Facebook interface. The product is so entrenched it would take a dose of mustard gas to get some of these users to quit.

So, like the floppy disk icon that never dies, the Excel spreadsheet lives on and on, despite advances in technology that should have buried it a long time ago. This ubiquity and staying power says volumes about what users want from enterprise software, and their continued votes in favor of a 20-plus year old user experience should give everyone who believes that the best technology deserves to win a deserved pause. Excel works well-enough for millions of users all day long, and learning to live with it is a strategy that everyone, from CEOs to managers to software developers, needs to keep in mind.

The more things change……

May 23rd, 2008

Siebel 2.0 – A Year Later

Posted by Joshua Greenbaum @ 2:26 pm

Categories: Uncategorized

Tags: Salesforce.com Inc., On-demand, Siebel Systems Inc., Microsoft Corp., CRM, Zoho, Sales Force Management, Sales, Joshua Greenbaum

A year ago I predicted that, right about this time, Salesforce.com would start to look a little shabby, a whole lot shabbier than it indeed looks at this time. It was part of a polemic I started when I called Salesforce.com the next Siebel, and I didn’t necessarily mean in a positive way. “Siebel 2.0” was meant to imply that Salesforce.com was running out of runway, and would soon crash to earth the way the once high-flying Siebel did in 2005, eventually succumbing to a takeover by Oracle and the confession by Tom Siebel that the core reasons I had been bearish on Siebel were essentially true: lack of deep back-end integration in the customer base that would help prevent customer defections, and lack of a flexible deployment model that would give customers a choice between on-demand and on-premise.

What has happened in the ensuing year is that Salesforce.com has indeed grown, not shrunk, and by most measures it’s very much the thriving business it was last year at this time. While there was little in the company’s latest quarter to indicate that its next “big thing”, Force.com, is generating any appreciable revenues or momentum, it’s hard to refute that the current business is doing very well.

Which leads me to a deserved update on my prognostication about Salesforce.com cum Siebel 2.0. I clearly got the timing all wrong, but the essence of what I said then remains true: Salesforce.com lacks the deep integration track record that would make it hard to swap out in the enterprise, and it lacks the next big market play that would give it legs beyond its current CRM on-demand focus. Neither AppExchange nor Force.com seem to be positioned to have a significant market impact, and strategic deals with Google aren’t going to shore up Salesforce.com enough to ward off the inevitable. (Of course, an acquisition by Google would change a lot, but I wouldn’t buy now if I were Google, Salesforce.com’s stock might be a little cheaper this time next year.)

Part of why I got the timing wrong was that two factors that I counted on to give Salesforce.com a run for its money have been delayed or otherwise haven’t yet had the market bounce I had expected: SAP’s Business ByDesign has taken a detour on the way to the market, and Microsoft’s CRM Online has only just arrived. I was counting on both of these players to have had more impact by now, and in the process I have to confess that my optimism about how fast they would start giving Salesforce.com some genuine competition was a little over the top.

Which is why I’m here today to revise my forecast of the decline of Salesforce.com: It’s going to take 18 months longer than I had originally thought. In other words, the wheels will start to come off by the end of 2009.

This schedule also takes into account a couple of other factors that weren’t in my original Siebel 2.0 post. The first is that other strong CRM on-demand players have emerged that I overlooked last year. Zoho is one in particular that I’m pretty bullish about. They have good functionality – as much as many Salesforce.com customers would ever use – and seriously competitive pricing. SugarCRM is another that looks interesting to me. Again, with so many CRM on-demand customers looking for functionality that is more at the commodity level of CRM than the strategic high-end, I believe that Salesforce.com’s first-to-market advantage will wither in part due to the availability of these much less expensive and still highly functional products.

The other factor that I can add to my original Siebel 2.0 post is that, in the ensuing year, Microsoft’s on-demand strategy has been augmented by its impressive platform-as-a-service strategy. Microsoft’s PaaS plans not only severely undercut Salesforce.com’s next attempt at a big revenue play, but they also highlight the relative paucity of what a CRM-based on-demand company can offer the PaaS market as compared to what a major enterprise software player like Microsoft can offer. The cumulative value of Microsoft’s full platform-as-a-service play, which, when fully baked, will include its Dynamics enterprise applications as well as development tools, database and systems software already familiar to literally millions of developers, puts Salesforce.com’s relatively puny plans in perspective.

And meanwhile, just to make sure Salesforce.com has its hands full in the PaaS market, Microsoft is already dabbling with a separate CRM PaaS play, called xRM, that has some serious uptake already, and not just for CRM applications. Customers have already built a staffing and recruitment application and a conservation management application, among a dozen or so other apps, using xRM.

While we’re on the subject of Microsoft, one of the reasons they’re being a little slow in the CRM on-demand market is they are seriously trying to figure out how to grow their CRM business without replicating Salesforce.com’s spend-50 cents-to-get-a-dollar revenue model. And one of the other reasons they’ll do better than Salesforce.com once they get the ball rolling is that Microsoft is assuming, rightly I would add, that the ability to run Microsoft CRM on-line or on-premise will have a significant competitive appeal in the market.

So, whilst waiting for the wheels to come off, Salesforce.com seems to be riding the rails quite well. Which is of course the same trajectory that Siebel 1.0 followed until it hit the wall, and then it was downhill from there until the fire sale to Oracle in 2005. That’s the way the bubble bursts – quickly and often irrevocably. The trick is to predict when that end game is going to happen, and then act accordingly. I admit I had it wrong a year ago, but only with respect to the timing: the stars are aligned against Salesforce.com, it’s only a matter of time.