This week’s thought leader is Chuck Schaeffer. In case you don’t know, Chuck is the founder and Chairman of Aplicor, a global software publisher of on-demand CRM and ERP cloud computing business applications designed for global middle market organizations. He’s a serial entrepreneur having started and run successful consulting companies in the SAP, Microsoft and Oracle partner channels so we value his insights and comments on today’s hot topics. For example, Chuck thinks Salesforce.com set a bar when it established trust.salesforce.com and wonders why others have not jumped into this approach to establishing customer intimacy. Good question. For the whole interview click here.
I don’t like ambiguity and there was some in yesterday’s post so let’s get to it. Yesterday I wrote:
Microsoft is confidently offering replacement systems that have been the beneficiaries of significant investment over the last several years. These systems also run on cloud infrastructure, though cloud does not necessarily mean multitenant.
Microsoft and others — with the notable exceptions of companies like NetSuite and Salesforce.com — have decided to kick the can down the road with regard to multitenancy. While multitenancy might have advantages, it is not advantageous enough yet to push the issue. As a result, it may have to wait 10 more years — until the next wholesale replacement cycle — until multitenancy becomes more of a standard.
The “can” in this case is a metaphor referring to how vendors address the issue of single tenant vs. multi tenant cloud-based systems, and I thought the second paragraph did an acceptable job of illuminating the metaphor.
Not that long ago cloud and multitenant went together but a revolution in the last couple of years by major software vendors including Oracle, Microsoft and Sage among others, has changed the complexion of the situation. Many vendors have adopted a strategy that leverages a single code base that can be deployed either as single or multitenant. Moreover, the single tenant versions can still be housed in a common, cloud-based datacenter to deliver cloud services that are almost indistinguishable to the user. But no conventional vendors are pushing multitenancy as the wave of the future. They are letting the customer decide.
It’s still true that you need to work with your vendor to establish the right balance of cloud services to go with your cloud infrastructure. For instance, do you want to manage your system from afar or do you want your vendor to provide management services including configuration, backup and upgrades? The choices are numerous. So when I spoke of kicking the can down the road, it was about the choice of deployment—as in letting the customer decide the deployment approach—rather than saying that any vendor did not possess the ability to deploy in multitenant mode.
I spent part of last week in the Seattle area at a small meeting Microsoft organized for analysts. The purpose was to brief us on product positioning and plans and much of the meeting was covered by non-disclosure. Consequently, I am at a loss for how much I can divulge in this setting, at least until things are announced.
I am fine with NDA information and the Microsoft presenters were generally good at stating what was on or off the record though there were a few times when the presenter said, “Some of this is NDA.” “Great, I’d think, which part?” And inevitably the presenter would default to, “We’ll get back to you.” Not a big deal, just the reality of dealing with a big company.
Now, as a practical matter, though the particulars of the meeting were interesting, the non-NDA facts that are generally available on the Internet tell an interesting story fairly well.
At $62.484 billion in revenues, Microsoft is one of the biggest technology companies. More than double the size of Oracle and four times SAP. It is also about two thirds as big as IBM. Of course, each of these companies got to its position in a different way and the comparison is less important than what these large numbers say about the market power that each, especially Microsoft, wields.
More interesting still is this consideration. The last time the world paid massive attention to its back office computing needs was Y2K, a term made famous because companies everywhere had to update their back office systems to accommodate four digit date formats. Rather than heavily edit aging mainframe and AS400 applications to account for the new millennium, companies en mass scrapped their big iron and took on lighter ERP applications that ran better and cheaper.
But that was ten years ago. It was so long ago that client server was the main computing metaphor, social networking was barely on the horizon, CRM didn’t have an agreed on name and you could actually board an airplane without taking your shoes off. A great deal has changed in the intervening decade, especially in software—enough to make it worthwhile to reexamine existing systems with an eye toward taking advantage of improvements to both economize and to take advantage of new business processes.
Forgive that small digression but it was necessary to fully illustrate this point: Microsoft is many things and one descriptor that should not go unremarked upon is that it is an ERP company. It is an ERP company at least as much and maybe more than it is a CRM company at least by the measure that Microsoft has three ERP products.
The ERP replacement cycle, driven by a need for economy, plays to Microsoft’s advantage because it offers products that operate in the cloud as well as on premise and the company is agnostic about where the products run. In fact, all competitors in the front and back office have come to the realization that running applications via cloud computing is a growth industry. Oracle has a grid computing offering, SAP is debuting cloud friendly products, and a raft of smaller companies such as NetSuite are intent on becoming the next big thing just as many of today’s incumbents displaced mainframes a decade or more ago. But Microsoft is different coming from a background of small and inexpensive systems compared with the big project and big license solutions from the traditional vendors.
Microsoft appears to be executing on a classic strategy of gaining footholds in key areas and expanding on them leveraging its low cost cloud infrastructure to tip the balance in favor of replacing ten-year-old ERP systems.
Much the same can be said of CRM. Where first generation CRM systems are nearing end of life, Microsoft is confidently offering replacement systems that have been the beneficiaries of significant investment over the last several years. These systems also run on cloud infrastructure, though cloud does not necessarily mean multi-tenant.
Microsoft and others—with the notable exceptions of companies like NetSuite and Salesforce.com—have decided to kick the can down the road with regard to multi-tenancy. While multi-tenancy might have advantages, it is not advantageous enough yet to push the issue. As a result, it may have to wait ten more years—until the next wholesale replacement cycle—until multi-tenancy becomes more of a standard.
So adding up three key factors — the market cycle, cloud computing and the market reach enabled by more than sixty billion dollars in revenues and the marketing budgets that implies—and a picture emerges of an imperative for change to lower cost systems that can easily drive the recovery in IT.
Of course business products aren’t sold in shrink-wrap at retail and success will depend on the performance of the partner ecosystem. But the partners have been a solid part of Microsoft’s success all along. Nonetheless, some attention to elevating their games will be essential if Microsoft expects to reach a new plateau in enterprise computing. I think they know that.
One of the more interesting developments of the last week has been the announced acquisition of ATG (Art Technology Group) by Oracle Corporation. ATG is one of the leading suppliers of ecommerce solutions and Oracle liked their stuff well enough to plunk down a cool billion bucks for the logo.
I thought it was a good idea at the time but I am also interested in hedging my bets. Questioning or being skeptical of Oracle’s acquisitions has not always been a good career move. I was one of many voices who questioned the sanity of the binge that Oracle went on when it bought up much of the front office industry in the middle of the last decade.
Several years later the product set that once looked like Marshal Tito’s Yugoslavia still hangs together and Oracle says it is about to release for general availability the new technology stack that will “fuse” it all together.
Only a company like Oracle or Microsoft or a few others, with deep pockets, could pull off something like this. In addition to the billions it took to buy the companies, billions more had to go into not only Fusion’s development but also the care and feeding of so many disparate brands during the interval. I assume the acquired companies have been throwing off enough cash to make the deals palatable but I have no first hand knowledge of this.
So when I look at the ATG acquisition part of me says, not to worry, Oracle has it all figured out; besides, it’s only a billion bucks. (In truth, that last bit about the billion bucks makes me blanch.) The other part of me says this is a lot of money, especially now in this part of the recovery and this part of the front office software life cycle.
Now, to be sure, ecommerce is really important for a variety of reasons and I can envision scenarios where it continues to gain in popularity. For example, buying on-line will likely increase in popularity if we see another gas price spike that makes people go to the mall less often. But I also know that as demand for ecommerce software increases the trend toward commoditization will likely increase. Ironically, one of the commoditizers in this case is none other than NetSuite, affectionately known as Larry’s Other Company.
NetSuite’s (NYSE: N) got game—they’re global (just opened a development center in the Czech Republic), they’re all SaaS and their ecommerce functionality is already tightly incorporated with their ERP and CRM. There’s a lot to like with NetSuite (and they are not a client). But N isn’t even the only alternate player in the universe. There are many players in the space starting with IBM and moving through the alphabet to 3dCart, Volusion, and Venda just to pick some names out of a hat. In addition there is a growing list of open source software to contend with.
Now, certainly, these vendors don’t all compete for the same business. A company like Oracle has to have a credible system that it can offer to its Global 2000 customer base, especially when competing with the likes of IBM and many of the smaller vendors chase business in the SMB world. I’ve recently has some experience with the open source content management system, Joomla! (Yes the “!” is part of the name.) It’s a good product and they’ve got a robust community of developers and a secondary market of people who implement and sell the product as a download or as a hosted offering. And it has ecommerce functionality. Free.
My point is that the cost of good software has dropped to a very low level. Companies are making more of their money in services rather than product, at least in ecommerce as far as I can see. So the idea of paying a billion dollars for an ecommerce software company, even one as accomplished as ATG, seems a little out there to me.
But maybe Oracle sees something; maybe they see a future in which they sell more services and an ecommerce product makes sense to them as something that fills a need for solutions that sell services. That might sound crazy but in the last year Oracle became a hardware company with the acquisition of Sun Microsystems. You might not have been able to see that coming five years ago but there it is.
So, Oracle and ATG—good idea? I really don’t know. If past is prologue then deep pockets might again make a funky strategy into a winner.
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.