Enterprise Anti-matter

May 6th, 2008

Is Enterprise Software Recession-Proof?

Posted by Joshua Greenbaum @ 11:50 am

Categories: Uncategorized

Tags: Joshua Greenbaum

Amidst the PR blitz and the blizzard of 1:1 meetings that constitute the foreground experience of SAP’s Sapphire user conference this week (see Larry’s coverage here, and Dennis’ coverage here), there’s an interesting back story emerging. If you look at SAP’s last quarter, and believe the formal and informal guidance they’re making about the current quarter, and catch the buzz on the conference show floor, then the possibility that SAP, and much of the enterprise software market it represents, are relatively recession-proof starts gaining real credence.

While Wall Street may have panned SAP’s last quarter, and there’s no doubt that deals are harder to nail down than SAP would like, I’m seeing a strong software vendor leading a market that is, in many sectors, and in many examples, doing much better than expected. Much better. Greg Tomb, the new head of SAP America, told me yesterday that the pipeline is even stronger than it was last year, and using the very unscientific method of roaming the show floor in search of the buzz factor, Greg’s prediction looks pretty solid. I saw standing/sitting room only talks on business intelligence, industry-specific functionality, and various SME offerings. SAP customers are definitely showing interest by putting their butts in the seats: whether that translates to spending their IT budgets with SAP is up to Greg, but the interest is tangible.

A couple of other data points about SAP. Year to year growth was strong, particularly in the key SME space. More than 50 percent of SAP’s revenues in the last quarter came from net new customers, the work of a special sales force targeted at building a new customer base. This effort doubled the net new customer contribution compared to the previous year. We can assume that the Business Objects acquisition had a lot to do with this, but that’s hardly dilutes its value — on the contrary, a major goal of the BOBJ acquisition was to capture non-SAP customers, and these results make the strategy look like it makes a lot of sense.

Another data point: I talked to Eastman Chemical about what they’re doing with SAP. The talk centered around a new SAP CRM deployment at Eastman, which sounds sort of ho-hum, unless you consider two things. One, Eastman is doing a pretty serious restructuring of their customer service model, based on SAP CRM, that is tied deeply to SAP’s back office Business Suite. That’s why Eastman went with an on-premise CRM solution, instead of going on-demand: They needed deep, reliable, and upgrade-proof integration, and SAP’s ability to tie the customer experience with the rest of the suite (also SAP, as is much of the chemical industry) was of high value to Eastman.

Perhaps more important was the news that Eastman is part of a new group inside ASUG, the umbrella SAP user organization, that is trying to bring this traditionally traditional industry into the 21st century. If that group succeeds in its mission, that mission will translate to more deals like the Eastman CRM deal, meaning more incremental sales to some very big and relatively well-heeled customers. The fact these companies are thinking this way in the middle of a recession is another indication of the recession-proof nature of enterprise software.

The bottom line is that years of pushing the value of enterprise software in terms of its contribution to productivity and cost-savings is paying off once again. And years of honing a marketing message that focuses on delivering business value to line of business managers — the men and women who are stealing the prerogative of software spending from the CIO — is paying off in real spending on enterprise software. Especially in recessionary times, this spend to save message works well, even if it takes a little more time to make the sale and a few more layers of management to give the approval. SAP is not alone in this trend, but their example is a particularly strong one. It may be that 2008 will be a year of relative abundance for enterprise software vendors, even as belts are tightening at the very customers who are making this abundance possible.

May 2nd, 2008

SAP’s Business ByDesign: Explaining the Delays

Posted by Joshua Greenbaum @ 2:41 pm

Categories: Uncategorized

Tags: SAP AG, BBD, Sales Force Management, Performance Management, Sales, Human Resources, Workforce Management, Joshua Greenbaum

In the wake of the brouhaha surrounding the delayed rollout of Business ByDesign and the allegations of technical difficulties (the thread in the Enterprise Irregulars discussion was called BBD=DOA?), I spoke to Hans-Peter Klaey and Jeff Stiles, the two men at SAP responsible for bringing BBD, and the rest of the company’s SMB portfolio, to market. The two provided a little color to the BBD delay issue, and in doing so made the delay seem less problematic than it initially appeared, at least for now.

The main issue regarding the delay of BBD has to do with operationalizing the on-demand model in a cost-effective way. This translates to a realization that the existing release of BBD, now in use by some 150 customers, can’t be scaled up to handle thousands of customers in a cost-effective manner. This is a major operational problem to be sure: SAP can ill afford to ramp up to a massive deployment of BBD if it’s not cost-effective to do so. Klaey mentioned that these operational issues seem to have been dealt with in the next release, which is slated to come on line in the “next few months.”

Also bedeviling BBD are some performance issues in the current release that are part of the operational problem. Again, Klaey told me he felt that the pending release had dealt well with these issues and would move response times back to an acceptable, sub-second, level.

Klaey disputed my assertion that on-boarding partners was behind the delays as well. He says there are currently 50 partners and that number would remain largely stable throughout the year, though it would be increased as BBD gets closer to show time. I’ll give him the benefit of the doubt on this – the operational problems are enough in my book to delay not only general availability but also the partner ramp-up process itself – but I’m still waiting for the perfect description of the partner archetype that can be used as a model for growing the partner community to over 1000 – the intended goal – by the time BBD reaches full volume. It’s not going to be easy to find these partners, and my guess is that SAP will be doing more than just midwifery here to make this BBD partner channel find its critical mass.

I will add that it’s clear to me that the delays in BBD are due to two other factors: the first is that SAP is a naturally conservative company, and is loathe to risk its brand on poor quality releases. The last thing BBD – and SAP – needs is a release cycle that is premature and exposes the company to the wrath of the market and its customers. More than most, SAP tries, and usually succeeds, to avoid releasing software before its time.

The other factor is the level of the maturity of the on-demand market. Credit Salesforce.com for leading the charge not only in getting things right but getting them wrong as well, including performance and downtime issues that Salesforce.com fixed a long time ago. SAP’s entry into the market comes relatively late in the maturity curve of an admittedly immature market, and with that timing comes the burden of being a little more bullet proof than the pioneers like Salesforce.com were in their salad days.

Do these rationales get SAP off the hook regarding BBD? Not in the least. The promises made about market impact, customer wins, partner wins, and revenues have not been retracted, and SAP will be held accountable for any failure to deliver on the enormous expectations that SAP, and the market, have saddled BBD with. What I think these details show are some growing pains, mixed with some serious caution, that don’t as of yet indicate any irrecoverable problems. The fact that we’ll all have to wait another year to see how BBD is going to fare may be a little frustrating for all – excepting the competitors who just got a little extra breathing room on the way to a potentially industry-changing battle sometime in 2009 when BBD hits its stride. See you then.

April 30th, 2008

The Leo Apotheker Legacy Starts Now

Posted by Joshua Greenbaum @ 12:33 pm

Categories: Uncategorized

Tags: On-demand, SAP AG, TCO, Sales, Leo Apotheker, Leo, Roi/Tco, Finance, Managerial Accounting, Joshua Greenbaum

The news that SAP is delaying the roll-out of Business ByDesign – and that its last quarter, while decent, failed to meet analyst estimates – is the perfect preamble to this post: With Leo Apotheker slated to assume to mantle of SAP by the end of the year, his mandate – and challenges – couldn’t be made more clear than the juxtaposition of this news.

Here’s what has to happen in order for Leo to go down in the history of SAP as a great CEO, and it entails responding to three major problems that SAP will be facing in the next decade.

Problem number one: what to do about the problem of on-demand vs. on-premise computing. While many, myself included, see on-demand and on-premise as the joint foundation of computing reality in the next 10 years – on-demand and on-premise will be offered as joint, or should I say conjoined, offerings – they are in violent opposition to each other when it comes to the business model of SAP. How SAP can continue to simultaneously drive value to its customers and to its shareholders in this hybridized world will be one of Leo’s biggest challenges, and the delays in BBD announced today are evidence of that problem.

At issue is an on-demand pricing model – utility-based, pay-as-you-go, subscription-revenue-based – that conflicts with SAP’s classic sales model, not to mention the sales models of every big enterprise software player that sells direct. And on-demand pricing alleges that total cost of ownership can be cheaper (more on that allegation in problem number two.)

On-demand changes the implementation revenue picture for SAP’s SI partners as well. While this is a direct revenue problem for the SIs – where are they going to get the 5:1 service to license revenues from an on-demand, model-driven implementation product? – it’s a serious indirect problem for SAP as well. If you can’t promise the big bucks in implementation services – as well as upgrades – you can’t support the kind of channel that made SAP a boardroom name in the ‘90s. This I believe is one of the back stories to the delay in BBD: how can SAP build a high-value, C-level sales channel that has to be content with high-volume, low margin sales? It’s a little too paradigm breaking for most SIs, big and small.

On-demand makes it harder to hunt the big deals, and book the big revenues, and lock in the customers, and make a ton off maintenance revenues. On-demand is game-changing in every respect, and while Salesforce.com has proven that you can build a decent sized company with an outrageous market cap, it still hasn’t proven how to build a highly profitable company, so even Salesforce.com has no idea how the game actually ends: It will be up to Leo to make sure that, whatever the outcome, SAP emerges a winner.

Problem number two: The TCO problem. Another of SAP’s big challenges from both the on-demand market and the market in general is the question of total cost of ownership. TCO is a slippery issue, not as slippery as ROI, which requires vast quantities of “before” data in order to really measure the “after” value, but TCO is going to be one of the main issues confronting SAP in the Leo era. This is in part because on-demand’s five year TCO looks on paper to be seriously competitive with on-premise’s five year TCO, and also because the macro-economics of the next ten years will by nature drive companies to lower IT costs at all costs.

There’s a lot Leo can do about TCO in the on-premise world, including work hard to expose the truth about on-premise TCO (hint: it’s more nuanced, and better, than most think) as well as limit the one big cost factor that lends credence to the notion that on-demand is cheaper: the cost of upgrades. If you take upgrade costs out of the equation – a big if, admittedly – the five or six year costs of on-premise comes very close to on-demand. SAP is actually well on its way to dealing with this problem through the use of what it calls Enhancement Packs, and it’s not inconceivable that upgrade-free on-premise, and the economics that come with it, could be part of the Leo legacy.

Finally, there’s problem number three: The customer-centricity problem. One of the appeals of on-demand is a more customer-centric pricing model, and that appeal is one of the mirrors that reflect a major weakness in the entire enterprise software industry: The lack of true customer-centricity in pricing and contracting. Too many contract negotiations are adversarial, too many customers get caught by the gotchas vendor lawyers insert in their contracts, and too many vendors are tainted by what their sales execs and channel partners are doing to the customer on “behalf” of the vendor. Ending this zero-sum game and making customer relations the kind of partnership that most vendors largely pay lip service too will be the final component to the Leo legacy, that, if he pulls this one off too, will make for a truly impressive reign.

The news of today may not look great, but it’s only a blip in a timeline that starts with next week’s Sapphire. When we look back at the Leo Apotheker era some years from now (and I’ll be there, the cost of educating my children will keep me following Leo and SAP around for some time), what happened on April 30, 2008, when SAP reported its Q1 earnings, won’t be particularly interesting. But what happens from that day forward will determine the fate of SAP, and with it the Leo legacy.

April 18th, 2008

Microsoft CRM Online Hunts Salesforce.com

Posted by Joshua Greenbaum @ 11:50 am

Categories: Uncategorized

Tags: Salesforce.com Inc., On-demand, Microsoft Corp., Microsoft CRM, CRM, Microsoft CRM Online, Sales Force Management, Enterprise Software, Sales, Software

The official GA release of Microsoft’s CRM Online offering is next week, and with it comes a new chapter in the life of Salesforce.com. To date Salesforce.com has lacked a major competitor that could be seen as a worthy opponent in terms of overall size, price, functionality, and marketing chops. Oracle has the marketing chops, and Siebel On Demand the functionality, but Oracle isn’t really going to challenge Salesforce.com on price. Zoho, which just launched a CRM on-demand offering, and various other permutations of both on demand and open source CRM products are able to challenge Salesforce.com on price, and maybe functionality, but Marc Benioff can frankly out-market any of these companies before he gets out of bed in the morning.

Now there’s Microsoft Dynamics CRM Online. And the challenges for Salesforce.com can now begin. The goals of CRM Online are to match or beat Salesforce.com in feature/functionality, absolutely beat it in price, and with the combined power of the Microsoft brand and the ubiquitousness of the Outlook user base, seriously challenge Benioff’s hype machine on the marketing side. And they definitely have a chance at succeeding in all three.

I’m not going to parse the feature/functionality battle between the two at the individual function level here, but I can offer three main reasons why I think CRM Online needs to be taken seriously as an alternative to Salesforce.com. The first is Microsoft’s Outlook UI, known (though not always loved) by hundreds of millions of users. Love it or not, that user experience makes training for CRM Online a non-issue. Salesforce.com is pretty easy to use as well, but using Outlook is, for most desktop users, already intuitive.

Functional advantage #2 for Microsoft is the ability to shift between on-premise and on-demand, and mix and match the two. On-premise support is about customer choice, and lots of customers I know don’t want to be locked into on-demand any more than they want to be locked into any other deployment model. There are good business cases for on-demand deployment, and equally good ones for on-premise, and Microsoft CRM wants to support them both, something Salesforce.com simply cannot match.

Functional advantage #3 for Microsoft comes from Office integration. Right now this is an on-premise Office integration to CRM Online, which means that if you want to push sales data into an Excel spreadsheet, that spreadsheet can only reside locally. This is not equivalent to the on-demand integration that Salesforce.com is promising with Google’s Apps, but, as I don’t believe Google Apps are really ready for prime-time in the enterprise, I think the Office integration direct from the Outlook UI is a better functional advantage than either Salesforce.com’s Google Apps support or its own native Office support.

That’s the functional side. On the price side, CRM Online wants to seriously undercut Saleforce.com pricing, and is doing so by charging significantly less than Salesforce.com for both basic and premium functionality. At the top end, Microsoft wants $59 per user per month for functionality that would cost a Salesforce.com several hundred dollars per month. (Especially when you include the 20 gigs of storage that Microsoft offers for free, for which users of Salesforce.com would pay dearly for. For a comparison of Salesforce.com premium pricing, look at Ephraim Schwartz’s column on the subject.) I think it’s going to be largely impossible for Salesforce.com to institute any across-the-board pricing changes to match Microsoft, without watching its stock price collapse. So, on the pricing front, I think Microsoft has Salesforce.com beat cold.

Now for the hype side. That will be hard, as Benioff has proven time and time again. Deals like the Google Apps agreement play well, even if substantively they are a lacking in demonstrable market impact. Regardless, Benioff keeps pulling rabbits like Google out of his hat on a regular basis. But Microsoft has it’s much-vaunted market clout, and Brad Wilson, the GM in charge of CRM at Microsoft, is no wall flower either. And, once Microsoft can get its own platform-as-a-service, Office in the cloud story aligned with CRM Online, there’s going to be a lot to hype that, under the covers, will be more than just a fortuitous rabbit popping up in a cloud of smoke. A lot more.

A final point. The competition between Microsoft and Salesforce.com won’t be head to head at all levels, at least initially. Microsoft CRM Online is not being targeted today at the top tier customer base that Salesforce.com has been after, the challenge to Salesforce.com will come at Salesforce.com’s core mid-market, though Microsoft’s large SI partners, like EDS, are expected to bring CRM Online to the top tier customer base by hosting it in EDS’s data centers. This exclusive focus on the mid-market will likely change as the market shifts its attention to the new CRM on-demand kid on the block.

I’ve always contended that CRM on demand in general, with all due respect to all its adherents, is more of a commodity play than a strategic value play, particularly for the vast majority of deployments, which are mostly standalone and largely serving a contact management, sales force automation need. In this part of the market, the largest segment by far, Microsoft can and will excel, pun intended, against a Salesforce.com whose focus on a strategic marketing, sales, and pricing model makes it look more and more like it’s swimming against an increasingly strong tide. At the higher end of the strategic scale, the future is a little more cloudy, especially as I’m not convinced that Salesforce.com or Microsoft can really claim they know how on-demand CRM will work for these customers.

The hunt for Salesforce.com at Microsoft is on, which of the two contenders returns victorious will be one of the more interesting stories of 2008, and beyond.

April 8th, 2008

Salesforce.com Cozies up to Google Apps Rev 2.0

Posted by Joshua Greenbaum @ 1:07 pm

Categories: Uncategorized

Tags: Salesforce.com Inc., Google Inc., Google Apps, Sales Force Management, Sales, Joshua Greenbaum

Like the inner tube with the pinhole leak that suddenly explodes, the hissing of rumors coming out of the much-hyped April 14 “important announcement” by Salesforce.com has finally blasted out something of substance: a purported deal to resell or otherwise feature Google’s Apps as part of the Salesforce.com CRM offering.

It should come as no surprise, if you’ve read my posts on Salesforce and Google, that I’m tempted to scoff at this idea, partly because I’ve been conditioned to believe that most rumors of significant announcements by Salesforce, particularly involving Google, can be take with a kilo of salt, to say the least. I’m also stifling a yawn because I don’t think that Google Apps are going to make much difference in the Salesforce.com world: As I written more than once, Google’s terms of service severely hamper the usability of its Apps in the real world of corporate computing, and as such it would seem to me unlikely that a Google+Salesforce deal would either make any significant inroads into CRM user productivity or make an appreciable dent in Microsoft Office’s position in the Salesforce.com customer base.

Such a deal might be good for Salesforce.com’s stock price, which is slightly off its 52-week high but otherwise doing well, certainly better than Google, relatively speaking. But that’s where the deal’s obvious value, if indeed the rumor is true, stops. It’s hard to imagine that adding a tab inside Salesforce.com for Google Apps is going to do that much to add value to either partner, and making Salesforce.com available as an on-line service with the Google Apps family would add some hype-factor to Salesforce’s marketing, but I’m having trouble looking at the nascent Google Apps user base as a channel for Salesforce.com.

I have to confess that, like many of my fellow Salesforce.com watchers, I’m getting a little tired of the hype-uber-alles mentality of the company. To hype everything to the nth degree is certainly in the company’s DNA, but it’s one of the Salesforce.com’s least attractive attributes. You can’t blame them for going with what they’re good at, it’s just a shame that hype is what they are becoming best known for, instead of some objective measure of value. There may be more value in this pending deal than what I’ve surmised, but, having cried “wolf” so many times, it’s hard to take Salesforce’s hype-machine very seriously any more.

April 3rd, 2008

Making Things Safe for Business ByDesign II

Posted by Joshua Greenbaum @ 10:56 am

Categories: Uncategorized

Tags: Peter Zencke, SAP AG, BBD, Team Management, Blogging, Corporate Governance, Management, Internet, Business Operations, Corporate Law

Following yesterday’s post on the management changes at SAP and the pending departure of Peter Zencke, I got a call from SAP. Would I be available to discuss the issue with Peter ASAP? Here’s some highlights from the conversation:

As reported, Zencke is retiring from the board, and planning to focus on new opportunities, and his family, and the other things that someone who has been working, in his words, at 140% for years would be wont to do when he reaches a certain age.

Zencke also plans to be actively involved in day to day SAP business, particularly with regards to Business ByDesign, through 2009. When I asked him what percent of his time he would be spending on SAP business versus his private life, Peter said that SAP would not get less than 100 percent for the next year and a half.

Zencke told me that the current state of development of Business ByDesign is “complete enough” for general availability, but, as befitting a new product line, there are many new and different things planned for BBD that will keep development busy for some time to come. Among the plans for BBD are integration of Business Objects technology and functionality, and an extension of some of the BBD concepts to the larger, on-premise ERP suite. Both, Zencke felt, were tasks he was comfortable leaving in the hands of the existing development team. He also added that BBD just achieved a “breakthrough” level of performance, and stated he was very satisfied with BBD’s progress so far.

How would I change yesterday’s blog based on this conversation? I think that the additional color on how long Zencke plans to be actively involved in BBD — through the end of 2009 — would have caused me to temper my concerns about BBD’s prospects inside and outside SAP. It’s clear that SAP won’t be losing focus regarding BBD through the critical 20 months between now and Zencke’s departure, and that 20 months should be plenty long enough for the market to judge how well BBD is going to meet SAP’s ambitious goals.

The thing I wouldn’t change is that BBD will be very much under the microscope at next month’s Sapphire conference, despite some feelings inside SAP that Sapphire isn’t necessarily the right event for a further unveiling of the product’s capabilities and progress. I expect to see Zencke there, and the rest of his team, putting some proof points into the promises they have made about BBD and its market opportunity. Considering the importance of the product to SAP, and of SAP to the rest of the industry, noting the progress of BBD will be as good a reason to attend Sapphire as any. Even if it means yet another trip to Orlando.

April 2nd, 2008

SAP’s Succession Plans: Making Things Safe for Business ByDesign?

Posted by Joshua Greenbaum @ 11:56 am

Categories: Uncategorized

Tags: Peter Zencke, SAP AG, BBD, Corporate Governance, Sales Strategy, Service-Oriented Architecture (SOA), Sales Force Management, Business Operations, Corporate Law, Sales

SAP executed the beginning of a well-orchestrated and otherwise somewhat boring (and boring is good) management transition with the much-expected elevation of co-CEO Leo Apotheker to the more important title of heir-apparent. In the process, Henning Kagermann assumed the title of retiree-in-waiting, and all was good with the world.

At least that’s what I thought until I got a call from a reporter, Renee Ferguson, who had the benefit of sitting in on a press conference where some rather significant information was discussed, to whit: Peter Zencke, a long-time board member, technology stalwart, and, most significantly, the father of SAP’s Business ByDesign mid-market, on-demand, SOA-based, model-driven, hoped-for volume market offering, is resigning at the end of the year.

This is more than just minor news, however minor SAP sought to play it. As someone who has watched SAP closely for 16-plus years, one of the constants about the company is that no idea — however meritorious — can go forward without executive sponsorship at the board level. This is of course true in many companies, but in SAP I have seen this scenario played out on numerous occasions, most recently in regards to Duet, which was one of Shai Agassi’s babies and which was left to drift around after his departure last spring, until finally everyone remembered what a good idea it was and some top level focus was brought back to bear on the opportunity.

Zencke’s departure doesn’t leave BBD completely adrift by any measure. Gerhard Oswald, another SAP old-timer and an executive board member (whose contract doesn’t expire for another 20 months) remains BBD’s board-level sponsor. And Hans-Peter Klaey is still in charge of the day-to-day tuning of the BBD machine, and has no plans to go anywhere any time soon.

But the problem with Zencke leaving at the end of the year is that it’s pretty clear that the fate of BBD will not be decided within the next eight months. There’s a lot on the table here: SAP has some aggressive plans for growth in revenue and customer count, and has placed a lot of the onus on BBD to make this happen. Meanwhile, BBD is experiencing some growing pains of its own: the problem of needing a sophisticated channel partner that can sell at the CEO level and be satisfied with a volume business (and volume margins) is turning out to be a harder nut to crack than anyone would have imagined. Then there’s the problem of having to figure out what to do with the larger companies that weren’t in the initial target market for BBD but who are clamoring for its ease of deployment and pricing model. And with that problem comes the issue of how do you deal with the possibility that BBD will cannibalize existing SAP Business Suite sales, thereby short-circuiting the SAP direct sales force and potentially lowering revenues per customer in the process.

In short, there’s a lot about BBD that remains unresolved, despite the enormous promise of the product. Having Zencke involved with BBD for another couple of years would, in my mind, help keep resources focused and board-level attention high. While Zencke’s departure doesn’t in any way doom BBD, the timing is, to be charitable, unfortunate. At a minimum, this makes next month’s Sapphire conference more than just a show-and-tell user conference. It’s going to be a great opportunity to prove that Zencke’s departure is as much of a non-event as it was positioned to be today. It’s something to look forward to.

March 25th, 2008

The Eternal Floppy Disk: The Icon that Never Dies

Posted by Joshua Greenbaum @ 2:03 pm

Categories: Uncategorized

Tags: Floppy Disk, Disk, Joshua Greenbaum

When was the last time you had a computer with a floppy disk drive? Five years? Six? If you’re a Mac user, it could be ten years or more. Safe to say the floppy disk has been a thing of the past for eons, at least in computing years. And, with its maximum storage capacity and reliability so very 20th century relative to the ubiquitous memory stick of today, there’s little to be nostalgic for when it comes to one of the PC’s less-than-enduring technologies.

So you may be surprised to know that there’s probably still a floppy disk inside your computer, one that you may use every day, even if, like most of us, you probably never realize you’re using it. Fact is, the floppy disk not only never really disappeared, it may be more ubiquitous today than it ever was — especially if you, like a few hundred million computers users worldwide, still live and work inside the Microsoft Office world.

The eternal floppy disk you could still be using every day is that floppy disk icon sitting somewhere in upper left hand corner of your Microsoft Word, Excel, or other desktop application. Look carefully and there it is: a floppy disk of the 3 ½ inch variety, first used in 1982 and probably not used by most of us this century in anything but this iconic, virtual form.

Its ubiquity and longevity extend well beyond the legacy of the Office applications that first used the floppy disk as the universal sign of “save.” Microsoft’s latest and coolest business application, Microsoft CRM Live, as on-line and 21st century as you’ll get from Microsoft, also uses a little floppy disk icon for saving your work, even though the actual physical location of that file could as likely be in Tutwila as it is in Timbuktu. It’s there in your Adobe reader and your Palm Desktop as well, not to mention in the Openoffice.org Word wannabe, at least according to Wikipedia.

To their credit, Google and Zoho, two of the other on-line Word wannabes, eschew the floppy disk save icon in favor of a Save button. A Save button? How ultra-modern, supercool can you get?

What does this say about the computing industry and its always hip and leading edge self-image? One thing for sure, the industry is a little more staid and a lot less transient than its own PR would have us believe. It also highlights how much we take the user interface for granted when we look at a computer screen: I pointed out the ubiquity of the floppy disk to a whole raft of Microsoft employees at a recent conference, and every one of them admitted they hadn’t realized they were accessing a twenty six-year old icon every time they tried to save a file.

So just remember that when you use that little floppy disk icon to save a file, you’re re-enacting a long-lost historical moment in the antediluvian culture of the personal computer. It’s kind of like dialing a phone number, or rolling down the window in your car, or going to the drive-in: somewhere, firmly lodged in our DNA, is a memory of real floppy disks, storing data, moving around the office via sneaker-net and, more often than we liked, getting folded, spindled, and mutilated in the process. The fact that so many of us still go through the virtual motions of saving to a floppy disk every day speaks volumes about how much that ritual embedded itself in our lives. And how much we’re not really paying attention to how far our desktop software has advanced, and how much it’s still mired in the deep, and forgettable, past.

March 14th, 2008

Microsoft’s Platform as a Service Plans: Putting the Pieces Together

Posted by Joshua Greenbaum @ 11:44 am

Categories: Uncategorized

Tags: Release, Microsoft Corp., Service, Cloud, Operational Accounting, Data Centers, Customer Relationship Management (CRM), Advertising & Promotion, Strategy, Enterprise Software

Microsoft is getting into the platform as a service (PaaS) market, and doing so in a rather major, though stealthy way. It’s no secret that the company’s Software+Services strategy has a lot of PaaS capabilities, but putting together information from announcements and briefings at this week’s Dynamics Convergence conference, as well as a previous Office developer’s conference, reveals what looks like a very strong and impressive set of initiatives.

Microsoft is being a bit stealthy about pulling all its different offerings together into a concerted PaaS effort partly because the leading proponents inside the company are being a little conservative about how much they want to promote at this time. This conservatism is certainly in contrast to Salesforce.com’s almost excessive promotion of a PaaS capability that, in my mind, doesn’t even come close to what Microsoft is cooking up.

The other reason Microsoft is being a little stealthy about how it goes to market in PaaS is that there is still a fair amount of disconnect between the platform and Office sides and the Dynamics group: the former is pushing cloud formations of tools and generic “system services” like SQL Server, Sharepoint, Biztalk, Exchange, and the like, while the latter just announced the beginnings of a wave of applications-level services that will be hostable in the cloud and accessible through the same common development environments that underlie the rest of the Software+Services strategy. Though there is a common strategy, there seems to be no one to really stand up and articulate it: Stephen Elop, are you listening?

The services that are available in the cloud from the Dynamics side of the house are what are slated to make S+S an impressive PaaS offering, starting with hostable services from the major ERP offerings – AX and NAV in particular – as well as the CRM Live functionality that is slated to hit GA later this year.

Equally as interesting are the first of several new horizontal services that Dynamics is planning to offer in the cloud. The initial releases are a service that lets Dynamics customers automatically sell their excess inventory on Ebay, a payment processing service, and a search marketing service. But the plan for the next couple of years, which was shown to analysts under NDA, reveals a wide range of generic services that offer capabilities common to a broad range of industries and are well-positioned to leverage the existing services in NAV, AX, and CRM that will also be hostable in the cloud.

What this further refinement to Microsoft’s cloud computing strategy shows is a growing set of business processes that can be added to the more generic systems-level services that have been highlighted as part of the S+S campaign. This makes for a powerful five-prong thrust into cloud computing that I think will become a major contender in the next year or so. The five prongs are:

• Standard Microsoft develop and deploy tools that can target hybrid cloud and on-premise applications, well-known to millions of developers
• The Microsoft system software stack, available in the cloud or on-premise
• Office Business Applications (OBA), that can be deployed on premise or in the cloud, utilizing back-end services that are also available on-premise or in the cloud.
• Emerging Dynamics services, like Ebay and payment processing
• Existing AX and NAV services, now made hostable as well

This is in my mind a pretty comprehensive pallet for building applications that can exist in a hybrid on-premise and cloud model, and can be moved freely between the two deployment modes pretty much at will. It’s a far cry from the relatively limited capabilities of Salesforce.com’s Force.com today, and into the foreseeable future as well.

How extensive will this effort be? One of the more cautious members of the Dynamics team told me it will take a few years to get all of these moving parts to play nicely, but I think he’s being a little too conservative. From what I’ve heard about things like XRM, customer-built CRM-like applications that use Microsoft CRM as a development platform, as well as some of the functionality coming from the OBA and platform people, and the data center construction plans at Microsoft that are measured in kilowatts, Microsoft-in-the-cloud is already happening… well, this strategy is already happening, albeit without as focused a message as it probably deserves.

And wait until Yahoo gets added to the mix…..

March 13th, 2008

Microsoft Dynamics Revenues: Is More Really Less?

Posted by Joshua Greenbaum @ 1:42 pm

Categories: Uncategorized

Tags: Microsoft Dynamics, Revenue, Growth, Microsoft Corp., Business Structures, Finance, Joshua Greenbaum

Back in the summer of 2006, Microsoft did something that I confess I became complacent about: The gang from Redmond stopped breaking out separate numbers for the Business Solutions group, which at the time was comprised of its flagship ERP products – Navision, Great Plains, and Axapta – plus the Solomon accounting package and a relatively new CRM product.

The reasons for going silent were not clear, nor were they particularly suspicious. But it turns out there may have been an ulterior motive after all: radio silence about earnings proved a convenient way to hide a serious fall-off in growth over the last 18 months.

At the time I last heard a real number about what is now called Dynamics, in July, 2006, the fiscal year had closed out at $919 million in revenues, a growth rate of 16 percent, a very nice showing for the second smallest business unit at Microsoft.

Later that year, in October 2006, I was given some more color for the new fiscal year from the then-manager of partner relations for Dynamics: the partner win rate was up 32 percent, and deal size was up 26 percent. As Dynamics is exclusively a partner-sold product line, this would seem to have been the definitive word on how the overall business was growing, and the impression was that business was accelerating.

And that basically ended the numbers game from Dynamics: from that point on, MBS/Dynamics’ revenues have been a cipher, with cryptic references to continued growth in billings, whatever they are, (in January 2007, Dynamics told me billings were up 19 percent), but not a real number with a dollar sign to be seen or heard anywhere.

Suddenly, a number with a dollar sign showed up at this week’s Dynamics user conference (For a summary of some of the announcements at the conference, see Ray Wang’s blog here). Kirill Tatarinov, the EVP in charge of Dynamics, reiterated in his keynote a number he had told analysts last October: Dynamics was now a $1 billion business. Billings, by the way, were up by 24 percent. (Ah, that mysterious billings number again.)

But instead of something to crow about, $1 billion – a growth rate of 8.8 percent – represents a pretty lousy number for a group that was growing in double digits only a year earlier. It’s even worse when you consider that during roughly the same period SAP grew 18 percent and Oracle grew 30 percent if you include its acquisitions, and an estimated 8.8 percent if you look at pure organic, non-acquisition-based growth. And don’t forget, that 8.8 percent growth includes what everyone at Dynamics calls the hockey puck growth curve for CRM, which, I was told, has been growing at 100 percent per year for the last two years. Which means if you want to understand how non-CRM growth is at Dynamics, it’s safe to either knock a few points off the overall number (7 percent? 6 percent?) or discount the heavy growth in CRM as a largely revenue neutral.

Even more importantly, the fall off in growth from 16 percent to less than 8 percent shows a Dynamics group that obviously hit a wall as fiscal 2006 came to a close, with its growth rate falling by half in a very precipitous manner. And it also highlights the fallacy of believing that a number called “billings” has anything to do with the real fiscal health of group.

While these numbers crave clarification, they may help explain in part the revolving door at virtually all echelons of the Dynamics group. Since the last full disclosure in July, 2006, Dynamics has had three different top managers, three marketing vice presidents, and seen the departure of a passel of mid-level managers (partner managers, marketing managers and the like), all of which more than gives the appearance of a lack of continuity in senior and middle management that cannot make things easy for anyone. I’m not implying these people were fired for some perceived malfeasance. Indeed, it may be more the case of insiders moving on the greener pastures, knowing what the full picture was really like.

The problems with growth may also explain the emphasis on the “commitment” to Dynamics that Steve Ballmer mentioned several times during his keynote, and that Tatarinov emphasized in an interview with a reporter during the conference. Commitment to a struggling business unit is always worth reiterating, otherwise it looks like things aren’t going as well as they may appear. And no one would want to be giving a false impression, would they?