Oracle won its lawsuit against SAP in federal court. Oracle had complained that a now defunct subsidiary of SAP had unlawfully used its intellectual property to provide third party support to Oracle customers and the jury agreed.
There are so many levels in this situation that I can’t get to all of them but one that interests me is the idea of a third party disintermediating the primary party (Oracle) to deliver a service that costs less. This kind of thing happens all the time in the economy and the issue, as far as I can see, is that the third party made use of Oracle property without paying proper license fees.
I get all of that and I agree with the decision—you have to pay for what you use. On the other hand, though, the existence of the third party in the first place poses an interesting question for everyone and casts a shadow on the conventional software business model. Support fees are often calculated as a percentage of the license fee and both are rather steep with enterprise software, in part because of vendor lock-in. So there’s a built-in incentive for customers to seek out any way they can find to lower their costs.
The idea of lowering costs is as old as capitalism because margin is, well, margin—the difference between what it costs you to deliver a product or service and what the customer pays for it. But enterprise software customers have been complaining for years about high prices, especially the price of support and those costs suggest to me another example of the unsustainability of the conventional model.
Back when the addressable market for software was a relative handful of companies that could afford big iron, high prices made sense, if only because the cost of development, maintenance and all the rest had a smaller base to amortize the costs against. But today computer hardware is cheap and abundant and it can even be rented from the cloud. Software has become much more complex and labor intensive—and costly—in part because the addressable market has grown but so has competition.
If you compare the high costs of enterprise software with what’s on offer with cloud computing you see some big differences. For years SaaS vendors have touted the advantages of a single monthly fee that includes not only hardware and software but all of the labor associated with service, maintenance and ongoing development. It’s this model that is catching on in emerging markets in part because those markets simply cannot afford to support the old model.
So while I see the Oracle v. SAP verdict as just, I also see it as a milestone in the march to cloud computing. The conventional enterprise software paradigm is hugely expensive and unsustainable in the long term, not only for customers but sometimes for vendors too.
NetSuite is making a savvy bet by opening a dedicated cloud ERP development center in Brno, Czech Republic for several reasons. According to today’s announcement the company will build the center out to employ one hundred people in the next 12 to 18 months and the company already has a good foothold in the region. Local partners include Perficio Consulting, KIT Digital and ESET, all local companies with multi-national reach.
What’s important about this announcement is that it brings cloud computing to a relatively underserved market with great potential. Like China and India, Eastern Europe is growing, has a large number of knowledge workers and industries that need cloud solutions. In addition, many emerging regions may not have the infrastructure to support conventional computing and their businesses, while successful, may not have the capital required for building a conventional, in-house data center.
As a result these regions are fertile ground for cloud computing companies because they can deliver significant functionality with more favorable economics. But these regions must still be carefully selected for because the jobs brought by cloud companies are still technical and some measure of business and technology expertise is necessary for both parties to be successful.
Consequently NetSuite selected Brno, the Czech Republic’s second-largest city, which has become a key destination for high-tech companies seeking qualified talent and a friendly, inviting atmosphere in Central Europe.
I hear the beer is pretty good too.
Writing about the seminal event for CRM at Oracle Open World — the public cloud computing debate between Larry Ellison and Marc Benioff respective CEO’s of Oracle and Salesforce.com — is tougher than coming up with rent and alimony. There are so many threads to pull together and I have so much history following the debate that I might need multiple posts to get it right. As I see it there are technical, economic, social and personal threads to this.
Oracle Open World 2010 may be seen in retrospect as the schism-point for cloud computing. Until now, the two main camps did a passable job of playing nice with Oracle often discussing support for so-called hybrid implementations for instance. But that façade was wearing thin and finally cracked this week.
On one hand Oracle introduced some important hardware that will propel its version of the cloud model for a long time to come. On the other, Salesforce.com CEO Marc Benioff reiterated the advantages of multi-tenant cloud computing and made a strong case that cloud computing represents a new paradigm of interactive, social and highly mobile computing that supports new business models. The debate will rage for years, but should it?
It has been clear for a long time that conventional computing involving private data centers running licensed software will not suddenly give up the ghost. Too much time, money and expertise is invested in the status quo for it to go away quietly. Oracle’s Exalogic compute server introduction is aimed at extending this paradigm by reducing the cost of conventional computing.
Oracle’s approach is to make computing resources ubiquitously available to customers for deployment at a moment’s notice. This introduction will be seen by conventional data centers as an important advancement. Though not the first to offer access to virtualized compute services, Oracle maintains that it has competitive advantages from owning the database, middleware and in some cases the operating systems. It claims superiority because all systems are engineered to work together. But implicit is this argument is the idea that the applications to be deployed already exist, an oversight that shouldn’t be ignored.
Benioff’s vision of the cloud starts where Ellison’s leaves off. Benioff believes the future of computing is social and mobile and his forward looking approach seeks to claim net new application customers in the same companies Oracle sells to, which brings us to economics.
Paradigms shift. Sometimes they move quickly and other times they move at a glacial rate. They also overlap with old and new coexisting during the transition and often the highest evolution of the old paradigm also turns out to be its swan song. Forget about the IT industry for a moment and think about the revolution passenger aircraft that replaced piston engines with jets. The jet engine was the disruptive innovation of its day but it won a paradigm debate because it offered characteristics that included lower maintenance costs, speed and performance. But piston driven aircraft didn’t disappear overnight.
The shift from piston driven passenger aircraft to jets took about twenty years and retired piston planes flew cargo for a long time after that. Perhaps the highest evolution of this kind of plane was the Lockheed Constellation, a beautiful plane with numerous amenities but with piston engines, a dinosaur when it went into service.
Back to IT. In some ways it’s interesting that we’re placing so much attention on cloud computing because the mainframe era is still with us. There are still over six thousand mainframes running mission critical applications in enterprise computing. My point is that while salesforce.com might have the keys to the future, there is still a lot of opportunity left in the older business model of licensed software. I don’t know too many people who want to start a software company based on this model nor do I know anyone interested in building a three-hundred seat piston engine driven passenger aircraft. But I should probably get out more.
I don’t believe the Exadata and Exalogic represent evolutionary dead ends like the Lockheed Constellation. The industry needs the huge capacities these machines represent. Their initial use in serving private clouds with virtualized systems is a good fit but as that paradigm sunsets I believe this technology or its successor will find a home in the larger conception of clouds.
Oracle has a large captive market to sell these new machines to. Selling paradigm extending clouds in a box makes perfect sense for Oracle just as selling a multi-tenant cloud makes perfect sense for Salesforce. Larry and Marc are each playing the hands they were dealt and these guys play well. So look for more sniping from both camps. It will be entertaining, which is why I was recently quoted comparing this situation to a low calorie beer commercial.
Speaking of beer, let’s get social.
The paradigm shift that Marc Benioff and others ushered in ten years ago was about technology but if you look carefully, you can see that the paradigm is shifting again. This time it is about computing at the user level rather than at the producer level. That’s a good reason for why Benioff is promoting Cloud 2 and trying to distance himself from Ellison’s cloud even as the two debate who really has the secret sauce.
We all know about the impact that social media and its use are causing in our culture. Ironically, if you listen to the Enterprise 2.0 crowd, all this socialization was supposed to have been adopted by business ten years ago. But top down, command and control management initially rejected the idea of decentralization instead opting for better technological controls thus extending that hierarchical paradigm. That’s a key reason sales force automation developed as it did, i.e. as a reporting tool.
Social media initially found a home in personal use and it is now transitioning to the enterprise as an overdue paradigm shift. So the debate between Oracle and Salesforce can be seen in this light as a sideshow to the shift in corporate culture. Of course, the shift has to be supported by software and so we have the debate.
Along with social models comes the need for mobility. This might not seem intuitive but think about it, without mobility technology to serve social software, we can only be social some of the time. And since we can’t ever hope to synchronize our activities social becomes an all or nothing proposition dependent on mobility at least some of the time.
The difference between the two computing paradigms comes into sharp focus over the idea of social integration. Benioff’s cloud is fundamentally a social cloud leveraging the wisdom of crowds, which makes this cloud ascendant. Benioff is putting a great deal of effort into socializing the enterprise. Chatter is perhaps the best known social application in the Salesforce quiver but before Chatter there were the Sales Cloud and Service Cloud each of which leverages the wisdom of crowds to discover hidden information that enables enterprises to achieve goals faster and for less expense.
Chatter does for the enterprise what the Cloud offerings do for departments. Using crowd wisdom techniques, Chatter surfaces information and knowledge that is usually hidden from view in an enterprise. By making what was previously unknown at least knowable, Chatter unlocks a new source of productivity for the enterprise. So far Oracle’s cloud paradigm has no answer for it.
Finally there is a personal thread running through all this. We all know that Marc worked for Larry and that Marc credits Larry as one of his mentors. Larry was also a very early investor in Salesforce and a member of the board. The two appear to enjoy the rivalry and I suspect each realizes that having a foil on the other side of an argument is better than being alone in the market, even if you are the leader. It generates press and free publicity as Benioff readily acknowledged in his keynote on Wednesday.
None of this should be taken to mean the situation won’t change. It may be true that past is prologue but one’s history is not one’s fate. As a very big company Oracle has become good at being what Oracle CRM leader Anthony Lye calls a fast follower. Conversely, Salesforce is still relatively small and continues its nimble ways. A future iteration of the debate spawned by Open World could easily expand into social strategies within the enterprise or between it and the customer. It could also grow to include a debate over whose platform and development strategy is best. The possibilities are vast and the options will fuel the conversation for a long time.
Oracle starts the first full day of Open World today down one game in its best of five series with its customers after two uninspired keynotes by HP EVP Ann Livingston and CEO Larry Ellison. Not to belabor the point, but I must, HP’s, keynote was a run of the mill commercial while Ellison’s was short on vission.
Mercifully HP’s effort was short and to the point. Unfortunately it seemed to me, and the analysts around me, that it was last year’s message if not a verbatim re-presentation. It could be condensed into a simple tag line — buy more stuff, please. Got it.
Neither speech ignited a huge Sunday night audience that was clearly set to be launched into a week of discovery and learning. There was no theme, which seemed odd to me because candidates abounded. Absent any mention of the sour economy and our need to climb out of two years of tough times, the business climate naturally took on the aura of the proverbial eight hundred pound gorilla.
Some nod to this reality and a link to technology as a savior that can help all companies rise above their circumstances was all that was needed but not supplied. Instead we got more or less a grocery list of important things that could have carried greater impact if they’d been arranged better.
Larry Ellison didn’t seem to be on his game. His talk lacked what the first George Bush called “the vision thing” even as he introduced a new hardware offering — Exalogic — a combination of Sun technology, Oracle database, virtual machines and support for several flavors of Unix. Exalogic looks like a real computing beast capable of running all of Facebook on two racks. Exalogic is fault tolerant and boasts a host of added value over its nearest SMP rival from IBM and costs about 75% less but Oracle managed to bury the lede in an avalanch of details that would have been better left for a breakout session.
When Ellison wasn’t extolling the considerable virtues of Exalogic he was trying to redefine cloud computing or, curiously, bashing Red Hat Linux. I am not a Unix guy but apparently the difference between Red Hat Unix and Red Hat Compatible Unix from Oracle is something to care about. I think it got silly when Ellison said Oracle does not test its database with Red Hat, only with its compatible offering, and that Red Hat returns the favor. I am not sure many customers were reassured.
I am something of a cloud computing guy though, having followed its evolution at least as long as anyone in the audience or perhaps even on the planet. I remember the bad old days of client-server architected systems that broke easily because they lacked standards and because they were incredibly difficult to build and maintain.
I also remember the high costs of systems that took two or three times the software license fee to pay for customization and implementation. Cloud computing and its direct antecedents brought those days to an end replacing them with multi-tenant internet accessible solutions that have made gains in robustness, reliability and power every year for over a decade.
The fashion today is for recent converts to cloud computing to cherry pick the gains and consolidate them into what they are calling cloud computing. The formula that the industry is settling on includes browser based interfaces and software managed on a server farm off in the distance but not multi-tenancy. This enables them to appropriate the cloud business model of charging by use and offering what they call elasticity for computing power. Elasticity is a very good thing but cloud computing should be more than infrastructure as a service.
This conception of cloud computing, which looks a lot like a time sharing redux, preserves the most lucrative parts of the old software licensing paradigm complete with the need for a smaller army of developers to knit it all together.
Such is Oracle’s conception of what cloud computing should be and for reinforcement it points to Amazon’s EC2 model as proof. In the Oracle conception the pioneering bookseller is on the leading edge of advanced technology while the trailblazing Salesforce.com is merely ten years old and destined for history’s ash heap. This definition is gaining altitude but only in the way that any other flat earth theory repeated often enough sounds credible.
Of course, this kind of one-upsmanship has been a staple of the software industry for decades and the rest of the cloud community will have many opportunities to present its case beginning as soon as Wednesday when Marc Benioff invades the Yerba Buena Theater to give his own version and vision of cloud computing.
Nothing is guaranteed in life but I would bet body parts that Benioff will give a thoughtful and inspiring talk on the future of cloud computing — just the thing that we badly needed but didn’t get on Sunday.
Today the sessions start and the real information exchanges can begin in earnest. There is an incredibly full docket and I am confident that things will look a lot different by day’s end. The pitching staff failed in the first game, but as in baseball, you can’t do anything about yesterday so don’t dwell on it. Today’s game will be better.
Cloud computing is breaking through to the general public. Unfortunately, it’s only the most watered down version that the public is hearing about.
Last week I listened to a program on NPR that briefly discussed the cloud and some ‘expert’ who worked for a general circulation magazine was happily telling the interviewer that cloud computing was all about servers in the sky. That’s it, just servers in the sky. It’s as if the only important idea of cloud computing is the obvious commoditization that comes from renting a bit of processing power. The reporter was even able to muster the names Amazon and Microsoft to define the market. But if cloud computing is just servers in the sky, then how is it different from servers down the hall?
Unfortunately, these cloud advocates have settled for the low hanging fruit, the cloud computing that says if you host an application in the cloud you won’t incur the overhead of ownership. Fair enough. But if that’s all you’re doing, you are leaving money on the table.
This definition of cloud computing amounts to running a conventional application in the cloud which is not much different from running it down the hall. Especially in those cases where a company insists on having its own segregated disks and CPU, there is no difference save how you pay for what you use. Has everyone forgotten about what has driven us to this point? The bad old days of client server applications that cost outrageous sums because armies of consultants had to cobble them together?
Back then we talked about the simplicity that comes from multi-tenancy and the ability to deliver something to the end user that simply works. Today’s definition of cloud computing takes a couple of giant steps backwards to focus on infrastructure with the assumption that a server is a server and one application running in a browser is the same as another.
But of course, that’s just not so. How the application gets to the browser matters, how and where the data is stored matters and how the application is built matters. The evolving definition of cloud computing as simply a delivery device for conventional applications doesn’t work and I think it will slow down the movement to ubiquitous connectivity and lower cost computing.
As luck would have it, I spent a very enjoyable hour on the phone with Mark Jensen last week too. Jensen is Managing Partner for Deloitte’s U.S. Venture Capital Services Group and U.S. Audit & Enterprise Risk Services (AERS) Technology Industry Sector Leader. We discussed a number of things including the future of computing (think about security), venture capital markets (sharply reduced exit activity is depressing capital formation) and cloud computing (the key is multi-tenancy).
It was nice to hear Jensen’s perspective on the cloud because I’ve been at it so long that a fresh perspective is most welcome. But instead of a fresh set of ideas, Jensen simply reinforced my thinking about multi-tenancy. After ten years of deployments, success and rapid growth, cloud computing still has to earn its stripes and convince people that multi-tenancy is safe. Companies still demand separate storage architectures for the information they store and use in the cloud.
This doesn’t surprise me so much as it disappoints. There is no doubt in my mind that cloud computing, and before it SaaS, is part of a long term computing trend and that the current effort to define cloud computing is a retrograde movement that will result in preserving the status quo even while adopting some of the more obvious parts of cloud computing, like the name.
Multi-tenancy is at the heart of all this. Multi-tenancy gives every user a unique part of the architecture to work in and store information. But no matter how many years of success we have the skeptics remain who simply don’t trust the systems in place to keep everyone’s data separate. Imagine if we still applied this attitude to banking, we’d be a nation of people with tin cans buried in the back yard and metal detectors would be banned. But I digress.
Multi-tenancy isn’t a fad, it is the reason to do cloud computing. Multi-tenancy raises a simple application from a one-off island of technology to a standards based business tool capable of being deployed, accessed and maintained almost anywhere. What you give up, if you want to call it that, with multi-tenancy is both the low level responsibility for ensuring the system remains up, and the unnecessary overhead that goes with it.
All this notwithstanding, there are still customers out there who will insist on clouds that can do this but not that. And unfortunately, when they discover, several years from now, that their systems have all of the problems that their current legacy systems have, they’ll blame the technology.