Salesforce’s embrace of Rimini Street’s third-party support services is a significant departure that has transformed the support vendor from competitor to partner—at least with Salesforce. It might also offer insight into changing cloud business models. At least it helps to make sense of recent litigation involving Rimini and Oracle.
Rimini Street began life as a support vendor for enterprises running Oracle and SAP software in the traditional on-premise model. In this incarnation Rimini quickly and inevitably became a direct competitor taking support revenue from enterprise vendors. Competing for support revenue is legitimate provided the third-party vendor conducts itself lawfully, respecting patents and copyrights to intellectual property concerning the systems being supported. The third-party also has to grapple with providing patches and updates that an OEM can provide.
Typically, enterprise software vendors charge a flat percentage of the licensed software fee for support services. Regardless of the terms of the deal a business strikes with a vendor over the software purchase, the services fee is almost always calculated on the list price; so with fees around 20 percent an enterprise can end up re-buying the product every five years or so.
To be fair, there’s a significant cost built into providing service and support which includes on-going R&D, patches, updates, fixes, and bulletins, as well as live support based on a service level agreement of SLA. Customers are always trying to get a better deal and vendors need to hold the line on pricing to cover their costs and generate a profit, which is the point after all.
Third parties have a lower bar—since they don’t write the original software or upgrades their overhead is lower. But that’s the point. They don’t own the source code and so they can’t patch it, a key reason for buying support in the first place.
Rimini has announced what we can call “patches to patching” which it named holistic and virtual patching. But each of these ideas works several levels of abstraction above the source code never actually patching it. The result is that systems are still in jeopardy. So the basic low cost inducement of third-party support vendors is in some cases, specious. They charge less but they also deliver less and the difference can leave an enterprise vulnerable to hacking, and down stream effects like brand erosion and lost trust and lost revenue.
Oracle has had a long simmering law suit against Rimini, which exhausted the appeals process recently. In the verdict, Rimini was shown to have “borrowed” materials from Oracle by simply downloading them from support sites.
After Rimini lost on appeal, it issued a strange statement that was carried in the UK Register and elsewhere saying,
“The Court of Appeals, while affirming the jury’s finding of ‘innocent’ copyright infringement for processes that Rimini Street claims are no longer in use since at least July 2014, stated that Rimini Street‘ provided third – party support for Oracle’s enterprise software, in lawful competition with Oracle’s direct maintenance services,”
Which roughly translates as, we did nothing wrong and we won’t do it again.
It’s quite hard to provide in-depth support if you don’t have inside knowledge of how systems work and don’t have the source code which you need to make a patch. Oracle’s case revolved around Rimini Street’s appropriation of copyrighted support materials produced by Oracle. Specifically, the enterprise vendor accused Rimini of violating up to 93 copyrights on its support and materials and the judgements, including appeals, went against Rimini though some monetary awards were later reduced.
A new model
Since the rulings and fines, Rimini has been seeking a better way to do business and it may have found it with Salesforce. If so, it could be a new model for other cloud vendors as well.
Rimini provides 24/7/365 support for selected Salesforce applications, which now include Salesforce Sales Cloud and Service Cloud, with 15 minute response time. Salesforce and other cloud vendors offer services for their products too but generally customers have to pay more for the advanced features that Rimini provides standard. So the competition is between Rimini and, in this case, Salesforce’s advanced support services, a choice that customers are free to make. Judging by the announcement of the services, Salesforce is in favor of the arrangement and views Rimini as a partner.
Here’s why. Rimini Street CEO Seth Ravin recently told ZDNet,
“The SaaS world is different in that maintenance is included in licenses and mostly bare bones.”
Simply put, there’s more room in a cloud situation for Rimini to add value.
Let’s separate call center service from updates and patches. Only Salesforce patches its products and it does so whenever needed as well as with three annual updates. So, the thorny issue of third-party patching is off the table in the Salesforce model. No patching requirement makes it much less likely that Rimini or anyone else will need to do the things that Rimini was found guilty of in the Oracle case.
With a cloud business model a vendor builds support costs into the monthly fee and that includes further product development and enhancement as well as some amount of live support but the cloud vendor gets paid no matter what. There’s no haggling over service fees—either the customer buys what the OEM has or goes to a third-party and pays there. As a result it’s far easier for Rimini to be seen as a partner by a cloud vendor, than as a competitor.
So the difference in how support is delivered and paid for may turn out to be a significant additional inducement to legacy customers contemplating a move to the cloud. In any event, it is reasonable to conclude that the on-premise version of service and support may be going away.
At some point companies like Oracle might begin to view third-party support service providers more as partners than competitors just as Salesforce does. But the change won’t be quick or uniform. Oracle’s bevy of cloud products still have numerous configurations that enable customers to straddle cloud and on-premise positions with different support modalities. For instance, Oracle’s BYOL, Bring Your Own License, program enables customers to move an on-premise app to Oracle’s infrastructure cloud (IaaS). So, the application retains its legacy character, and presumably its support liability, even though it runs in the cloud.
Deploying a modern, cloud version of the app might remove the annual support bill but at the cost of an incremental SaaS fee by the month or contract year.
Few enterprises will decide about moving to the cloud over the cost of application support alone. The move involves a complex matrix of costs for hardware and software—including everything in the stack. There are also considerations for labor. Given Oracle’s new push into automated products in database, security, integration and other areas we can expect cost savings for some premise-based systems but that remains to be seen.
Oracle is making its customers’ move to the cloud as cost effective as it knows how and it’s likely that early movers will get the best deals. Something else to consider for the vast majority of Oracle’s customer base with its feet planted firmly on the ground.
For some time now, it’s been my impression of the CRM market that all, or at least most, of the good ideas have been taken. It’s been a long time since we saw a new systemic solution that approaches front office business. It’s even been a long time since we saw a major innovation at the department level.
CRM itself was a systemic innovation in the last decade of the last century. Cloud-based CRM was the innovation of the new millennium and since then, marketing automation would count as a departmental innovation. You can also look at analytics as a systemic innovation because although it straddles departments, it has become a department itself.
This is not a bad thing, just the opposite. As CRM has been built-out it has opened new market niches which has maximized the number of solutions and, more importantly, it has made all of them affordable to just about any business. As I’ve said before, cloud computing is the commoditization of IT. It has made information processing both simple for a lay person to use and so affordable that all those who want it can have it.
CRM is far from done as an approach to business and as an economic driver, but we must acknowledge we’re at a turning point. Behind the scenes the major vendors, among whom are Salesforce, Oracle, and Microsoft, have gone a long way toward consolidating the industry by platform and from here that will be the dividing line.
So far this spring I’ve attended two conferences that illustrate my point, SuiteWorld and Financial Force’s analyst day. Each company has financials and ERP solutions that address the needs of small and medium and in some cases larger businesses. Each is deployed on a specific platform: NetSuite on its own which it announced is moving aggressively toward the Oracle Cloud Infrastructure, and Salesforce whose solution encompasses development platform and infrastructure.
While it’s quite possible that many customers will continue using hybrid solutions such as NetSuite for back office operations and Salesforce in the front office, it’s already easy to see that situation morphing. Oracle has for many years used the logic of running a suite of related software over an integrated solution made up of best of breed apps. It is continuing this logical progression with NetSuite both on its own and as a member of the Oracle family.
Salesforce is using a derivative of this logic too. While Salesforce is and will likely always be a front office company, its powerful platform and AppExchange gives partners the ability to build completely compatible applications that help customers achieve suite status. After all, that’s the logic of having a platform to start with. A platform supplies a consistent set of programming tools, interfaces, objects, data structures and more—standards—so that apps built on it can interoperate. It’s the same logic as building a hardware bus so that manufacturers can build to common standards. It’s popular because it works.
So, the play as I see it for any software companies not named Oracle, Salesforce or a small group of others, is to pick a platform, become intimately involved with it, and pursue the surrounding ecosystem as your market.
Some vendors have begun working with two or more platforms and that’s fine if they have the resources, but I see that as a short-term gambit designed to see which platform vendor is the best partner.
All of this is vitally important. As I mentioned last time, the meme making the rounds is that it’s easier to start than grow a company, especially in tech. I can see this and deciding on a platform and an ecosystem to work in is one of those things that can help reduce overhead and enable a business to better focus on the things that really matter for growth, like markets and customers.
My two bits
CRM has been a wild ride for two decades and the ride continues. At this stage it’s important not to get sucked in to the latest discussions of digital disruption, IoT, analytics or anything else that looks bright and shiny. They’re all important as secondary considerations but I think the most important thing, and in some ways the least glamorous, to concentrate on is what vendor and which platform you want to work with over the next decade and beyond.
Markets converge. Fifteen years ago, few vendors had complete CRM suites and now they all do. Today we’re looking at far more complex and sophisticated front office applications as vendors take on vertical market apps. These apps combine back office data, front office processes, intelligence and machine learning and highly specialized subsystems for everything from manufacturing to healthcare. In this new environment who has time for platform incompatibilities?
Andrew McAfee and Erik Brynjolfesson started writing about the impact of AI and machine learning (ML) almost a decade ago. They teach at MIT’s Sloan School of Management and their early books, “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies,” and “Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy,” provided deep insights into how the era we live in would unfold. We saw a lot of their ideas on display recently at TrailHeaDX Salesforce’s developers’ conference in San Francisco.
In a recent interview with McKinsey, McAfee says that few executives, even the ones pursuing digital futures for their organizations, have sized up the potential impacts,
Even though they see a lot of disruption coming, I still think that many really smart, well-managed companies are underestimating the scale, scope, and speed of disruption this time around.
Perhaps the greatest challenge all leaders face is better separating the threats from mirages or the things that will and won’t change about running a business in light of advanced technologies, for instance,
Articulating a compelling vision that will attract talent, customers, and stakeholders; being true to that vision; and managing the culture that you’ve created to go tackle those visions. Those are deeply human skills, and leaders who are good at them are going to become even more valuable.
The clear implication is that machines are doing the rote work and humans have to gravitate to the higher value add activities. That’s what makes Salesforce and TrailheaDX so interesting. From the outset the founders, Marc Benioff and Parker Harris, intuitively understood the importance of culture-building. They’ve always strived to make the business about something bigger than making money or even building a great company.
We all know about the company’s famous 1:1:1 business model in which it donates one percent of its profit, product, and time to charitable causes. While the fundamentals of the model haven’t changed, perhaps in a nod to Brynjolfsson and McAfee, Salesforce has broadened the culture quest to encompass as much of the outside world that’s relevant to its mission as possible.
They now talk about the Ohana, a Hawaiian word for family and like any well functioning family, they concentrate on the success of their members. This translates into the vision of Salesforce’s Trailhead as a training vehicle for users but more broadly as an approach to helping people develop the skills needed to secure good paying middle-class jobs.
Fundamentally, Salesforce may be a very successful technology company but it is also a strong culture play. In fact, the company and its products apply McAfee’s digital disruption analysis well. Products like Einstein and the Analytics Cloud help customers to grow into a world of relationships dependent on analysis and statistics rather than gut instinct while simultaneously offering a vision of a culture focusing on the customer and the employee.
All of this came into focus at TrailHeaDX conference in San Francisco. Trailhead, the product, is a self-paced learning and certification environment that teaches all levels of users about the Salesforce platform, Lightning. The platform offers users ways to develop and maintain systems based on no code, some code, or a lot of code depending on the task and the user’s ability.
But more than this, the digital disruption has enabled app developers to take much of the work out of being a customer. We used to talk a lot about the customer experience until we learned that customers value plain old vanilla competency in their dealings with us and not a grand show. It was a subtle change and we discovered we can only be really good at the blocking and tackling if we can anticipate customers’ needs which exposed the need for AI and ML. By successfully anticipating customers we can shorten the interaction time and demonstrate our competency.
But note that this change requires building capabilities into software which is not trivial and is, frankly, best done by the software itself and not a coder. That’s why the platform has become such an integral part of any software vendor’s arsenal. It’s also why something like Trailhead has become a vital part of Salesforce’s overall offering.
My two bits
It all fits together but we aren’t at our destination yet. The digital disruption should be considered as the mountain we need to climb before we get to the promised land. Platform technology frees us by generating running code and splicing together analytics, process flow, and quite a bit more. With our new freedom we can devote more resources to dealing with the interpersonal parts of customer relationships that people are good at and machines are not. It would be a mistake to think that we can reap a technology dividend by simply removing people from all of our processes. That’s why, to do the people part we need a people focused culture within a business and this includes the people we call employees.
So, in my mind, TrailHeaDX was a lot more than a developers’ conference. It certainly was that but if that’s all you got from it, next time bring your boss and culture visionaries because even if they can’t write a line of code, the culture part is large.
Salesforce announced today that it had finalized its acquisition of MuleSoft a company specializing in software integration. The companies announced their intent back in March raising eyebrows when the price of the merger, $6.5 billion, was announced.
The cost of the acquisition is roughly two thirds of Salesforce’s current annual revenues and is exclusive of other mergers that the company has engaged in whose prices ranged from millions to billions. The announcement caused a fair amount of wonder and consternation in some quarters because of its cost and because MuleSoft was seen as, forgive this please, a one-trick pony.
Fair enough, but one can also say that the price reflects value pricing for the technology and not simply a more familiar cost-plus-some-profit-margin, for a very good reason. Companies buy other companies as a short circuit for conducting costly and time-consuming research and development and that’s where the value pricing comes in. Buying a company drastically shortens time to market.
Salesforce is one of the companies in the vanguard of the cloud computing revolution which, in a few years, will leave us with a global information utility that looks superficially like electricity or telecommunications but will be so much more. We’re already seeing the outlines taking shape as multiple vendors continue to deploy scores of datacenters around the world to handle the load.
This should be seen as a break with our information technology past when we relied on a corporate datacenter or a small regional cloud infrastructure. It is the commoditization of information and the crowning achievement of the post-World War II evolution of the information industry.
So back to MuleSoft. In a heterogeneous world with multiple competing and sometimes cooperating information utilities the need for integration is assumed. No matter how any vendor tries to convince the world that it should just run every app it makes, there will always be a need for integration. Moreover, our patience with the integration process will continue to decline. Salesforce has now built up an Integration Cloud for that contingency and it looks like MuleSoft is an important part of it.
As for cost, there was an article in the business press recently comparing management styles that focus on cost vs. those focusing on opportunity. I don’t know where it is but the important part is that those who focus on opportunity do better in the real world than the others. So in my mind the question for all parties both inside and outside of Salesforce isn’t the cost of the acquisition but how it will be used. We’ll have to wait for results but Salesforce’s track record is pretty good in this regard.
A couple of books ago I wrote about customer loyalty and how to get and keep it. The book was slightly ahead of its time, mostly because it’s easier to write books than code but also because a fair amount of research needs to happen before you write the right code.
My research convincingly showed that a customer’s experience drives engagement which in turn drives loyalty. There were examples of companies and their executives who tried to shortcut the process but found they couldn’t do that and get the desired results. Their idea was to ask customers to prove their loyalty by endorsing a product or brand prematurely via the net promoter score (NPS). The obvious problem was that no one in their right mind would do that. Nevertheless, some people performed as asked but in such small numbers it didn’t matter. In the process they managed to trash the reputation of the NPS which helped exactly no one.
One of the findings that I am most fond of is that customers highly value good execution on the bread and butter, run-of-the-mill, quotidian tasks. The data blows away the myth that customer experience must be something that wows customers. In truth, they don’t often get wowed; your ability to hang on to them stems from not wasting their time.
A great takeaway from this finding is that if we can systematize and regularize our interactions with customers making them efficient and reliable that’s often all it takes. And loyalty? That’s demonstrated when customers say nice things about you in your community or elsewhere or help others with questions, not necessarily when they buy more stuff because of the points they get.
Remember I mentioned writing the right software? Armed with this knowledge we can make software that handles the efficiency and reliability and sure enough, customer interaction software is becoming the next battleground among CRM vendors.
Spoiler alert, customer interaction software won’t get you to nirvana because there are other niches opening like customer identity. I’m working on a white paper to address this but for now let’s take a look at interaction.
Regularizing the customer experience is a good place to start for without that nothing else makes sense. You couldn’t collect and analyze data on wildly different experiences hoping to glean anything predictive from it. Jobs number 2 and 3 involve bringing disparate things together. First you need to provide omni channel communication, being able to address customers on the channels they on which they approach and then you need to bring together data that might be siloed in different systems.
In many ways these are three things we’ve been striving for in CRM for about a decade the difference now is that each now connects for a higher purpose. With all of this it’s possible to track customers across channels and lifecycles and make on-target offers by relying on a better understanding of customer journeys.
I was briefed recently on Salesforce’s Interaction Studio which combines these capabilities and came away impressed with the centrality of Journey Builder in coordinating all of this. Defining customer journeys, whether for sales or service, is elemental to standardizing and regularizing customer experiences but it’s not enough. You still need to connect what you know about the customer (your data and information produced by analytics) with your communications channels so that you can address customers (saving wear and tear on the customer) in the channels they decide are best.
That’s what the product is designed for. Standardizing journeys across channels and delivering useful information. All of this combines to enable a business to make good on its bread and butter promises. In the process customers feel well served, not spammed. There’s also much greater likelihood that the positive experience engages customers as they wish to be and that completes the engagement cycle. If engagement drives loyalty, then the heavy lifting is over for now at least.
My two bits
It’s nice to see experience and engagement realized through CRM. A lot of credit goes to the analytics engine in the background that acts on customer data as well as the machine learning algorithms that enable correct next best recommendations. All of that wouldn’t be possible without journey mapping to standardize processes.
It has taken a while to get all these moving parts in synch, but we’re not done. Time to start looking into how to protect identity so that suggestions and offers only go to customers when they’re wanted. This will build on the not wasting time issue. For this we might need a third party to manage personal data. Historically we haven’t done much in identity but it’s time to reconsider.
We can’t really expect the individual social network vendors to do that because they’re closed systems and it would result in either massive redundancy or chaos from competing systems and possibly both. There are also bigger issues involved like who pays to maintain data and how do we keep it safe? That’s why interaction and identity are some of the leading issues of our time.