Platform as a Platform (PaaP)
The platform land rush is definitely on. You can’t swing a dead cat, as the saying goes, without finding an announcement about some new platform or some established vendor’s attempt to enhance its existing platform. Some sorting out seems to be in order.
What’s not a platform these days?
Well, if you can easily substitute the word application for platform, then use application because it will be more accurate. We’re suffering from word inflation all over the place and application has been split into apps, those things you run on your phone, and applications which vendors shy from preferring platform when they should know better. For the record, an app is still and application and a platform should be more. A lot more.
Platforms don’t grow on trees.
Building a platform takes work. It is doubtful to me that you can declare a platform into existence as a startup. Chances are good that a new platform is really a standalone application whose investors don’t want to see it become orphaned. But platforms take time and effort to build. If you look at the majors—Oracle, Microsoft, Salesforce, and SAP, they’ve been in the business for decades acquiring and integrating solutions to make something with a large footprint that they call a platform.
But it’s not just about quantity of functionality, there’s quality to consider too. For instance, in addition to all of the integrated apps, a platform ought to have a really good tool set that enables users to maintain what they’ve got and build new things including simple database apps as well as sophisticated processing apps that incorporate the social, analytic, integration, workflow, mobile, and other capabilities that make a platform real.
To be sure, there’s more than a casual difference between the majors and their offerings, but generally speaking, each is trying to become the one-stop-shop for customers needing software technology. Each also differentiates itself through emphasis on different aspects of deliverables while hewing to the cloud mantra.
Is it too late to become a platform?
Well, quite possibly it is too late. It takes a very large amount of investment and the time and talent of scarce and very smart people to make a platform, and while all that development is going on the market is not standing still. So recently we’ve seen some successful companies being acquired by large platform providers and I suspect the rationale for the sellers was that it was time to join rather than attempt to compete.
Microsoft bought LinkenIn recently but they’ve also bought large numbers of other technology companies that more or less fit their vision of platform. Oracle has bought more companies than I can count and continues to fold them into its platform or suite of clouds. Same for Salesforce, which just completed its acquisition of Demandware an ecommerce product.
What’s next?
As large as these collections of applications or platforms are, they can easily get bigger. We’re already at the point where very few businesses would likely use all of any vendor’s platform offerings because there’s just too much stuff. Many of these vendors have provided multiple tracks such as SMB and enterprise offerings, which would seem to automatically disqualify an organization from taking on everything on offer. Still there’s the grey area where an emerging business has one foot in each camp so hybridization is a definite possibility. It’s in the hybrids that the true value of a platform emerges.
Hybrids can also mean mixing offerings from multiple vendors and the gob smacking reality of today’s platforms is that as huge as they are, they are still not big enough to crowd out the competition. That’s a tough reality because part of the reason for embarking on the platform trail is to help lock out competition. But no such luck.
All vendors know they have to provide an elegant approach to integrating whatever is on a customer’s site. Of course, this goes double for the legacy systems every business runs. The legacy systems might have analogs on every vendor’s platform but legacy systems also go by the name of foundation systems, responsible for a business’s bread, butter, and profits. Businesses are thus naturally cautious about upsetting the apple cart so integration is a critical need.
Ecosystems come into focus
The platform wars are in full swing but the outcome seems assured. There will be several major competing platforms and we know which providers have them. Resistance is futile, announcing a new platform today is spitting into the wind. But at the platform level the group of applications made by third parties, commonly called the ecosystem, there’s plenty of opportunity.
In the bad old days, third parties couldn’t commit to a single vendor because markets were not big enough. Today though, committing to one vendor’s platform is smart business. Committing means abandoning the need to maintain source code tuned to this or that operating system, database, hardware, and even language. With that, it seems to me that smart startups should begin life with a commitment to an ecosystem and thus a platform. It also means figuring out a useful offering in a market that seems to have everything, that’s a story for another time.
Waiting for change
A couple of weeks ago Allison Arieff wrote a piece in the New York Times titled “Solving All the Wrong Problems” that gets to the heart of the technical times we live in and its focus is not what you might think. She includes a long list of things we can buy or subscribe to such as:
A service that sends someone to fill your car with gas.
A service that sends a valet on a scooter to you, wherever you are, to park your car.
An app that analyzes the quality of your French kissing.
A “smart” button and zipper that alerts you if your fly is down.
A sensor placed in your child’s diaper that sends you an alert when the diaper needs changing.
It goes on but you get the idea and you can always read the article here.
All of these things have in common the idea that just because we have the ability to make them doesn’t mean we should. Presumably the ones that got venture capital financing had someone asking, how does this make money and receiving an acceptable answer.
At about the same time this article ran, I needed a water heater so I went to a big box store and searched for—wait for it—someone to wait on me, to answer a few questions in other words. There were three models on display but in a perversion of good, better, best, there was standard, deluxe, and WiFi. The top of the line water heater could send information to my smartphone about, oh, I don’t know what really.
In my long life I’ve noticed that water heaters either work or they don’t. When they don’t work, I take a cold shower and summon a plumber to rectify the situation. The idea of having a water heater that I could interrogate through my smartphone seemed importantly like a moment in history when a new neurosis is proclaimed—hydrothermia gondii, perhaps.
But I have an explanation or actually two that seem to pacify my mind. The first harkens back to Linus Pauling, a two time Nobel Prize winner who once famously said that if you want to have good ideas, you need to have a lot of ideas. Translation, it’s a numbers game and most inventions don’t make the cut. Of the long list in the Times article, most if not all but the one that evaluates the quality your French kissing, are bound for history’s ash heap.
But Pauling’s point was that you never know what’s going to hit so you take the risk of ridicule and ruin for the chance of success and all that attends it. Still, some of these inventions up to an including the WiFi water heater strike me as over the top science fair faire.
The other reason in my mind might be closer to the truth. It’s that we’ve reached the end of the current paradigm. By paradigm, I mean the thing that frames our economic and social lives, the technology boom. According to the late Russian economist, Nicolai Kondratiev, a paradigm animates our economic lives and lasts between 50 and 60 years before another replaces it. Within a paradigm you can have trends and business cycles but the paradigm is ascendant.
You can know when the end is nigh because it gets really, really hard to innovate around the core tenets of the paradigm without bumping into something else that does pretty much the same thing. In other words, all of the niches are full. When that happens people try to invent niches which is why you get online water heaters and French kissing apps.
Eventually Kondratiev’s wheel turns again and we start anew with a different paradigm. But new paradigms are expensive; they result in what another economist, Joseph Schumpeter, called creative destruction in which some of the earlier and perfectly good established economic order is trashed. So, not surprisingly, the establishment will resist change which brings on a period of stasis.
You know you’re there when someone invents something equivalent to a sensor placed in your child’s diaper that sends you an alert when the diaper needs changing. Come to think of it, that’s a perfect metaphor for the times we live in. We’re waiting for change.
Social’s swan song
Microsoft’s acquisition of LinkedIn for more than $26 billion raised a lot of eyebrows for good reason. True, the acquired company is valuable and generating revenue but like most of the social networking space, it is far from healthy and one wonders if Microsoft could have gotten a better deal.
According to a colleague at the Enterprise Irregulars, Ross Mayfield, Ellen Levy reported that the deal can boast a number of superlatives if you look at it right, among them,
- The largest sale of a consumer Internet company in history;
- The largest sale of an enterprise software/cloud company in history;
- The third largest sale of a technology company since 2001; and
- The largest acquisition ever made by Microsoft.
With those attributes you might expect that LinkedIn is in a really hot sector and everybody wants to get it at any price. It looks like a regular feeding frenzy. Well, hold on big guy, here are some other numbers to consider.
Facebook announced revenue in Q1 2016 at $5.2 billion and profit of $1.51 billion tripling its year over year comparison according to a BBC News article that you can read here. Good for them.
But now consider Twitter, which according to CNN Money has lost a cool $2 billion since 2011. I wonder if this can be construed as an illegal campaign contribution to The Donald. At any rate, Twitter has never turned a profit. Yikes!
Then there’s LinkedIn. According to a Reuters article from February 4 of this year that you can find here, “LinkedIn Corp forecast first-quarter revenue and profit below Wall Street estimates as growth slows in its ads business and its hiring services face pressure outside North America, dragging its shares down 28 percent after the bell.”
The article goes on to say that, “Online ad revenue growth slowed to 20 percent in the fourth quarter from 56 percent a year earlier as automated ads offered by Alphabet Inc’s Google make its traditional ad displays less attractive to advertisers.” Finally there was this, “Its revenue forecast of about $820 million also missed analysts’ expectations of $866.9 million by a wide margin.”
Suddenly it looks like social media has become a winner take all market accentuated by Metcalf’s Law which states that the value of a network is directly proportional to the number of nodes i.e. users in this case. Why use anything but the biggest network unless it’s specialized as LinkedIn is because of its sales and HR focus.
This is happening despite the high acceptance of social media in everyday life, just ask The Donald. Social has rapidly become the thing everybody loves to use and no one wants to pay for. The advertising business model that most companies rely on doesn’t help.
Advertising has its limitations. There is a huge pool of money available for online ads but huge is not infinite. Just as there is lots of music available, people only want to pay for hits. If you combine Metcalf’s Law, which tends to limit the number of viable networks in this space and add in the reality of the fickle consumer you have an instant recipe for a declining market, which is what we see.
Don’t worry, social media is too important to go away. It’s so important that it has commoditized its market into a virtual singularity. That’s the bad news too. The social market looks like it can support 2 styles; say Facebook’s and Twitter’s. There might be additional vendors in the space for a long time especially if larger companies buy them and they function as loss leaders. That’s ultimately the vision I see for any social company not named Twitter or Facebook.
End of an era? LinkedIn goes to Microsoft
Microsoft announced the intent to buy LinkedIn for $196 per share today or more than $26 billion. It’s a huge deal and a great payday for the social networking company specializing in making it easier for business people to connect. But why do this deal and why now? This calls for a lot of speculation but perhaps we can make some sense of it.
Like other major software companies including Oracle and Salesforce, Microsoft sees itself as an essential platform for enterprises at all levels. The more functionality it can provide to its users, the easier it will be to keep them at home rather than roaming the Internet looking for something new. In addition, the availability of a familiar face such as LinkedIn has great appeal for many customers.
But also, we may be witnessing the consolidation of the social networking space. Brands like LinkedIn, Twitter, and Facebook, and others such as Plaxo and MySpace, all got started around the same time—about ten years ago. Since then each has found a niche and many rely on an advertising model for revenue and growth.
Those models are limited by network constraints, however. Each might be flexible and have great people working there but as Metcalf’s Law stipulates, the value of a network is directly proportional to the number of nodes on it. In our case nodes can be thought of as people and while we might all have Twitter and Facebook accounts, the number that also have a third network is smaller for the simple reason we can only track so much.
So the advertising potential of networks is similarly limited. There is a large revenue pie for ads on social networks but it isn’t infinite and as is often the case, the early participants like Google continue to capture the lion’s share of revenues. In such a situation, if LinkedIn can be relieved from the need to generate so much ad revenue growth by simply becoming a valuable addition to the overall Microsoft value proposition, so much the better. The situation is similar with other vendors that offer social and collaboration functions as part of their value propositions, like Salesforce and Oracle.
All this is to say that the age of social media is likely entering a mature phase. We can see which ones will be able to have a stand-alone future and which ones won’t. This doesn’t mean social networks and social media are becoming passé—just the opposite. They’ve become so valuable that they are becoming commodities and it’s hard for commodities to reap soaring profit growth (that’s why they’re commodities).
So, good for Microsoft and LinkedIn, I think they are better together and their association seems to signal an inflection point in social networking. The strike price of $196 per share is significantly below last year’s peak of nearly $260 but also significantly above Friday’s close of $131.08, just about right in the middle. Is everybody happy?
Gamifying Sales Comp
According to the Microsoft blog, the company has bought FantasySalesTeam, a sales gamification platform. The intent of the product is to boost sales productivity and the gaming part is designed after some aspects of fantasy sports leagues where you build a team from known professional athletes and try to beat other teams. The team aspect makes everyone more competitive and hopefully boosts everyone’s performance.
Ok, I get it but I wonder if this is the best approach to improving sales. We’re always trying to improve sales and it seems like we’re always failing while also bringing out new products that will do the job better. It reminds me of the long history of antacids. You can go back in history and know what decade it is just by peeking at the ads for cures to heartburn (Alka-seltzer, Brioschi, Peptobismol, Maalox, Tagamet, Nexxium and many others) but we still have heartburn.
If you see a pattern like this, it’s reasonable to ask if you’re just treating the symptoms and you haven’t identified the root cause. I’ll leave heartburn to the doctors. But for many years and even centuries, we have incentivized sales people with money (the carrot) and job loss (the stick). That wasn’t enough?
Every business is unique and its processes and people reflect this. In the past we’ve seen sales improvement prescriptions that include methodologies, technologies, coaching and many other things. Yet surveys of sales organizations by CSO Insights and others shows that improving management through things like having and enforcing a defined sales process with appropriate technology support does a better job.
So the gamification approach, in my mind, skirts the real issue, which is managing through incentives. Rather than gamifying anything, I think the real issue is individualizing the incentives and applying them across the whole organization and all product lines. It’s a big data problem and you can’t manage what you can’t measure. I see a pattern emerging.
By applying gamification, the hope is that sales people will be better at self-monitoring or peer-monitoring and self-management. But a version of this is already taking place and many businesses are trying to squelch it. According to the folks at Xactly, today almost every sales rep does what’s called shadow accounting—they keep a spreadsheet of their deals and calculate their commissions hoping to catch any errors that can easily happen in a manual or spreadsheet based corporate compensation system. The theory is that reps spend valuable selling time tracking their commissions and playing what-if scenarios rather than selling. This is time the fantasy engine would presumably take over.
My preferred approach is to get a real compensation management system like Xactly or possibly Callidus. You could try this with spreadsheets but one of the big problems with incentive compensation in general is that plans are too unwieldy to manage in spreadsheets or on paper and they are soon discarded. When this happens, reps fall into the path of least resistance. They sell what’s easiest, not necessarily what’s new and improved or what management wants to move.
But with a compensation management system all of the details involved with individuals, plans, territories, products, commission schedules and more are handled by the system. So it’s possible to custom design a plan and enforce it through the technology rather than relying on gamification.
Please don’t get me wrong. This idea may have legs—I am not terribly familiar with Microsoft’s new product so I don’t want to put it down. Gamification is a great tool in the right circumstances but I just don’t see how this solution solves the problem. As with antacids, if one doesn’t work you can always try another. But when that approach gets old, it’s time to look at root causes and perhaps cut back on the pepperoni pizza. In this case, you might ask if your management technique could use some spiffing up.
