They closed down Howard Street near the Moscone Center in San Francisco last night and it will remain closed for most of the week as Oracle brings its annual OpenWorld conference to the city. On the street the company is erecting a small village complete with some towering signs announcing all things Oracle.
It might look like vanity but as a practical matter Howard St. runs through the middle of the Moscone Center dividing it into two buildings connected by a tunnel. Under normal operating conditions the tunnel is adequate but with Oracle bringing 60,000 of its BFFs to the conference, the Moscone’s owners discovered long ago that they needed more bandwidth between their buildings, hence the village.
This does not come cheap, shutting down part of a major street in the city costs upwards of $250,000 I have heard but that’s a small price for Oracle and the restaurants and hotels pick up significant trade so it’s all good. Howard is not even the only street getting a temporary makeover. Near the Hilton on O’Farrell they’ve covered over part of one side street for a Java sub-conference too.
All of these preparations are standard fare for Oracle as well as for Salesforce which will re-do some of this in November when the Benioff company brings its annual camp meeting to town. All in all, I am wondering why Moscone and Howard St. and environs has never been awarded the moniker of the “burned over district” to borrow from the region in upstate New York that saw the rise of repeated religious revivals in the early 19th century.
Revival might be a good theme to meditate on as OpenWorld gets going. According to an article in today’s New York Times, Oracle will use the conference to go “all in” (Who edited that story?) on cloud computing. The poor Times didn’t even catch its own irony in using the famous phrase that Steve Ballmer, soon to be CEO emeritus of Microsoft, used to launch his company toward the computing heavens a good decade after Salesforce.com had already established its permanent space station way up there.
Over the last several years Oracle has used this event to position itself versus all things cloud at first denying its importance and gradually, as it developed products for the brave new world, to embrace it. Look this year for Oracle to try to own it in its own way.
That way will mean encouraging a gradual shift from on-premise computing to the cloud which will provide customers with a logical transition which any enterprise will need what with building and buying new systems and writing down the older stuff. It will also give the Ellison company a similar opportunity to transition its revenues from one and done deals to subscriptions that provide a steady trickle of revenue over time. For both it will provide the runway they need to begin to interact as vendor and subscriber rather than pusher and consumer. That’s not a criticism, it’s just a good metaphor.
I have not been briefed on any specifics of front office announcements, in part because I have been traveling a lot, so I don’t have insight into specifics that might be announced. A wild guess is that analytics and mobile solutions will be top of mind. Oracle’s in-memory database and humongous hardware for the purpose, Exadata, make this a sure bet. Social was last year so I think it will be secondary, though still very important in the scheme of things.
No matter what, I am already in San Francisco having attended a very well received Zuora user meeting, Subscribed, this week. I think there are things Oracle could learn from Zuora though it is hard to see how they could ever buy the company given its strong roots in the Salesforce platform and ecosystem. Still some big announcements are expected from the event.
Conspicuously missing is any reference to Marc Benioff and Salesforce.com. Having made news earlier in the summer that the two companies would be more cooperative in the future, and with Benioff having invited Ellison to Dreamforce, it is odd that Ellison has not reciprocated. Odder still is that Benioff had historically filled a speaking slot at OpenWorld until last year.
Ellison’s keynote kicks things off for the Oracle faithful on Sunday night opposite a football game. I will be reporting from the scene this week.
With a nod and a wink Microsoft announced it was buying most of Nokia today getting its own mobile phone platform to further its ambitions in that space. It also got ex-Microsoft executive, Stephen Elop back into the fold. Elop had left Microsoft to head up Nokia and when current CEO Steven Ballmer announced recently that he would retire, Elop was among the people cited as possible successors. At the time though, Elop’s tenure at Nokia looked to be a significant barrier. It’s amazing how many hurdles $7.2 billion can clear away.
So the question immediately becomes, does Elop want the job? Does the board want Elop or was the acquisition just more business as usual? Well, with or without Elop as the future Microsoft CEO, the deal makes sense. Microsoft’s Windows Mobile has not seen great adoption despite its really attractive and intuitive interface. Google’s Android leads the parade (it’s hard to argue with free) and Apple’s iOS is the defacto standard in the industry which makes it difficult for Microsoft to play catch-up, a game that’s not second nature to it to begin with.
So what’s the net?
Assume Elop is the future face of Microsoft keynotes. A blind horse knows the future of computing is in wireless, handheld devices and the cloud. But too much has been made in recent years of the device and not much consideration has been given to the huge changes ahead in the data center to make the magic in the device really work.
The device is the new 3270, smarter for sure and much smaller, but it’s a relatively dumb terminal at the end of an extensive network of satellites, storage, and brute force processing. Given this, success in the cloud will be governed by more than whose OS is in your hand. It will be about the back end. Larry Ellison understands this and his team is working overtime to build the plumbing for the new edifice. And there are loads of vendors like the Benioff Company that are staking a lot on the front office and the device while doing a fair bit in the back of the house too.
But Salesforce may be to the cloud what Apple was for a long time to the desktop. Elegant, forward thinking, entrepreneurial — pick a half dozen more nice adjectives here. This doesn’t mean Salesforce is destined to have a measly five percent share of the market, Benioff is too smart for that. But it does mean there is still an open niche in the cloud for a Microsoft-like competitor that understands the front and the back end of the transaction and that wears the mantle of trust so assiduously cultivated by IBM in the business world. It might as well be Microsoft.
So, given all that, I look at the Elop acquisition, er, I mean Nokia actually, and I think this could work. Elop’s understanding of Microsoft and his recent baptism in mobile might be a good combo in the new Microsoft chief.
There are other issues well beyond those, however. The new CEO at Microsoft will need to be a consensus maker and someone who can break down the fiefdoms that long time Microsoft executives have constructed. The company has to get lean and to check its multiple egos before it is ready to take on the changed market — from somewhere that’s not the bottom but certainly is not the top either. Also, it’s no guarantee that you can take the once great phone maker, Nokia, and the one time titan of the desktop and get anything more than mush when you put them together. Elop, or whoever gets the nod will need to be a leader of Bill Clinton proportions.
From the get-go Steve Ballmer had an impossible job to do. Long the number two man at Microsoft behind iconic founder and chief geek, Bill Gates, Ballmer got to take over when the Gates bubble was beginning to wear out. Gates built the company he founded with Paul Allen from zero into the powerhouse of the high-tech revolution to the point where it straddled the industry like the colossus it was.
How do you top that?
Perhaps you don’t, at least not initially, and it was Ballmer’s job, increasingly of late, to be the guy who kept the wheels on as PC sales began to dip, cloud computing became the next big thing, and Microsoft had to scramble to be relevant. Ditto with mobile devices. Its phone has small market share, its tablet, despite an attractive UI and a real keypad, lags the iPad in sales. Bing, the search engine positioned to rival Google is facing an uphill climb.
The reason for all of these is the same — being late to the market with a similar product. Microsoft was so busy being successful that it couldn’t see a time when it wouldn’t be. It happens all the time and Clay Christenson documented it so well it’s not worth discussing further. Yet, to see Microsoft in this predicament is disheartening. Microsoft is the company that, along with Intel, Lotus, and Apple, is most closely associated with America’s rise to prominence in all things high-tech and it’s hard to see what looks like a sun setting on what has been a great three decades.
But, of course, that’s the wrong way to look at it. You can’t do anything about yesterday so, as they do rightly in baseball, you put it out of your mind and only focus on what you can do today.
Ballmer’s headed for the exits and he has already been very well compensated. According to Wikipedia, he is only the second person in history to have become a billionaire without being the founder of a company, simply through various forms of compensation. His successor will likely not be compensated as handsomely no matter what the company’s results. The new person will need to figure out how to address a market that has become much more fragmented, one which has, if not eliminated the need for, at least has reduced its dependence on Microsoft’s core cash cow offerings.
The new CEO will need to go back to the well, to think deeply about what Microsoft can be and I hope the newbie decides to put more wood behind the enterprise computing arrow than behind the games. Microsoft became great by imagining (or at least borrowing) things that didn’t exist and commercializing them. CRM, ERP, Windows, Office, content management, the browser and lots of other things were perfected by its developers for an audience that wanted standardized applications that worked. There were notable exceptions like Vista, but largely, it did all work, and those standards fueled the industry’s growth.
The rivalry for most of the company’s existence was with Apple and most of that was inspired by Steve Jobs, Gates was serenely above the fray. But I think the next rivalry ought to be with a company like Salesforce.com whose charismatic leader, Marc Benioff, has a knack for Blue Ocean Strategy consistently finding new places to play, away from significant competition while he tinkers with a new business process that his company can uniquely support.
As Microsoft looks to be more of a services company it would do well to emulate some parts of Salesforce, the company that, more than any other, brought Software as a Service to the world. I think that should be a useful target for the search committee now starting up and it provides a rough outline of who to look for. On the other hand, if the committee finds a soulless bean counter, it will be time to put out the fire and call in the dogs. There is a lot riding on this, as if you needed to be told.
What’s the world coming to? Microsoft lost money in the software business last quarter, the first loss in a decades long string of positive earnings from the world’s biggest software company. Sheesh! Yes, there were extenuating circumstances that you can read about here, but the loss signals the breadth and depth of the impact that the tablet is having on the hardware market. The iPad tablet to be precise and its economy size, iOS sharing little brother, the iPhone. For a quick slide show on iPad’s penetration and adoption check out this presentation from Business Insider.
Last time I asked if hardware was becoming sexy again and why. The answers seem to be “Yes” and “Because tablets have reached a new price point that opens up more emerging global markets to computing.” Tablets and their near kin, smartphones, are defining a global computing platformfor the next decade and beyond promising first world information access to many people formerly left in the dust.
The writing was already on the wall when analyst firms IDC and Gartner recently documented a stall in the PC/laptop forward momentum. Lower PC sales means fewer operating system sales and all that goes with it. To be sure, tens of millions of units are still being sold this year along with operating systems and productivity software often bundled in. But growth has stalled as new customers in emerging markets are voting to type on Gorilla Glass over keyboards.
Every paradigm goes through a predictable lifecycle and the computer operating system dependent on hardware sales is another example, not an exception. Microsoft, Intel and others invested heavily in thin, ultra-light laptop machines as the next thing that would protect the franchise and compete with tablets, but they were still too expensive and ultimately not cool enough. If Microsoft expects to get its OS mojo back it will need to cajole its hardware partners into really being competitive with tablets.
Right now, everything is going the way of the tablet and Apple can almost do no wrong. Even when a European judge made a finding in favor of Samsung in a patent dispute with Apple recently, he declared the Samsung gear “not as cool” as Apple’s and therefore not infringing on Apple patents. That’s just amazing.
Windows 8 comes out later this year and Microsoft has introduced a tablet of its own, the Surface. The game is far form over but the latest brush with reality suggests Microsoft might have been prescient in going “all in” as Steve Ballmer said of the company’s approach to cloud computing some time ago. Microsoft is at some intermediate point in its journey from vendor of licensed software to ringmaster of a giant subscription economy. Like many companies in similar transitions, the going isn’t always smooth but if anyone can pull this off it ought to be the guys in Redmond.
When I’ve spent time with the Redmond gang over the last couple of years I’ve been impressed with how much they get it, not just at a high level but throughout the organization. All in, Azure, and retail stores suggest a company thinking its way through the changes. And analytics and social networks suggest they really get it. Maybe all in should be replaced by we get it or better, we get you, but not quite yet.
But on a cautionary note getting to the cloud or to tablets won’t be enough; this is a business model change that every company has to deal with and Microsoft has done more than many already. Now, Microsoft’s partners have to pick up the gauntlet and evangelize more than ever.
This week (on July 25) Zuora will release a Fireside Chat video discussion that I am participating in. It will be all about the cloud and subscriptions and I expect an important theme will be the attention that subscription companies need to pay not to selling but to service and ensuring customer happiness. And, oh, heck, while I am talking about myself I might as well mention that my new book is coming out around the same time — “The Subscription Economy — How Subscriptions Improve Business.”
While the changes in the industry might be painful for some, they also represent innovation and creative destruction which is the hallmark of a vibrant economy. The issue for us is not how to slow down change but how to embrace and leverage it. Once the election clears out I think Q4 could be an important turning point as winners and losers get back to the work of inventing the future and making money.
There is a very good article in the current issue of Vanity Fair (with Alec Baldwin on the cover) about Microsoft. In “How Microsoft Lost Its Mojo” Kurt Eichenwald recounts the failures and bad decisions of the company’s “lost decade” a time overseen by current CEO Steve Ballmer.
If you are in this business you can probably recall at least some of the major inflection points related to missed opportunities and in-fighting that cost the company its market leading position. I thought it was just me, but Eichenwald even compared Microsoft to Detroit auto makers and their past glory. For good measure he ends with a long quote from Steve Jobs’ biography about the difference between having a sales or ops guy running the show and having a product guy in charge. Sad. Worth reading.
According to the article, Microsoft’s stock has barely budged over the last ten years while other tech companies flew by — Google, Facebook and of course Apple. In one recent quarter iPhone alone made more money than all of Microsoft.
The article quotes Ballmer saying he wants to remain at Microsoft till 2018 but I don’t think the company can wait that long. The article also implies that Ballmer might be a smart pick to break the company up and to take the legacy products into the sunset while more product oriented people try to salvage the core of innovation, if it still exists.
Fun fact: According to Wikipedia, “Ballmer was the second person after Roberto Goizueta to become a billionaire in U.S. dollars based on stock options received as an employee of a corporation in which he was neither a founder nor a relative of a founder.”
Ten years of stagnation can’t be sitting well with Wall Street. What will it take to orchestrate a palace coup?