IT’s Ethical Dilemma
It hit me last week while attending Oracle’s Analyst World briefing. We convened in a conference center on the Oracle campus in Redwood Shores to learn about Oracle’s latest developments in hardware and software and to be briefed on the company’s future roadmap. How extensive was it? Let’s just say that my brain hurt when it was over and I had to sign a five-year NDA agreement to get into the building.
So what hit me? What ethical dilemma are Oracle and other enterprise companies facing? The very idea of ethics and the software industry may make for strange bedfellows for some people and I do not believe that we’ve ever seen an ethical dilemma like this before, though others might have existed as well.
Clay Christensen wrote elegantly about the Innovator’s Dilemma — that point in time when an innovator must decide to supersede a product or a whole line with something with greater performance characteristics and a lower cost profile, or risk having a competitor do it thus disrupting its established business. As Christensen showed, many, if not most, companies are pretty terrible at doing this. So the mini-computer makers completely missed the microcomputer wave, Kodak missed digital photography and the list goes on.
But this dilemma also breeds an ethical problem of the same order. Suppose an innovator is successful at transitioning from the old product line to the new and suppose further that the vendor continues to offer both the old and new product lines. Which one does the vendor lead with or push through the sales force? Typically, the sales force is comfortable with the old line and, having made a good living from selling it, the team is not very interested in selling the new stuff, which is why compensation plans get adjusted to incent the right behavior.
This is not far fetched and is, in fact, what happens all the time. More often than not there are also financial incentives for the customer that make the new solution so appealing that the decision about which product to buy never rises to the level of a dilemma, ethical or otherwise. But this time is different. Typically, the new solution offers better price performance characteristics and that’s enough to get the new product adopted by the market.
But now, here’s the rub. The new generation of hardware and software that Oracle and others are introducing might run well in a private data center, but their full benefits come through in cloud configurations. In fact some customers will find the cost considerations work out best when they use the new devices in cloud configurations. In the cloud, as we all know, it’s not necessary to own the stack. Cloud vendors typically own the stack and sell it incrementally to customers on a periodic basis. I think this is one of Oracle’s long-term plays.
Oracle, SAP, Microsoft and others — except Salesforce, which set up camp in the cloud a long time ago — are now in a straddle position offering new technologies to old markets or hybrid configurations for companies that might be changing over slowly.
The question is what do you lead with? Is there a duty for a vendor selling to a traditional on premise data center to point out the obvious? This is what I consider the ethical dilemma.
I think there’s an obligation to inform customers that the choice between on premise and cloud computing is no longer at best a toss up. There are significant benefits and consequences to be considered. The market’s direction is clear. Data centers are consolidating into the cloud and delivering major benefits including lower costs and greater reliability and better security. If, after informed consent is obtained, thee customer still wants to invest in the data center, that’s fine. I also recognize that these decisions are not as simple as my example. That’s why it’s a dilemma.
At some point in the not too distant future though, it will be impossible to justify on premise computing for routine business application work. Therefore, when customers are considering new purchases, sales people today have the responsibility to inform them — and to capture informed consent — that the direction of the market along with cost benefit considerations now favor cloud computing. A purchase of a solution that uses cloud oriented “hybrid” architectures might be a palliative approach to dealing with the conflict between premise based and cloud solutions, but the subject has to be broached.
“Oh, you want to refit your in-house data center with a new generation of technology? Ok, are you aware of the significant advantages of cloud computing? Are you aware of the market’s movement in that direction?” These and other questions now need to precede the standard, “Sign here. Press hard. The third copy is yours.”
Data Center Revamp in Full Swing
I saw an ad for a webcast the other day and it said in part:
“The scope, scale and complexity of enterprise data centers is rapidly rising due to increased use of virtualization, cloud, big data and mobility. Applications and workloads are becoming more dynamic and volatile and IT staff are being asked to become more efficient and responsive. Automation across physical, virtual and cloud data centers is vital for effective operations and consistent service levels.”
Did you catch the change? Today it’s virtualization, cloud, big data and mobility the new four horsemen of business advance. In case you’re wondering they replace social, SaaS, mobile and cloud. Small difference? Yeah, but big change. If you were hip over the last five or so years you did the social, SaaS, etc. thing but if you missed the onramp, virtualization and big data give you a chance to save face. You weren’t being overly conservative. No, no, NO! You were being prudent, waiting for the technologies to mature into a coherent whole.
Really? After all this time and all the disruptive innovation cycles, you were waiting? Coherent?
In case you were wondering, virtualization and cloud made SaaS acceptable to those who worried obsessively that their data, the same data they couldn’t find an elephant hiding in would suddenly reveal golden nuggets to hackers. Big Data gives us all a way to accept social without ever for one minute admitting that our employees were not simply “playing” with social media at work — you can and should thank analytics for that. And mobility is mobility because your customers and employees are walking — some away from you and some towards you and you need to know and use it.
I was in The Valley the other day talking with a guy who is sometimes a client but always a friend. He’s a young guy who has already worked at Salesforce back in the day, did another startup with a Salesforce alumnus and is on his third company, this time running the whole marketing shebang. His take? Companies are looking to form data centers of excellence around analytics.
My take? It’s IT’s way of preserving itself. Remember Gartner’s forecast that the CMO would soon be spending more on technology than the CIO? This is IT’s response and I think it’s a good one because it potentially shows both groups reaching out to create greater value for the enterprise.
As commodity servers take hold of the world, it becomes less and less rational for a company to run its own IT so virtualization and cloud here we come. But what’s left behind is very interesting. IT might be buying the commodity farm but the secret sauce is still information and how you use it. So the IT data center of excellence is both a way to keep IT employed and more or less in house and an important way for IT to save some serious coin on commodity processing.
Larry Dignon of ZDNet put his finger on it about a week ago when he examined the possibility that IBM might sell off its x86 server business to new pal Lenovo. Servers are not going away but they are going to the farm and with that change comes greater focus on management systems overlaying everything because server farms are becoming quite huge. This opens up opportunities for companies like Oracle/Sun. Despite the catcalls from critics calling advanced servers the new mainframes, they have an important purpose and a growing niche, not to mention a new and as yet unstated goal of nine nines of reliability to achieve the promise of true utility computing.
So, yes, the scope, scale and complexity of data centers, wherever they’re located and whatever they’re called, is rapidly increasing and as the economy continues its rebound I will remain interested in finding
AppExchange Seven Years On
The AppExchange is undoubtedly a significant portion of what makes salesforce.com unique. Pre-integrated solutions dramatically reduce the cost to the customer to extend the capabilities of Salesforce and the fact that it has already gone through growing pains means it will take other providers years to mimic its capability and impact.
~Narinder Singh, co-founder and CSO, Appirio
Nine Years ago I wrote The New Garage. It was a thought piece that tried to peer into the future of Software as a Service (SaaS) and make some predictions from a business and economics perspective. Salesforce had recently started promoting its platform in the making (then called S-Force) and encouraging third parties to develop applications that complemented and extended the basic Salesforce CRM solution so there was reason to speculate about the impact this new approach would have.
But also, the history of business and industry is a long story of better, faster and cheaper and at that moment all three were all in the driver’s seat. Back office software had already demonstrated many business process improvements leveraging automation and the Internet, and I thought it was time to turn some of these techniques on software. SaaS was a good start but it had further to go, I thought.
Early impacts lead to tipping point
I saw S-Force as a tool and an economic system that could revolutionize software, making it possible to create and deploy it in a just in time fashion. At that time you almost had to be nuts to think that. After all, even after the initial success of SaaS, software was still something you installed and slaved over for a long time before you got it right, not something you could just plug in like an appliance. And integration? Don’t ask! What was I thinking?
“We’re at a tipping point,” that’s what I was thinking.
The cold, hard truth of the matter was that you couldn’t expect to sell software subscriptions for a few bucks a month and encumber yourself with all the overhead of a traditional software company because you’d go broke. Something had to give. Either software would forever be something you sculpted from a block of marble or you had to figure out how to stamp out perfect copies that plugged in and just ran — no excuses.
My bet was that we could do the stamping but it wasn’t based on any hard economic data. It was based only the conviction that commoditization would have to continue and that something like what’s now the AppExchange would be the result. In truth, there were predecessors to the AppExchange. Steve Jobs opened an online store at NeXT in 1997 and six years later in 2003 Apple set iTunes in motion and today you can buy tens of thousands of apps at the AppStore for all your Apple devices.
All in a name
It’s hardly remembered today but the AppStore (name and domain) were originally Salesforce properties and that CEO, Marc Benioff, gave them to Apple. According to a 2008 Benioff interview with Bloomberg, Jobs had met with Benioff and his team in 2003 to offer advice on the Salesforce online store and the gift was a gesture of gratitude by Benioff to Jobs.
A store for enterprises
But those were consumer sites; there had never been an online application store for enterprise grade software until salesforce.com launched the AppExchange in January 2006. This year marks the seventh anniversary for AppExchange an odd anniversary to celebrate perhaps, but a good chance to look at the AppExchange to see how well it is living up to the original vision. Here are some of my observations.
- The partners have built a long list of useful solutions including HR systems, field service, accounting systems, sales tools and marketing automation products. These are systems that enrich the Salesforce experience but at the same time represent application areas where Salesforce has decided not to concentrate its resources. Where Salesforce has stepped aside, the partners have stepped in.
- The AppExchange created the opportunity for a very long tail of credible business solutions. In the more than 1,700 applications you can find on the AppExchange, there is a host of small applications that just make life easier for the Salesforce customer; some are strategic and many are exceptional. They are applications that integrate with other applications, distribute incredibly fine-grained information and automate processes in unlikely ways that just happen to work well for populations of users who need those exact solutions.
- The AppExchange is a good place to do business for companies of any size, especially for SMB’s. Many AppExchange vendors tell me that they make their living building and servicing their apps to the point that the permutations of Salesforce CRM with partner applications is, if not infinite, then at least very large (roughly 1700! or 1700 factorial). I had predicted this in The New Garage but I had envisioned problems with revenue splits and single sign-on. Both challenges have been dealt with.
- Perhaps most importantly, enterprises go to the AppExchange to find and buy solutions. One of the constant refrains I hear from AppExchange CEOs is that enterprise buyers find them on the AppExchange and buy solutions through it.
So here we are after seven years and the AppExchange is by all measures a big success. This blog is the first in a short series of posts that report on the AppExchange’s growth and the success of some of its many partners from small boutiques to large businesses. This series pays particular attention to ten AppExchange partners that distinguished themselves last year including in no particular order: TaskRay, TOA Technologies, Contactually, The TAS Group, Tango Card, Zapier, Apttus, KnowWho, nCino and KXEN.
[BN1]http://www.tuaw.com/2011/08/26/salesforce-ceo-benioff-gifted-app-store-trademark-and-domain-t/
Oracle Fusion and More Blue Ocean Strategy
Old pal, Chris Kanaracus (who covers enterprise software and general technology breaking news for The IDG News Service) has a story in InfoWorld yesterday which is very interesting in that it describes the current dynamics of the enterprise software business.
Just to convolute things, the article is about a recent report from Forrester Research, which describes the lackluster adoption of Oracle Fusion Applications. I get the impression that Forrester is telling a cautionary tale and getting ready to, um, “put out the fire and call in the dogs” where Fusion is concerned. But, really, what were they or anyone else expecting? Take a look at the opening paragraphs:
“Oracle spent years developing its next-generation Fusion Applications and finally put them into general availability nearly a year-and-a-half ago, but some new evidence suggests that it’s been less than successful at enticing customers to move up.
Two-thirds of 139 Oracle applications customers surveyed by Forrester Research said they had no plans to implement Fusion Applications, while another 24 percent said they didn’t know whether they would, according to a new report out this week.
The article goes to great lengths to document how customers are more or less standing pat on their existing systems and waiting for someone else to make the next move.
Well, what did we expect?
The thesis of the report (which I have not seen) seems to be that customers are not flocking to the new, new thing and that therefore Oracle messed up — must be marketing’s fault (Louie, round up the usual suspects.). Much the same critique could be levied on SAP but I am not going there right now because most of what I have to say applies there too.
Rather than being some aberration, this is exactly what you’d expect in a mature market. Think of it from the customer’s side. The old saw that companies spend money for only two reasons — to make more of it or to save it — applies here. Existing customers have the older model of the non-Fusion Oracle applications and they are installed, running and paid for.
So?
In the recession that we’re still dealing with there are many ways to save money, notably by not hiring or laying off workers, that don’t involve spending new bucks to replace what’s already working. There are also precious few ways to make new money and the record corporate earnings gushed over in the financial press stem largely from penny-pinching — layoffs, reduced head count and not investing in the future, which is exactly what Oracle is facing in its customer base. But this is typical mature market behavior even in the best of times. In order to get someone to buy the new thing, your new offering has to be much, much better than what’s already in the barn or nothing happens. So, no matter what Oracle does to promote Fusion, it’s facing an uphill climb.
We don’t have to dwell on the mature market though and the Forrester Report unintentionally shines a bright light on why it’s so important to innovate not just within a product cycle but way beyond it. Our pathological obsession with quarterly results makes it very hard to get out of the box and go beyond the product cycle but that’s what the idea of Blue Ocean Strategy is all about. Dell is a great proof point for this given its recent effort to go private.
Another great example, if you’re not tired of hearing about it, is Salesforce.com. They’re not in the replacement business except for replacing Oracle and SAP legacy systems with their cloud offerings. More to the point, Salesforce has an elongating history of Blue Ocean thinking, of not simply trying to replace old functionality with new stuff that does the same thing but a bit cheaper.
Salesforce still has issues with market adoption of its newer offerings. But notably, customers are trying to figure out how to best apply them, which is very different from whether or not the new items can pay for themselves with cost savings. When companies discuss Salesforce’s Blue Ocean products they’re having very different discussions about what the future holds and how they will encounter it.
So while I don’t think the Oracle Fusion news is very remarkable, I do think it’s time for them and just about every other enterprise software company to do the same — to think about the future and build a bold vision. Their last bold visions are now aging products, today’s legacy systems. Time to saddle up.
We Have Big Data But Do We Also Have The Big Picture?
I envy doctors, lawyers, accountants and plumbers. At a cocktail party or any time one of them is confronted with the usual icebreaker question, “So what do you do?” they have ready and concise answers. Me? Not so much. The situation starts to go downhill just after I say “software industry analyst” and I need to explain that, no, I’m not a financial analyst, someone who figures out if a company is a good money making investment. I am simply one of the guys who tries to understand if the stuff works and where it fits in the grand scheme of things.
So I think of my job and the jobs of my colleagues as a mix of social research and technology, but that’s just another rat hole to go down because social research is considered frivolous in some circles, notably government of all places.
Paul Krugman writes in the New York Times today about a quixotic attempt by some in congress to cut funding for social research, which, to my mind, is akin to eliminating the quality control steps in manufacturing. “How do we know what we know?” is an age old question made essential in a complex world where claims and counter claims make the rounds and interested consumers of information seek a handhold on reality.
We’ve never had as much data as we have right now in business and in seeking its meaning we pursue the big picture, our North Star, the thing that gives us direction and helps us to make rational decisions based on facts. There is nothing more important in business today. So, business gets it and there has never been a better time to be in the business of analytics or predictive modeling—critical tools for social research.
Ironically, at precisely the time when business gets it, the rest of the society might be in danger of flubbing. Krugman writes:
“Last year the Texas G.O.P. explicitly condemned efforts to teach “critical thinking skills,” because, it said, such efforts “have the purpose of challenging the student’s fixed beliefs and undermining parental authority.”
Well, yes, of course. All of the important beliefs that are fixed today were fixed a generation ago. But we taught critical thinking precisely because the future was anything but fixed. So much else is new and volatile and the only way through it to the truth is with those critical thinking skills you need to learn in order to get one of those jobs mentioned at the start. I am glad I work in the tech sector, trying to figure it all out and happier still that I have so many tools at my disposal to make ferreting out information easier.
I am also worried about the next generation though. There’s no way you can maintain any kind of leadership position in the world today without a strong dose of insight driven by data gathering and critical thinking skills. In the same issue of the Times today there’s another story about Samsung and about how it’s beginning to challenge Apple.
The story references the Galaxy III phone, which I thought Apple had successfully sued over. No matter, the story contrasts the two companies concluding that the two couldn’t be more different.
First there’s this:
“We get most of our ideas from the market,” said Kim Hyun-suk, an executive vice president at Samsung, in a conversation about the future of mobile devices and television. “The market is a driver, so we don’t intend to drive the market in a certain direction,” he said.
And then this about Apple:
“That’s in stark contrast to the philosophy of Apple’s founder Steven P. Jobs, who rejected the notion of relying on market research. He memorably said that consumers don’t know what they want.
Finally,
“Where Apple stakes its success on creating new markets and dominating them, as it did with the iPhone and iPad, Samsung invests heavily in studying existing markets and innovating inside them.
I think it’s all good though. Those three statements are a microcosm of the difference between following the market and leading it. Critical thinking skills enabled Apple, under Steve Jobs, to invent market categories that it dominated. But watching an established market as Samsung is doing simply enables them to build a better mousetrap.
There’s actually nothing wrong with either approach, in fact we need both. But I will always bet on the guy who is trying to invent a new market than the one playing catch-up.
Even if I am not a financial analyst, I couldn’t help marveling at this observation from the Times article:
“The two companies are the only ones turning profits in the highly competitive mobile phone industry, with Apple taking 72 percent of the earnings and Samsung the rest.
Apple can’t lead forever and at some point a rival will build a reasonably good imitation of the iPhone for pennies. But you won’t catch Apple hanging around trying to squeeze a few extra pesos from the old products. By then, Apple will have invented some other new gizmo that we didn’t know we needed but suddenly can’t live without.
Leading. Inventing categories. It’s what’s called a Blue Ocean Strategy. You need a mind set up for it and that starts with learning critical thinking skills and challenging beliefs.
