July 28th, 2009

Salesforce.com: rethinking the database

Posted by Dennis Howlett @ 9:56 am

Categories: CRM, pricing

Tags: Salesforce.com Inc., Zoho, Database, Sales Force Management, Sales, Dennis Howlett

While attending Fortune’s Brainstorm event, several of us took the opportunity to sit down with Parker Harris, Salesforce.com co-founder and EVP technology. To say it was our first outing as Irregulars with the company, Parker was remarkably open and congenial, often straying into territory that would otherwise drive hyper controlling PR’s nuts. We seem to have that effect on some people.

Much of the conversation centered around cost management and the general direction Salesforce.com would like to take. Top of Parker’s mind is the vexed question of how you bake grown up analytics into an on-demand solution. Vinnie Mirchandani notes that:

So, last week in our conversation with Parker Harris of salesforce, the question came up – why would customers pay its storage costs compared to rates amazon and now Microsoft with Azure are bringing to market? Will it need to rethink its EMC infrastructure? From there the conversation moved to whether it needed the Oracle DBMS – whether it could afford to keep passing along those costs when vendors like Zoho and RightNow aggressively use open source components.

This was the opportunity for Salesforce.com to put its cost cards on the table. Parker talked about enterprise needs for high grade security, using that as the reason for justifying continuance of EMC’s premium services. He has a point but one that must come under increasing scrutiny  when, as Vinnie observes, companies like Zoho seem perfectly happy to compete and win with lower cost components. You can of course argue that Zoho is not exactly tackling business critical transactions and therefore doesn’t need to observe the requirements of a robust infrastructure demanded by Fortune 500 CIOs. That would however be a distraction from the direction companies like Zoho are traveling.

Parker then drifted into talking about what might happen with the database, clearly a significant direct cost to the company which is basically hefting a gargantuan Oracle DB. Parker said the company is looking at a range of possibilities in the future, including the use of columnar databases for analytics. I’m sure that Vishal Sikka, SAP’s CTO will be nodding vigorously at this idea. Perhaps, as Vinnie suggests, they should share a latte?

In a recent Enterprise Geeks video, Dan McWeeney postulated about using such types of DB for transaction systems. The theory runs that columnar will provide significant performance and scaling enhancements. That has yet to be proven in this scale of application but Parker is not prepared to rule anything out. Can you for instance imagine Salesforce.com taking the really radical step and moving to say: LucidDB? In after hours follow up, Salesforce.com declined to add more color - understandable though frustrating to both sides.

Despite its 10 year heritage, Salesforce.com is still ‘young’ enough to take radical and game shifting steps that would shake the market while allowing it cost leverage to either improve its bottom line and/or share its largesse with customers. Listening to Parker, I got the sense he favors helping customers - something you don’t often hear from senior enterprise executives. Of course he could have been gently setting the scene for the next round of price negotiations with Larry Ellison. If the latter is true then who better than Vinnie to take the call?

February 10th, 2009

NetSuite looking bright for the future

Posted by Dennis Howlett @ 3:05 pm

Categories: ERP, pricing, saas

Tags: NetSuite Inc., Zach Nelson, OneWorld, Operational Accounting, Personal Finance, Finance, Dennis Howlett

In the last year, NetSuite has gone from the company that was beset with issues to one where executing well and attention to resolving channel issues has paid off.

“For the first time in our history, we were…profitable,” [on a non-GAAP basis] said Zach Nelson, NetSuite’s CEO on today’s earnings call. Nelson attributed the better than expected result to: “Continued selling price increases, reaching an average of $34,000 per customer…increased 20% in the year. We saw the average number of users per customer increase. OneWorld has reached 200 customers and accounts for 35% of new business bookings. When you look only at OneWorld business, the value goes up to $100,000 per customer.”

International markets grew 51% the last year, indicating that the early saas adopters in the US are now being  strongly followed overseas. The company plans to devote most of its forward R&D to flshing out the OneWorld and international product lines. Like many other companies, NetSuite is taking a cautious view on future hires, believing it can expand at a pace that outstrips competition while keeping headcount under control. In the immediate short term, NetSuite believes it will be close to profit break even in 2009 and will be cash flow neutral.

The impact of the recession on NetSuite’s business was apparent as customers are now looking to negotiate terms. Customers are requesting quarterly and monthly booking terms which is having an adverse affect on overall deferred revenue and cash flow. Even so, NetSuite is not letting customer pressure dominate the business model and cash flow management is becoming part of executive compensation in 2009. That has to be welcomed.

Interestingly, Nelson talked about both on-premise and saas application ISVs embedding pieces of NetSuite into industry specific application landscapes. I’ve long felt that the real opportunity for saas is in underserved vertical markets and it is good to see NetSuite taking a non-combative position where it can win business without insisting on having the whole feast. This contrasts sharply with the strategy followed by Microsoft, SAP and Oracle, which would prefer customers to take everything from them.

One disappointment was that the company chose not to give overall 2009 guidance. The company says that conditions are changing very rapidly. Understandably, that makes it difficult for companies to be comfortable about predicting the future.

Unusually, Nelson didn’t take his customery pop at SAP, instead preferring to talk up the company’s strategy of providing software to divisions or subsidiaries that find larger solutions too cumbersome or costly. Question: why is SAP allowing this to happen when it has ByDesign languishing? I wish I knew.

Larry Dignan has the detailed numbers.

February 10th, 2009

How free wins...or does it?

Posted by Dennis Howlett @ 10:16 am

Categories: ERP, pricing

Tags: Software, Twitter, Phil Wainewright, Chris Anderson, Tools & Techniques, Management, Dennis Howlett

Do you remember when building a website required an intimate knowledge of HTML and hours of pain just to get off the starting blocks? Or how about a CMS starting at $100K? That’s less than 10 years ago and yet today, ‘free’ is the mantra for modern software. Phil Wainewright bemoans the apparent lack of education in the fundamentals of economics:

My worry is that the culture of free money has become so ingrained that everyone under thirty-something is convinced that money can simply be conjured out of thin air by making promises for the future, rather than having to be earned from actual work that delivers real-world value today.

In the meantime, Andrew Nusca gets Chris Anderson to talk about the economics of ‘free:

ZDNet: You talk about innovation with regard to monetizing upstarts right away. So are companies that are already big and money-making at most risk, innovation-wise?

CA: It’s hard to identify a software company that doesn’t use Freemium in a way. (Editor’s note — At this point, the two of us think about what companies are exceptions. IBM? No. Cell phones manufacturers? No. We come up with none, short of automobile manufacturers.)

Question: anyone know of a ‘try before you buy’ sofa company? If so then I’d like to know. Or how about ‘eat before you pay’ at the local supermarket?

And then we have our old friend Twitter. Having spent the last few years building an obsessional following for free, it now finds itself in the invidious position of being unable to find a model that people will likely pay for:

A number of companies use Twitter for customer support and general engagement purposes, including Comcast, Starbucks, Amazon and Agent Provocateur. Some firms, like Zappos and GoDaddy, have more than one employee frequenting the site to improve their brand personas.

And while few complain about the quality of their Twitter experience, companies appear unreceptive to the prospect of paying to tweet.

VP Bob Pearson of communities and conversations at Dell stated, “If it becomes complicated and costly, our instinct would be to move elsewhere.”

Have we reached a point where nothing has value or what value it does have is so miniscule that even micropayments will be resented? Not according to the bankers on Wall Street.

I’ve long felt that software - of itself - has almost zero value yet enterprise seems happy to fork over millions of dollars for ’stuff’ that comes with a guaranteed basket full of bugs and a maintenance contract that will see business paying twice over in five years or less. Chris Anderson thinks this about being secure:

The market’s divided — there’s a people who are price-sensitive and not terribly demanding in their software needs, and maybe that will go free. Then there’s the enterprise – different set of needs – they’re not paying for software, they’re paying for support – a contract. They’re not paying for software, they’re paying for security. In a sense, Microsoft’s in the risk-reduction business now.

Is he serious? I guess so because for long enough we’ve heard how companies only want one butt to kick: usually one of Microsoft, IBM, SAP or Oracle. Even if the reality is that companies have multiple vendors providing multiple applications..services…hardware…support…infrastructure…etc.

Yet the saas model finds itself constantly under the gun for as yet to be specified uncompetitive economics. And that could go ‘free.’ Running appplications in a multi-tenant environment, the purist’s idea of saas, means the operator has access to a wealth of data that is simply unavailable through on-premise systems. Benchmarking alone would be a valuable service for which I can imagine many companies paying. Oh - and did I mention? It ain’t free. It’s just in another bucket of money we don’t call maintenance money but value add.

And guess what? You could almost use that as a reason for dispening with toxic audits. There goes another multi-billion dollar business. Along with the ambulance chasing fraternity in the legal profession. I doubt anyone would miss them in that particular 2 for 1 closing down sale.

December 9th, 2008

Breaking: SAP maintenance price hike: partial victory

Posted by Dennis Howlett @ 7:58 am

Categories: ERP, Enterprise applications, pricing

Tags: SAP AG, Computerwoche, Pricing, Marketing Research, Marketing, Dennis Howlett

In what many will see as a welcome change of heart, reports are emerging that SAP has relented on the forced march to higher maintenance prices. According to a German edition of the FT Online, SAP has agreed that its German and Austrian customers can retain their existing maintenance contracts at existing prices. At least through 2009.

There will be a price rise but this won’t kick in until 2010. A similar story has appeared in Computerwoche (in German) Details are sketchy at this time and a representative from SAP agreed with me that it would be difficult for SAP to restrict this olive branch to a segment of its whole customer base.

This is a major victory for SAP customers who, despite SAP management’s protestations to the contrary have continued to lobby for reconsideration of SAP’s maintenance package pricing.  According to the FT, some 50-60% of SAP customers in Germany and Austria were deeply unhappy with the measures, citing economic pressures contributing to difficulty in justifying what was already a tough budgetary sell. Computerwoche confirms that SAP had only managed to persuade 25% of its customers to changeover from standard to enterprise support.

Update: In a research note issued by Merrill Lynch, the authors say that SAP was forced into the situation due to legal reasons. Even so, Merrill’s also say: “However, the issue is how to explain this to customers outside of Germany. We see a real risk that the whole  pricing structure needs to be changed again, creating total confusion in the installed base.”

Updates will be provided as further information emerges.

November 25th, 2008

Cloud definitions and economics

Posted by Dennis Howlett @ 9:34 am

Categories: ERP, pricing

Tags: Salesforce.com Inc., PeopleSoft Inc., James, Cloud Computing, Sales Force Management, Sales, Dennis Howlett

Like Phil Wainewright, I attended the excellent CloudCamp in London several weeks back. Unlike Phil, I walked away with more questions than answers but with my enterprisey antenna on high alert.

Two things struck me. Rhys Jones of Royal Bank of Scotland’s assertion that while cloud computing sounds like a good idea: “We’re not going to do it - at least for the time being.” That despite Phil’s angle:

Rhys Jones of Royal Bank of Scotland, said that providing aggregation of multiple clouds was one of the key things that “cloud vendors have to get together and do for us,” adding that “a big provider could really clean up” by becoming the linchpin of cloud federation. Oh, he also foresaw increased use of SaaS by enterprises for non-critical apps, which also warmed my heart.

For Rhys, issues around risk, compliance and control figured largely in his thinking. That was echoed by a representative from Credit Suisse who added further color by quizzing Microsoft on how it plans to manage patch releases and regression testing in cloud environments. There are no clear answers today.

This will be music to the big on-premise application vendors that are wedded to a business model that demands up front licenses which aaS does not, relying instead upon an annuity model in the form of monthly fees.

The second thing that struck me is that all things aaS seem now to be associated with cloud computing. That must be horribly confusing for any decision taker. It was for me until I read today’s post by James Governor entitled:  Three Better Ways To Tell Its not Cloud Computing?

James has been running a series on this topic, attempting to put different angles (mostly technically focused) in an effort to distill what it means to be a cloud computing environment. He captures it well when he quotes:

Staffing Software Talk takes a very hard-boiled and boiled down approach:

For those of you not already plugged into this latest addition to tech jargon, you can read more about cloud computing here. But actually I wouldn’t waste your time. If you’re over 50 just think “service bureau”. 30 to 49, think “Application Service”, and 20 to 30 “SAAS (Software As A Service)”. If under 20 then cloud is everything you need in your online life - amazon, ebay, facebook, myspace, gmail.

For this simple soul, the above quote is a great way to characterize positioning which I can put another way - cloud computing is anything you want it to be as long as it’s over the Internet. That of course is facile because as speakers at CloudCamp pointed out, clouds can be internal to the enterprise. But it is indicative of the variations on a theme that seem to litter the current literature on the topic.

While definitions are always useful, I sense that if we’re not careful as an industry, we run the risk of plunging the topic into the trough of disillusionment before its time.

Putting my buyer’s hat on, I want my computing infrastructure to be available on demand at the lowest possible cost. I want to drive those baseline cost efficiencies into as many of my applications as possible, but not at the expense of sacrificing or endangering security, or my ability to run a compliant set of applications. In many scenarios and especially those that are regulated, operational code ‘ownership’  is important.  Overall then, that should have me firmly leaning towards the promise of cloud computing but holding something in reserve as suggested by Rhys Jones.

My concern is that with the siren call of all things aaS rendered in the cloud, I may become unwittingly dragged into believing the ‘Cloud/s’ do/es represent a computing Utopia. That is not a proven statement by any stretch. Even Microsoft, which is pitching Azure would not go that far (as if they would anyway) because as was said at CloudCamp by Microsoft and others, these are very early days.

However, I don’t think it is too early to start articulating the business value and how that will play for both buyers and sellers. In all the discussion on this topic I don’t see that emerging clearly.

There is good reason for that because in order to get to a reasonably well understood economic description, a lot of things have to fall into place. James emphasizes standards and he is right to do so. The trouble is that history tells me standardsd is something of a sinkhole. I sincerely hope I am wrong on this occasion but I do wonder whether Simon Wardley’s vision of open standards as the essential pillar for portability and interoperability will carry the day. Back to the business.

When I read Larry Dignan’s analysis of Salesforce.com’s results I had one of those occasional financial itches that makes me want to go back in time. The comparison is with the PeopleSoft of 1997-98. That was the time it hit the $1 billion sales barrier and needed to move forward under fresh leadership. The difference was that at that time, PeopleSoft was reporting profits far healthier than Salesforce.com at about the same age.  There are two crucial differences between the PeopleSoft of yore and Salesforce.com today.

Read the rest of this entry »

October 14th, 2008

SAP's EcoHub, here's the rub

Posted by Dennis Howlett @ 7:54 am

Categories: Enterprise applications, pricing, procurement

Tags: SAP AG, EcoHub, Pre-sales, Marketing Research, Marketing, Dennis Howlett

SAP has created a marketplace for its own and partner solutions called EcoHub. Pre-sales are handled by SAP, with content created by the partners. Comments can be left but there are a number of questions about how this operates. The good news is that SAP spent time with users from the SAP Mentor community at TechEd Berlin to get immediate feedback. Zia Yusuf, EVP for its platform ecosystem said: “I think you’ll see EcoHub in a kind of permanent beta - it will develop over time - this is really the first iteration.” Currently on the agenda:

• There is no current link to a ‘business card’ so readers have no direct means of telling whether a person is providing a genuinely objective or valuable opinion.
• The rating system is a simple ’star’ system. For many, this will be seen as too simplistic.
• It is unclear how comments might be used in a marketing context. Leaving comments is one thing but the use to which they are put is another. For instance, I would not like to think that comments were being used out of context or as part of blanket marketing programs.

EcoHub is a step in a fresh direction for SAP which has been perceived as a company that doesn’t sell products that are ‘not made here.’

October 7th, 2008

Forrester fuels the SAP maintenance price hike debate

Posted by Dennis Howlett @ 11:34 am

Categories: ERP, pricing

Tags: Customer, SAP AG, Foorester, Ray, Enterprise Resource Planning (ERP), Investment, Business Structures, Enterprise Software, Software, Finance

The last few days I’ve been exchanging email with R ‘Ray’ Wang, VP and principal analyst at Forrester about the kerfuffle over SAP’s unilateral decision to apply a price hike to its maintenance and support fees. Ray specializes in the enterprise market and has special experience of SAP going back many years. On Thursday, Ray delivers a web seminar that describes the issues, lays out the costs and offers possible remedies. I received an advance notification of the slide deck and with Ray’s permission, reproduce parts of that presentation.

Ray sets the backdrop by describing the partnership vision SAP customers have bought into. That includes:

•  SAP would deliver an integrated suite of solutiions
• Maintenance and support fees would be reinvested to fill out the gaps on the product roadmap
• SAP would not ‘rape and pillage’ the customer like other ERP vendors of the day

He then goes on to show how most of those promises have been broken per the slide below:

Ray confirms what I and others have been saying on the general disquiet about the way SAP is introducing this increase. Forrester interviewed more than 200 SAP customers and as you can see from the next slide, most want a return to the status quo or lower costs:

Ray then goes on to describe what has happened, the rationale behind the price hike, details about how the price hike works, how it impacts different types of customer and then explains why customers remain skeptical.

Read the rest of this entry »

August 19th, 2008

A fresh model for software maintenance

Posted by Dennis Howlett @ 5:12 am

Categories: Enterprise applications, pricing

Tags: Software, Vendor, Customer, Tools & Techniques, Management, Dennis Howlett

It is clear that the homogeneous application of round sum percentages applied to software maintenance pricing is a dead business model. Nowhere is that more clearly illustrated in the recent kerfuffle over SAP’s forced price rise for its maintenance services. SAP has put up a spirited defense but on the basis of the customer conversations I’ve had, it is falling on deaf ears.

Thinking about this more broadly, I have posed the question whether Oracle can realistically continue to trumpet high 30’s percentage points earnings when it is obvious from its financials that these are largely derived from maintenance revenues. These are but two of the more prominent examples. The same goes for almost every other traditional software vendor right down to the Sage’s of this world. It is unsustainable and there will come the day, whether locked into the vendor or not, that customers will come together and say ‘no more.’ I absolutely believe that to be a reality.

My friend and co-buy side advocate Vinnie Mirchandani talks a lot about ‘empty calories’ an expression that describes that part of the maintenance bill that deliver little or nothing of value. He correctly argues that in a recessionary economy it is neither fair nor does it do anything to help customers get access to the innovations that software vendors espouse. We know the innovations exist - we’ve seen them - but how can companies invest when they are fighting against ever increasing maintenance costs? The two cannot go hand in hand. It makes no economic sense. What is the solution?

I’ll throw this out. I believe that the thinking that informs CK Prahald and MS Krishnan’s recent book: The New Age of Innovation provides clues that are well suited to this problem. In Prahald’s world of co-creation, everyone involved in the delivery and use of goods and services has a responsibility that can be leveraged for the development of new business models that not only add value but do so profitably. In an interview at Sandhill, Prahald rehearses a speech he gave at InterOp where he outlines the principles underpinning his ideas. His key takeaway is that providers need to differentiate among customers to the point where the customer receives an individual experience.

In software terms, we already know that happens through software implementation, configurations and customizations that are a core part of delivering to customer needs. There is no reason why the same principles cannot be applied to the maintenance element of the business relationship. If you stand back and put aside the notions of the last 30+ years, it is blindingly obvious.

It is obvious for example that in the early stages, customers will consume a considerable amount of resource as they learn and become familiar with the product. They should therefore pay an economic price that reflects the services they consume. However, the software vendors need do three things in order to soften the impact and reduce the long term burden:

• Recognize that customers are telling them they want to be dealt with as individuals not as cattle all subject to the same broad brush strokes.
• Take control of the indirect channels of distribution and implementation. Time and again I hear about vendor rescue teams being parachuted in to resolve issues that have been created by inexperienced or incompetent implementation partners. In the 21st century and after 30+ years of enterprise software, that isn’t acceptable.
• Insist that customers develop centers of excellence that are certified according to vendor standards that allow customers to become self sufficient on routine matters over time.

Tie that to milestones and a promised general reduction in direct maintenance cost and you achieve several things.

• The burden upon the vendor to service unprofitable or recalcitrant customers (unless willing to pay the economic penalty that implies) is removed while improving the overall level of service that can be offered at appropriate rates.
• The vendor improves channel quality and in the process puts an end to the egregious practice of consulting hours being strung out, often at no value to customers.
• It opens the door to the very innovations the vendors are developing because they should, in this model, provide the oxygen that allows customers to draw benefit.

It is a win-win-win situation that should not play havoc with overall margins though it may shift the internal balance as reported in financial statements. Customers see demonstrable value, vendors have happier customers and can upsell much more readily with perhaps less of the horse trading that is endemic in the industry.

Following Prahalad’s model requires that vendors have a much clearer understanding of their customers, their levels of competency, the value they can deliver and TCO/ROI calculators upon which customers can reasonably rely. It will mean the creation of modified networks within the vendor ecosystems and far closer attention to business metrics and analytics upon which the vendors can make a case that customers both understand and accept.

I will not pretend this is easy. Wall Street makes little effort to understand the tensions that vendors face and may punish vendors who choose to take this type of action. At least in the short term. But what’s the choice? The vendors may believe they’re in a strong position but if the broad levels of discontent I am seeing are indicative of general customer sentiment, that is an illusion. Too many voices are being raised.

Neither will I pretend this is a panacea but Prahalad has demonstrated these models work in service based industries. I often hear that large vendor ecosystems are complex and it is difficult…yada yada yada. Maybe so but the fact remains that software economics are at heart, simple. As a bean counter, I can say that it is generally much easier to dissect a software company’s 10-K/Q than it is a global manufacturing business. If the fundamental economics are simple as I believe them to be, then it cannot be beyond the wit of strategists to figure this out.

August 6th, 2008

The data center cost conundrum

Posted by Dennis Howlett @ 9:29 am

Categories: pricing

Tags: Data Center, San Francisco, New York, Boyd, Data Centers, Storage, Hardware, Data Management, Dennis Howlett

The other day I stumbled across a BusinessWeek slide gallery that shows the comparative cost of the five lowest cost data center towns in the US. Not being an expert on these matters, I passed the baton to my Irregular friend Vinnie Mirchandani who understands these things far better than I will ever manage. His post commenting on the topic makes revealing reading. Rather than riff around it, I’ve unashamedly blagged the ‘meat’ of Vinnie’s post where he asks the kind of questions that all CIOs should be considering:

Such as why do data centers need to be amortized 3 times higher in New York or San Francisco compared to Sioux Falls? Do HP and EMC triple their prices when they sell in Manhattan? Does reinforced concrete cost that much more in New York? Why property and sales tax in San Francisco is just 1/3 that in New York? And heating and air conditioning only 1/5th in San Francisco? I mean there are regional differences but that dramatic?

The two categories of fuel related costs they catalog across the 10 cities only amount to 6.5% of total DCcosts. So, are HP, IBM, Dell etc just hyping up the significant cost of energy cost of DCs in their “green campaigns”?

If you did a bit of web search on similar Boyd analysis from previous years, Sioux Falls has actually become much cheaper since last year (from $ 16.1 million to $ 11.1 million), but New York has almost doubled since 2006. Boyd has over the years modified square footage and DC employee counts so numbers are not as comparable year to year but the numbers are sufficiently scary that Mayor Bloomberg should be worried about all kinds of corporate location business, not just data centers, in his city.

For my part, I’ve extracted the numbers and put them into a comparative spreadsheet which you can share with others.  The image is taken from a chart I created that shows the dramatic cost differences between the highest and lowest cost cities.

December 17th, 2007

Vendor relationship management: viable or theory?

Posted by Dennis Howlett @ 12:20 pm

Categories: CRM, Enterprise applications, Social computing, pricing

Tags: Health Insurance, Theory, Idea, Health Care, Vendor Relationship Management, Doc, E-lance, Business Reality, Ed, Jarvis

While at LeWeb3, I caught Doc Searls session entitled “Turning the tables: What happens when the users are in charge.” Doc is co-author of The Cluetrain Manifesto and widely regarded as a leading thinker on customer relationships. Susan Kish at LunchoverIP does an excellent job bullet pointing Doc’s presentation.

I was especially interested in following up on his ideas around vendor relationship management (VRM) as this has specific meaning to me. In enterprise land, VRM usually means managing suppliers within a business to business context. So far, that has proven something of an illusion. Too many people remember the hub systems of the late 90’s where what seemed like a great idea around creating electronic markets rapidly turned into a price race to the bottom. I would go futher and argue that those systems gave the Wal-Marts, Tescos and other retailers a powerful weapon with which to beat up suppliers and which has since done little for end user customers other than act as a price brake.

In Doc’s parlance VRM means putting customers in charge. He gives the conceptual example of car hire where users effectively broadcast a request for information/proposal in markets where there is plentiful supply. Offers are received and the customer gets to choose which service they prefer. Freelance contracting is another example where projects are bid upon and the prospective customer chooses the most appropriate bid. E-lance is Doc’s quoted example.

The idea has the ring of authenticity but I want to know what it means for important things like my finances. I provided Doc with the example of a bank that requires a facilities letter for renewing services as part of the compliance process. According to Doc, I should be able to manage this the way I wish. I can’t.

In my case, the bank requires a signed copy sent by post or a signed faxed copy. This is ridiculously inefficient yet my bank doesn’t permit electronic handling via a service like EchoSign. The business reality is that no bank is going to allow exception handling except on its own terms. Worse still, as a single voice from millions, the chances of my having serious influence to help them (and myself) are almost zero. And I’m not even thinking about the how the sub-prime crisis has panned out (hat tip: Jeff Nolan) for individuals and what this says about the relationship between financial institutions and the individual. Yet this is one of the core relationships that we as individuals hold in our daily lives.

Doc then cited choice in healthcare. This is a specific issue in the US, amply demonstrated by Susan Scrupski’s recent plea:

I’ve been wrestling with wretched old-school health forms all afternoon that will undoubtedly be, um, input or maybe scanned into some old-school enterprise system that will carefully set up my health insurance for 2008. If it weren’t Sunday, I probably could do some digging and figure out exactly what the “business process” is that will determine my paper-input-to-digital-imprint record through the labyrinth of enterprise systems. Will an outsourced provider be involved? Probably. A mainframe? Probably. A large-scale database? Oh yeah.

Have I enjoyed this process today? No. Was I able to customize my health insurance policy and my coverage according to my particular family’s health situation? Not in a 2.0 way. Was I able to choose a health insurance company by my review of doctors online and get recommendations from other insureds about which health insurance companies actually paid claims on time and answered questions with friendly, caring concern? Well, definitely not.

At face value this should be a no brainer if it wasn’t for the fact that the US healthcare system is carved up among a bunch of BlueCross/BlueShield and a myriad other providers which are not connected in any sensible manner. In the late 1990s, Kana provided software to some of the BCBS organizations that provided much of the functionality Susan requests. At the time the solution was aimed at the insuring agents but it was a solid step in the right direction. But what was a great idea fell by the wayside as Kana regrouped in the aftermath of the dot bomb era. As an aside, Kana also had a great customer centric solution that provided Renault trucking customers with the ability to tailor their purchases online, including financing options. So this is nothing new. It just hasn’t been executed against.

Let’s turn to Dell, Ed Burnette’s post and the resultant post by Mike Krigsman. One might be forgiven for thinking that with all the publicity afforded by Jeff Jarvis in his Dell Hell series that things have changed. Apparently not. This from Ed:

When I ordered my first Dell years ago I was impressed with how “smooth” the whole operation was. The order was complete and the computer built and shipped within hours. Customer support answered the phone when I needed them, and we had no problems understanding each other. Ah, well, like full service gas stations, I suppose such conveniences have been sacrificed to razor thin profits.

And that’s at least a good part of the point about why I believe VRM, Doc Searls style is an illusion. Jarvis is mad keen on ‘cluetrain’ thinking yet it seems that after some two years, Dell still struggles over processes that could be fixed.

I asked Doc how he answers the questions these types of example pose given the history of past efforts. “There’s no point in trying to pick off fights you can’t win right now.” That’s always true but I’d argue differently.

• The notion of customers managing relationships in the way Doc describes ignores the customer/enterprise economic power relationships and process problems that large enterprises must manage.
• Enterprise hasn’t caught up with even basic customer relationship management processes - even though the software exists with which to get the job done.
• There is no sense of economic tradeoff in the VRM model because it assumes plentiful supply which in turn reeks suspiciously of price pressure at the cost of service delivery. Ed’s example appears to illustrate that reality.
• Enterprise will not implement anything unless there is an economic benefit and which can be shown to improve process. I’m not convinced the case has yet been made convincingly enough to grab corporate attention. That could change if there is a solid risk issue at stake.
• Unlike Mike, I don’t see this as an IT failure issue but one of cultural realignment where the economic cost of having a broken process has yet to be adequately understood in the context of long term business goals.

Until these basic problems are resolved then on one thing Doc and I are likely agreed: VRM is a theory.