Cloud computing

  • February 19, 2019
  • Until recently, becoming a subscription provider has been a big and expensive task. To get into the game, a vendor needed to build a subscription business model right next to its traditional businesses, so to speak, which typically involves building an ecommerce web store and member site, organizing an online price list and catalog, and figuring out how to handle subscription business receipts as well as shipping and dealing with returns.

    There’s more too, like using analytics to understand the business and its relationship with customers. For example, businesses that send unique or curated bundles periodically, need analytics to determine the best possible recommendations to ensure customer delight and avoid costly returns.

    Early on, vendors had to do all this themselves and many resorted to piecing together multiple systems available in the market. That was hard enough when ecommerce was a new thing but today any business entering the market must do so knowing that its competition is already up to speed, so there’s little room for mistakes.

    Not surprisingly, ecommerce is commoditizing with vendors now offering most if not all of the things that vendors need to get going and to remain in the subscription business. OceanX is an interesting company in this regard. They offer a simple and easy way to take any retail business into the realm of subscriptions.

    OceanX saw high barriers to entry as an opportunity. If it could build a platform that supported direct-to-consumer retail for a scalable number of businesses it would be able to lower their costs and, importantly, reduce the risks involved for any company developing an ecommerce business.

    Making it work

    Like many startups OceanX chose Amazon Web Services (AWS) to support its vision. That was nearly three years ago and the company saw success almost immediately.

    One of OceanX’s early advantages was that as a platform it could offer integrated business processes from on screen shopping to cash. But equally important, all its platform apps capture and share customer data with other apps in the portfolio and this analysis gives partners important insights at all critical points in the customer journey—something that’s harder to do with a piecemeal approach.

    In ecommerce especially, understanding the customer journey is paramount, and having data that partners can analyze is critically important to producing a personalized customer experience. We can broadly define this as experiences that satisfy customer needs and that keeps them coming back—two critical elements of success in subscriptions.

    Getting specific

    Supporting a subscription ecommerce model is, of course, harder than this general description. For instance, there are two basic subscription models, curation and replenishment. A curated model sends a selected or curated box of goods to a subscriber each month based on information the customer initially supplies which is later augmented by purchase history. A company engaged in sending curated clothing to subscribers needs to obviously know style preferences, sizes, and colors but also what’s been recently recommended and purchased. Two pairs of hiking boots sent in rapid succession is not a winning formula, neither is offering boots too soon after an initial rejection.

    The curation model is the fastest growing part of ecommerce according to the Subscription Trade Association (SUBTA) which says that about 65 percent of subscription services use the curation model. So subscriptions to curated goods provide a great opportunity but also great challenge.

    The second model, replenishment, may be more familiar. From shaving supplies to dog food and quite a bit more, subscribers can “set it and forget it” receiving a just in time delivery each month though they still have the opportunity to change order parameters like content, frequency and quantity. Importantly, only 14 percent of subscription vendors use the replenishment model.

    But within these two models you can see the need for all the components of ecommerce including data collection for later analysis, members portals, order and change processes, and returns. OceanX provides its partners with a solution for all this that they don’t have to develop and maintain.

    At the same time, it’s important for partners to maintain control of processing so OceanX runs warehouse and distribution systems and it picks and packs goods for its clients. However, payments are credited directly to partners’ bank accounts. OceanX is paid by its clients just as any other subscription supplier would be.

    Ideal for brick and mortar?

    You’d be right if you thought that brick and mortar retailers could take good advantage of the subscription model. After all, the retailers already have a brand, customers, supply chains, and they know retail and merchandising. In many ways this is an ideal setting for an omnichannel approach. But retailers still have to deal with things like pickups and returns and such situations as buy online but pick up and return in store and OceanX’s technology extends to all of this.

    Importance of analytics

    A lot of any subscription business depends on Key Performance Indicators or KPIs, measurements that can tell a vendor how many customers come back and what percent leave for instance. High retention rates (90 percent+, depending on the industry) indicate the vendor is doing well which limits the investment needed in replacing revenue that goes away for organic reasons. Other measurements include customer lifetime value (CLV), annual recurring revenue (ARR), and much more. Each measure provides insight into the health of the business both now and in the future and each depends on having a complete view of every customer and every process. It all comes back to collecting customer data and having the right analytic tools.

    Enter Oracle

    OceanX was initially successful with hosting its business intelligence and data platform, parts of its entire system, on AWS and it still uses AWS for orders and other parts of its platform. But success handed OceanX what you might call a high-class problem. It needed more horsepower for various functions like business intelligence, reporting, and analytics. That’s why the company began searching for a cloud-based solution that could give it more performance than AWS.

    “We were faced with severe performance issues in our data loads and cube builds,” said Vijay Manickam, VP Data and Analytics. “We were left with an option to increase the CPU’s [with AWS] that would have costed us more license fees. To scale from there would have costed more. Oracle Exadata Cloud Services enabled better performance at a lower cost. We proved this with a POC [proof of concept] before we embarked on the migration. At a high level there was a 3x performance gain and about 30% reduction in TCO.”

    With the POC in place, OceanX selected Oracle to support the lion’s share of the business intelligence platform in the Oracle Cloud. It also relies on Tableau for analytics and takes advantage of Oracle data transformation engines thus enabling it to maintain a single view of the customer across two clouds.

    OceanX

    The reasons for moving to Oracle Exadata Cloud Services can best be summarized in Manickam’s words. “Our business depends on giving our clients who are sophisticated brands and retailers, complete visibility into their customers,” he said. “At the same time, we know how important it is to provide a personalized experience to customers. Both are highly dependent on having a single view of all customer data and being able to analyze it quickly and accurately.”

    Those were the twin drivers at the company’s inception and the vision for building and operating its platform. The key to success, though, was more than those two things. Success also required a platform and infrastructure that could easily expand and provide the performance needed to do all of the back-end processing that few people see but everyone misses when it’s not present. The platform also had to support the greater security needs OceanX faced as a vendor itself.

    OceanX’s journey with Oracle is still in its early stages. The company has not made a decision yet about moving its order management modules over from AWS for example. But directionally Manickam feels they’re on the right track. “We help our customers to continuously track and analyze all facets of their businesses, so we do the same with our business. We chose Oracle because of their experience in high performance systems.” So far it was a good decision.

     

    Published: 8 months ago


    NetSuite announced a study at the National Retail Federation show in New York this week that it sponsored into technology adoption in a retail setting. The study suggests that merchants are either not doing what customers would want and that they have a misguided perception of the situation. Confusion abounds.

    Some of the findings indicate that merchants may have gotten things very wrong. From the report, for example,

    • 73 percent of retail executives believe that the overall environment in retail stores has become more inviting in the past 5 years. Only 45 percent of consumers agree, with 19 percent stating it has become less inviting.
    • 80 percent of retail executives believe that consumers would feel more welcome if in-store staff interacted with them more. Less than half (46 percent) of consumers agree, with 28 percent noting they would feel more annoyed.
    • 79 percent of retail executives believe chatbots are meeting consumer needs. Two-thirds of consumers (66 percent) disagree, with respondents noting that chatbots are currently more damaging to the shopping experience than helpful.

    Also there’s this nugget: 95 percent of consumers don’t want to talk to a robot while shopping. And finally, this: “Despite almost half of consumers (42 percent)—and almost two thirds of millennials (63 percent)—noting that they would pay more for improved personalization, only 11 percent of retail executives believe that their staff has the tools and information needed to give consumers a personalized experience.”

    That’s enough. There’s more and you can download the report here.

     

    Now let’s try to assess this.

    You can draw some quick conclusions that scream validity, namely that for many if not most people, the retail experience is less than positive. Other data says so.

    “More than half (58 percent) of consumers are uncomfortable with the way stores use technology to improve personalization in their shopping experience and almost half (45 percent) reported negative emotions when they receive personalized offers online. The majority of consumers (53 percent) felt negative emotions the last time they visited a store; only 39 percent feel confident in retail stores today.”

    There’s so much “wrong” documented about the retail experience in this survey that it makes you question the results. In other words, how can so much be so wrong with the experience we’ve all relied on for so long? Going to a store and buying things is not a foreign concept, after all.

    I suspect that the answer is rooted in the preference many people have for being left alone in an online shopping experience. What the data tells me is that people, especially younger people, have become inured to and even enamored with the online experience. It’s hard to beat searching online and saying yes, at least until you discover that the item you got in the mail doesn’t fit.

    The data also suggest that the technology takeover of the retail world is still in its infancy. People and organizations are trying things with good intent and stubbing their toes or even walking into walls. All of this suggests opportunity.

    This data clearly shows that personalization is a hard thing to get right. But maybe we’re trying too hard. A few years ago, an article in Harvard Business Review, “Stop Trying to Delight Your Customers,” by Matthew Dixon, Karen Freeman, and Nicolas Toman, said, “…[customer] loyalty has a lot more to do with how well companies deliver on their basic, even plain-vanilla promises than on how dazzling the service experience might be.” Quite right. Attempting to dazzle with service people or bots can backfire.

    The insight from that article was that customers don’t want their time wasted by extraneous things implemented by vendors to create what the vendor thought was an ideal customer experience. This report seems to be coming from that direction and that’s good news of a sort. It means that technology isn’t the enemy, but it has to be tuned to the individual and to the moment and it’s not clear that’s happening yet.

    It’s notable that this survey doesn’t focus on customer data acquisition and machine learning because those two aspects could be responsible for getting the interaction right.

    Published: 8 months ago


     

    Tien Tzuo, CEO Zuora

    In its first financial reporting since becoming a public company, Zuora posted some impressive numbers including,

    The subscription billing company’s year-over-year subscription revenues grew 39 percent and total revenue grew an amazing 60 percent.

    Customers with greater than $100,000 annual contract value (ACV) grew to 441.

    Total quarterly revenue was $51.7 million, giving it a run rate that should exceed $200 million in its first year as a public company.

    Also, non-GAAP loss from operations was $18.6 million which is a lot of money as a percentage of revenues.

    Reading further you discover the company has over $200 million in the bank, mostly from the IPO. Net/net this young company is growing well and it has cash on hand to lift it to profitability. Spending on operations if it includes selling and marketing would seem tolerable since it’s going into growth and the results indicate the strategy is working.

    If you’re an optimist and you own the stock it’s likely that you bought on the promise of the As-A-Service economy aka the “Subscription Economy” that the company touts. If memory serves, Salesforce went public with similar numbers and word is that they’re doing okay, so there’s a case for being optimistic.

    The key question is whether the company in question represents a new category with great growth prospects or if it’s a me-too. Today a me-too might be an analytics company or a new CRM company, we already have too many of them. But subscription billing, while still a crowded market, has a lot of potential. More traditional companies are launching products as services and finding they need help with the books.

    What these numbers might also show, in my opinion, is how difficult it is to launch a company into the financial space. It’s rather conservative after all as shown by the slower growth of cloud ERP companies compared to cloud front office companies.

    So from my seat it looks like Zuora is growing nicely, they’ve got cash and if they ensure their spending drives activities that drive further growth, it’s all good.

    Next week, Zuora hosts its customers at its annual Subscribed conference. I will be reporting from the scene and it will be interesting to see what they have to say.

     

    Published: 1 year ago


    Oracle’s race to the cloud has offered multiple successes to its investors and some disappointment as well. No transition of this magnitude can be expected to run like clockwork but the difference between revenues for Oracle’s SaaS apps for last quarter, $1.1 billion, and those for its cloud infrastructure, IaaS, at $396 million, should at least get you thinking.

    There’s a good explanation for this and it’s surprising that the company hasn’t done more to provide guidance to its financial analysts but then again, the purpose of reporting your finances is just that. There’s no room for anything that can look like an excuse. That’s too bad because it can lead people to wrong conclusions.

    I spent a day at Oracle last week receiving a briefing on the company’s roadmap for the year ahead. While some of the information was presented under nondisclosure, I can say that the briefing ran the gamut and went into areas that I am not expert at such as serverless apps, bare metal servers, and the new autonomous database. But I am coming up to speed as fast as I can.

    The company’s cloud architecture and IaaS offering gave me one surprise. Oracle intends to roll out 13 distinct regions for IaaS connected by a very high-speed backbone. Each region is highly modularized with triple redundancy and can easily scale as demand increases. All of this is very important because, I believe, this is not simply about cloud computing but about another disruptive innovation we will all face in the next few years.

    The disruption is the formation of an information utility and it’s all but certain that no single corporate entity will own all of it. As big as Oracle’s plans are, Salesforce has similar ideas and while we’re at it so do Microsoft, IBM, SAP, Amazon, and a number of hosting services too numerous to mention. Yes, there will be consolidation and those too numerous vendors will likely be scooped up first.

    But back to Oracle—$396 million is a lot of money but small change compared to its SaaS number and small compared with the company’s aspirations. The logical conclusion that many finance people drew from that number is that Oracle has a “problem” or that it’s not executing well in PaaS and IaaS, but really? Not exactly.

    According to Oracle President of Product Development, Thomas Kurian, who led off the analyst briefing, only 3 of the 13 regions have been deployed so far. More will hit their markets this year but the rollout takes time and we’ll still be talking about it next year.

    Not having the regions up and running means that in some strategic places, the company doesn’t have IaaS to sell. So the $396 million is a look into a still very much expanding world. Just for fun you could say that 3 of 13 is just under a quarter of the deployment. If the other regions were running as well as the three in place the IaaS and PaaS numbers might easily be four times the reported revenue number. It’s unclear if that’s good or not since we don’t know a lot such as capacity and utilization of the existing regions, but still…

    So for now, the revenue picture remains lumpy but now we have more explanation and color for the results. Hopefully this also gives financial analysts something to consider as they try to figure out what the numbers mean to investors. The rest of the market seems to expect a bright future for Oracle as its stock continues to do well despite the lumpy earnings.

    There’s also discussion about renewed competition in the database market circulating after a story in The Information suggested that companies like Amazon and Salesforce were building competitive database products and would depart Oracle in the near future. I don’t agree. If for nothing else, building a database is a big effort and one that detracts mightily from a company’s primary business interests. It is dilutive of effort and cannibalistic of resources. For these reasons it should only be taken on as a last resort. That’s the way any business should look at any effort to self-source rather than go to the marketplace for needed resources.

    On top of that I spoke with Parker Harris CTO and co-founder of Salesforce recently and when asked about the story he said, “We have a good relationship with Oracle and we use a ton of it. We are not getting rid of the Oracle database. We are working on technologies that add capabilities around the edges, like sandboxes. We will have SQL Server and Oracle for a long time.”

    No surprises there. It’s been true for a long time that in these big markets sometimes we compete and sometimes we cooperate. In the era of the Information Utility I expect a lot more co-opetition.

     

    Published: 2 years ago


    Happy New Year to all of you reading this and, as Steve Gillmor might say, all of you who are not.

    2018 is poised to be a busy year. I am off to San Francisco this week and next. Salesforce’s annual analyst kick-off, a day of briefings and 1:1 discussions designed to inform folks like me as well as to solicit advice happens on Thursday. Past Salesforce events like this have been eye-openers because they expose the theory and motivations for new product introductions and provide focus for several years out. The crew at Salesforce is exceptionally well versed in how to carry this kind of thing off. For starters, they bring out technologists and executives we don’t often hear from or about. Second, they open the kimono a fair bit so what I learn might stay under NDA for a while. So safe to say that even if the temperature in Boston hadn’t been flirting with absolute zero for the last couple of weeks, I’d still be looking forward to the event.

    Just to show how competitive it is in CRM and cloud computing these days, Oracle is not wasting time either. I will attend their analyst kick-off the following week. It will be a very different but still illuminating event because they have a lot to say about positioning their IaaS, PaaS, and SaaS solutions in the modern marketplace. Oracle’s recent earnings jumps show the company is once again a powerful competitor at the leading edge of a new part of the industry. Oracle’s big question/issue will be how they intend to encourage their installed base to begin the Herculean effort of moving to the cloud. Hint: favorable pricing won’t get the job done. So as much as I want to hear more about the autonomous database, self-patching, advanced security and all the rest of the technology, I’ll also be interested in understanding their perceived path to market. Two things you can be sure of is that Oracle has some of the brightest minds in the business and they don’t like failure.

    We’ll talk. Watch this space or email me.

     

    Published: 2 years ago