The CRM world has been atwitter, to borrow a phrase, ever since Gartner released its CRM market size report on April18. Since I am not rich, I do not own a copy of the document but the table of contents provides some very interesting fodder. The top five, in order, are Salesforce, SAP, Oracle, Microsoft and IBM.
My world is buzzing with reporters’ calls seeking comment and colleagues at the Enterprise Irregulars offering up opinions. Here are a few things to think about that I have ruminated on.
- For some companies figuring out CRM revenue is easy. Just ask Salesforce about their revenue or read their SEC documents and Voila! But it’s not so easy to tease apart CRM from other revenue if a multi-product vendor like SAP or Oracle decides that apples is apples and doesn’t split out the different revenue streams — effectively asking the analysts, “How do you like them apples?”
- I can understand a financial analyst firm doing this kind of work but less so a technology or industry analyst firm. Sure, these reports make for fun reading but they are backward looking. Financial guys look backward all the time. Heck, I know some that haven’t seen the recession yet. But my peers ought to be looking forward. Imagine if ten years ago we were all saying SaaS and Cloud are the future instead of: On-prem forever! But I digress.
- When you don’t have hard numbers to deal with, and I strongly suspect that some of these vendors undoubtedly did not give the analysts dollars and cents results, you start having to triangulate. The vendor might say that their revenues were in the x to y range and a competitor or two might say they’re in the low end of the range or whatever. The result is that the analysts have to read tealeaves and do some math that is based on assumptions. When that happens, all bets ought to be off. Averaging everyone’s estimates just gives an error prone result if you can call it that.
- Ditto for the size of the whole market. About ten years ago I saw some work that looked like it took a long time to compile that said the CRM market had an absolute size of about $46 billion. We left that number in the dust a while ago and we still forecast $20+ billion in products and services per year and growing. Go figure, if you can.
- Then there is the matter of how you measure. Fiscal years differ, measurements differ — Seats? Dollars? Currency Conversions? Canasta? — the analysts have to rationalize it all so that we’re all talking apples. That’s hard to do.
A few years ago SAP was battling Siebel for the #1 ranking and according to financial analyst reports at the time, they were booking any revenue that was not nailed down as CRM. I still have the reports. I think SAP won the derby that year but the next year the analysts started counting the shelfware in major IT departments and guess what they found? Only about half of SAP CRM had been installed or was likely to be while Siebel, Oracle and some others consistently had about 25% shelfware.
Market dominance became important when Geoffrey Moore published Crossing the Chasm because his data showed that most markets consolidate into a three horse race with numero uno taking most of the business, due hanging on to keep uno honest and tre looking for a buyer. But each of the CRM vendors in the top five is a complex, multi-product company. Each sells CRM for its own reasons and one of them is surely to offer a complete product line that keeps competitors at arms length. The number one spot is still coveted for bragging rights but trust me, if the ranking disappeared tomorrow, very few CIOs would have trouble rounding up the usual suspects for an RFP.
So to net it out, take this all with a pound of salt. It’s a beauty contest at best and in my humble opinion not a representation of the best work that analysts — either of financial or industry variety — can do.
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
Sugar CRM took its annual customer and partner show on the road this week bringing what had been a Bay Area extravaganza to the Big Apple, the better to attract a sizable population of customers and partners from Europe and other points beyond North America. It seems to have worked because even though New York is one of the most cosmopolitan of cities regardless, I hear a lot of European languages in the corridors and I met many people from countries across the Pacific.
Sugar is a happening thing at least in part because, of all the CRM vendors, it has an innovative business model and a new assertiveness. CEO Larry Augustin tells me the company is growing in the area that is most important to mature and maturing software companies — the enterprise. According to numbers shared with me, Sugar is growing its enterprise customers at a rate quadrupling last year and I hope they keep it up. Admittedly that’s easy to do if you start from a small base but, still, it shows growth and validates the strategy nevertheless.
Sugar comes to New York off of some difficult transitions. The marketing and sales groups have been largely restaffed recently and I met more than one person who has been in a job or with the company for only a few months. But veteran, lead guitarist and Sugar returnee Martin Schneider anchors the group. I don’t know Schneider’s official title but a good approximation might be keeper of the flame. He came to Sugar about five years ago from the 451 Group, an analyst firm where he did some very good work. He stayed at Sugar for those five years doing more good work but ultimately went back to 451 only to return a couple of months ago to help the company through its transition.
It seems reasonable to say that Sugar needed a transition. For while the company has been making good numbers with its fundamentally different business model that included open source, but I think there was a realization that open source messaging would need some tuning for the enterprise corporate world. Also, the executive team was obviously looking for new members with the chops to play in the enterprise.
While it’s true that open source has done very well for the industry in areas like the Linux operating system, Apache Server and MySQL database (the core of the LAMP stack along with the PHP and PERL programming languages), open source is also representative of fierce commoditization. There’s little money to be made in operating systems, server software and databases today. They’ve run their races and the market has chosen a small handful to make standards. I know I’ll get mail on this but the issue isn’t how much money any of these items is generating today, Web servers are in the range of $2 billion, I think, but it’s how much the industries generated in dollar adjusted revenue in their hay days. Commoditization drives a market into a singularity where one vendor does most of the business and others eventually fail.
Yes, but what about Oracle, Microsoft and IBM in database? True enough, but databases are so embedded that they’re part of the hardware sale. Database might arguably be less far down the path that operating systems have already trod. We could go on but my point is that CRM is not in the commodity column yet and probably won’t be for many years. So Sugar’s initial thrust as an open source supplier was at best premature; it might have made sense if you didn’t see social coming. But CRM continues to be a jump ball because of all the innovation it spawns. SugarCon, to me, is a continuation of an effort to move the company from commodity supplier back to mainstream CRM supplier and it is largely successful.
In his keynote, Augustin was careful to focus on three things about CRM that keep it from being a commodity with a theme that stressed “every customer, every user, every time.” By this he meant making software that addresses the unique needs of users at all levels. Fair enough, but the messaging felt too reminiscent of days past.
I can’t help but note a small disconnect between the messaging and the reality of the software. The demos show a competent and easy to use product set complete with activity streams and social and other inputs. But the overall effect is one of automation rather than innovation and that has become my new yardstick and dividing line — more on that later.
You have to walk before you run and I accept that there are a lot of companies out there still learning to walk. By Sugar’s estimate, for every CRM user in existence today there are a whopping 25 who are not users or who are using some home grown system cobbled together from old databases and spreadsheets. I might start calling them home-groan soon.
The existence of so many uninitiated CRM-ers is plenty of reason to walk back any thought of CRM commoditization and to focus on helping those customers to walk the CRM walk. That said however, I think the whole industry has a short fuse burning on getting over the automation-innovation divide.
Some vendors have clearly crossed that chasm but the majority has not. You can see it in the demos of SFA that focus on the sales rep serendipitously having a big deal to close. The reality is that sales reps have fifty or a hundred deals to close and the hard part isn’t getting to the close. The hard part is finding the deals in all the sales data noise that need help in the first place. They are the deals revealed by analytics as having stayed too long in stage three of a sales process or the ones that have raced through and tweeted about their imminent need. It takes more than conventional CRM automation to find those deals and to take action on them.
That is where I think CRM is today and where most vendors need to apply elbow grease. Sugar’s special challenge (and you can say this about Sage too) is in communicating this to its partners. The messaging I heard at SugarCon straddles both worlds as it must if they expect to educate the partners and bring them along. So in many ways the most important messaging at this event is the future and most important constituents are the partners. Time to saddle up and ride in a new direction. It will be interesting to see how all this evolves.
I spent the best part of last week cruising up and down Silicon Valley checking in with customers and would be clients. The consensus from this non-scientific survey is that business is better than OK and most people are expecting this year to be the best in a while. Of course there is a cloud—literal and figuratively—to go with that silver lining. After all, we’re bouncing off a long fall to what’s still a soft bottom.
Business is good enough out there that many companies can’t find enough qualified people. Ted Elliott, CEO of Jobscience, sometimes refers to it as a skills gap with many older workers not having all of the skills that newer companies seek. People with all the requisite skills are rare and valuable and Elliott refers to them as “unicorns” because they’re so hard to find and, yes, he’s got and app for that.
While you might say that such gaps are generational and common it’s still noteworthy that a generation ago the gap was between laid off steel workers and service sector job requirements. Today it’s between laid off tech workers and new tech job openings.
Interestingly, if you have a Ph.D. especially in a science or math, there’s no job shortage especially if you like to work at IBM. A recent story in the New York Times said that IBM hires more math Ph.D.s than anyone else in the world. You could have figured that out from all of the patent applications they file.
What’s been interesting to me in the last couple of weeks has been the intersection of big data, IBM’s quest for brains and a recent report from Forrester Research. The report in question is a project led by Phil Murphy titled: “BT 2020: To Thrive In The Empowered Era, You’ll Need Software, Software Everywhere.” I can’t critique it because I don’t have the $499 necessary to read it but I also happen to think that’s right, but what kind of software?
The report talks about the coming reality that software is and will be even more ubiquitous in the future and interestingly it posits the emergence (according to Forrester) of “cloud cartels”—large corporations dedicated to serving the processing and storage needs of the future. We’re talking more about big data than about running ERP in the cloud. With some 22 billion attached devices by 2020 (also according to the report) spitting out second by second data, a lot of processing and storage will go to machines understanding machines.
I can buy all that but what I find harder to internalize is that the short list of winners quoted in the Times story about the report includes “Amazon, Cisco Systems, Google, I.B.M., Microsoft, Oracle and a few competitors.”
While those are all good names the list fails to mention any of the companies that started it all such as Salesforce.com. The report reveals an assumption that though the data center might be moving to the cloud the fundamental software paradigm isn’t changing. But I disagree. In my little corner of reality I think about things that haven’t been invented yet that are going to need all of that processing horsepower. Many of the companies not making the short list have a foot on the ground in the Valley and they are exciting for the novelty of the solutions they envision.
The Times article, and to a degree the report, support the kind of linear thinking that I have always criticized because the forecast looks more like a scientific experiment that keeps all variables constant save one. But in the real world systems are dynamic (yes, IT is a system) and change cascades through systems leaving no stone unturned—exactly the opposite of straight line forecasting.
If Forrester is right, and I think they are but perhaps for different reasons, then much of the processing power in the cloud will not be taken up by mundane ERP and CRM applications but by applications demanding computational answers to figure out what people want and need and what the connected devices need as well.
I am certain that the actual processing will be as different from that conducted by today’s applications as a fish swimming is different from a bird flying. I’ve lately been reading Isaacson’s “Steve Jobs” with great interest in the emphasis that Jobs put on the customer experience. Interestingly, while the book spends a great deal of time on the customer experience it is almost mute about loyalty and promoting it. Not that it matters—Jobs fixated on the customer and got loyalty and then some. Yes, we need more software in our civilization but it’s time not just to think different but to think bigger, if you ask me.
On an otherwise slow news week there was a story emanating from a Gartner analyst, Dennis Gaughan, at a recent Gartner talk in Australia that I found interesting on Business Insider.
The headline told the story, as good headlines often do. “What Microsoft, Oracle, IBM and SAP Don’t Tell Customers” identifies, in Gaughan’s opinion, the primary strategies or approaches to the market employed by the big four software companies. There’s room to quibble with this but there are also elements of truth. I hope you’ll click the link and read the rather short piece, here are the major takeaways.
- Microsoft mainly wants to protect its Windows and Office franchises
- Oracle products don’t really work well together
- IBM wants to take over your IT strategy
- SAP confuses customers with pricing
Got that? I wonder how many readers came away from the article saying, so?
Didn’t we already know this in our bones? And, more important, aren’t these simply strategies for locking in customers and getting the maximum footprint in customer data centers?
IBM has been running IT strategies at its customers for a very long time. That’s not new nor is Microsoft’s fetish over Windows and Office. Dynamics CRM has an Outlook interface because the company tells me, that’s where people spend their day and they already understand the interface. Fair enough, but do they understand the interface primarily because they’ve been trying unsuccessfully to use Outlook as a CRM system all along? Client-server was a boon for windows and cloud computing is a major threat. Why else is Microsoft trying to sell their idea of an operating system for the cloud?
And can anyone take Oracle’s claim of systems engineered to work together seriously? A few years ago the company said that customers should use their products as they come to minimize breaking systems. And when Oracle bought Sun they immediately extended the blanket to cover hardware. In last week’s column I quoted Dave Yarnold CEO of ServiceMax who wondered in print if the universal devotion to SAP’s ERP (and I must say ERP in general) might be sapping companies’ ability to creatively engage the marketplaces they serve.
Nope, sorry, nothing really new here. As they might say in court if you’re an IT executive, you knew or should have known all about this. But what is new is that this kind of news or information is surfacing and it is surfacing at a time when people are thinking differently about their futures and companies are trying to keep up.
The legacy systems of the twentieth century that mediated the manufacturing economy have proven inadequate to the task of keeping up with the increasingly mobile and socialized customer. Moreover the customer is increasingly turning to the cloud and to subscriptions for all manner of things that were once considered products but are now delivered as services.
The news in the article I quoted is not that the big four have tried for a long time to—legally—control their customers. The news is that Gartner said it and the speaker acknowledged that the information was culled from Gartner’s experience with its own customers. To the best of my knowledge Gaughan has not been reprimanded for speaking bluntly and Gartner has received no law suits for the honesty, but it’s early.
No matter, what this indicates to me combined with other things I’ve been reporting on are two things. First, IT customers are getting restless and starting to speak out. This may be the beginning of a cascade. Second, the vocalized dissatisfaction rising in the market may indicate a turning point in the paradigm.
Paradigms are remarkably stable. They may crumble for a long time accumulating pressure for change but never reaching a tipping point. But then, seemingly without warning a catastrophic event causes a shift. There is nothing foreordained to the effect that today’s big four will be tomorrow’s. They have big installed bases and tremendous market presence and that might delude some people into thinking that they are too big to displace.
Alternatively, though, major market shifts don’t happen because the leading vendors fail. They happen when the leaders become irrelevant to the problems they provide solutions for. We haven’t been a primarily manufacturing economy for a long time yet our enterprise software is built to support it. Hand in hand with the irrelevancy of the old regime, the free market boasts a huge number of vendors with robust solutions that are more relevant to the moment.
Multiple economic drivers are in place and that should make the new year very interesting indeed.