Vinnie Mirchandani

  • April 1, 2019
  • This is a guest post by friend Vinnie Mirchandani. Vinnie has been a fixture in the independent analyst community for many years now after starting his analyst career with Gartner. Vin comes from the ERP side of enterprise software and his many years of experience have enriched how we see both front and back offices. I can’t say I agree with everything he offers up, but Vinnie has a great way of making you think and that’s an important part of any analyst’s job. Follow his at Deal Architect.

    Take it away Vinnie!


    It’s heady times for SaaS – cloud application software. Salesforce is entering its third decade with tremendous momentum. It only had $1 billion in annual revenues by end of its first decade and it is expected to have $16 billion by the end of the second. Talk about a rocket ship! Workday, ServiceNow and many other SaaS vendors are doing similarly well.

    However, in writing my recent book, SAP Nation 3.0, I researched the enterprise apps market over the last two decades and I saw several red flags around cloud applications.

    Way too many “white spaces”

    After two decades of cloud applications (NetSuite and Salesforce were born in late 1990s) if you look at a grid of applications by industry, by geography there is only 20% or soin the cloud. Most cloud apps are concentrated in HCM, CRM, accounting areas, not operational areas or industry functionality. Even there, if you look for support for Brazil or China or the Czech Republic your choices drop off very quickly. These industry and regional white spaces won’t last forever. We are seeing startups target them, in industries like financial services, big banks are developing solutions to sell to others. The opportunities are limitless, but SaaS vendor investments have been grudging.

    Over million on-premise customers are not budging

    Around the world, there are over a million on-prem ERP, CRM etc., application customers – running software from SAP, Oracle, Infor, Unit4, Microsoft and others. They are stubbornly not moving to modern cloud, in-memory solutions – either those of the incumbent vendors or those from SaaS specialists. These on-premise systems are increasingly a recruiting liability for customers. Many are heavily customized and are security and compliance risks. Yet, these customers are shrugging at those risks.  There are all kinds of opportunities to target and migrate them. In the book, I call it “titling the bell curve” to turn these Bystanders into Risk-Takers and Modernizers.

    Platforms are not generating vibrant ecosystems

    These days, every vendor appears to be releasing their own version of PaaS. They do fine in helping customers develop minor customizations. However, vendor stores with partner apps using that PaaS are surprisingly empty. Even after a decade, the platforms around enterprise software have shown limited success, especially when you compare them to the vibrancy of consumer tech platforms like the Apple iOS store or Fulfillment by Amazon, which were started around the same time. There are now 20 million Apple developers creating apps and in another big milestone, Apple has since paid out over US$100 billion in revenue to those developers. As much as 90% of certain product categories, such as patio furniture, sold on Amazon come from third parties.

    Enterprise PaaS needs to show similar success – and publicly disclose similar metrics, not just brag about the number of partners they have recruited. After a decade of, we should expect to see many more startups like Veeva Systems and Vlocity. Veeva went public within 6 years of its formation, and Vlocity is doing well in several verticals. However, they are more of the exception than the rule. Other SaaS vendors can show even less success.

    Public cloud economics are losing their edge

    SaaS was a huge step forward for software economics. You used to buy software from one vendor. You would get hosting from a data center vendor. You would get application management from an offshore firm.  You’d do upgrades with the help of systems integrators. Salesforce and other SaaS vendors packaged all that into one buy and delivered SLAs across those previously disparate contracts. But the economics have not evolved enough. When you give a vendor a three or five-year contract, you are entitled to see continuous improvement.  It’s called Six Sigma benchmarking. In the auto, aerospace and other industries, they’re constantly expecting 2%, 5% improvements a year from their suppliers. In outsourcing, we have seen CMM Level 5 performances. That is something SaaS vendors will increasingly be expected to deliver.

    An example of that thinking comes from Zoho One, a bundle of their applications priced at $30 a month an employee, or $75 a month on per-user basis. It was launched in 2017 with 35 applications; it now has over 40. More apps will soon join the bundle. A dollar a day per employee is a compelling value proposition, when the functionality keeps growing exponentially.

    The SaaS model is increasingly looking like the on-premise model as large systems integrators burden customer costs with their implementation and on-going budgets. In its first decade, the Salesforce ecosystem had many of the smaller “born in the cloud” SIs like Appirio and Model Metrics. It still has a few like Slalom, but the bigger SIs have muscled in. Nothing wrong with that, if Salesforce can make them bring plenty of automation, remote delivery and other innovations. In my book, observers point out that the ecosystem around SAP cloud solutions like SuccessFactors is like the ‘Wild West”. That’s not an encouraging trend.

    Many customers were really pleased with their first-wave SaaS projects. But we are entering a new phase. The opportunity to convert plenty of on-prem customers remains. However, SaaS functionality has to grow across industries and global regions. SaaS economics need to be sharpened, and PaaS stores need to become more vibrant.

    Who will step up? It should be an exciting next few years.


    Vinnie Mirchandani (@dealarchitect) is an advisor to tech buyers, analyst on enterprise tech trends and author on technology innovation trends. SAP Nation 3.0 is his 7th book. He blogs at Deal Architectand New Florence. New Renaissance.

    Published: 5 years ago

    51ja14ziosl-_ac_us160_Automation has a habit of killing jobs and this has been true since the Industrial Revolution though it seems like we’re discovering this truth all over again. We easily forget when we only focus on the job creation aspects of automation and that usually gets us in trouble.

    Since the IR there have been five distinct economic waves lasting between 50 and 60 years. These waves have been named after the late Russian economist Nicolai Kondratiev and are now referred to as K-waves or the Kondratiev Cycle. With an economic cycle this long very few people alive and working remember the last transition so of course it feels new.

    The first Industrial Revolution revolved around water wheels and later steam power, iron, and textiles; it gave way to an age of steel and heavy engineering; then petroleum, electricity, cars, and mass production; today we live in an era of information and telecommunications. I estimate this era began around 1970 so it’s getting long in the tooth.

    The first half of a wave is wonderful. A new technology takes hold and drives the economy, jobs are abundant even for the unskilled, inflation kicks up a notch or two and things seem pretty good. Inevitably though the second half kicks in and some of the earlier gains evaporate. The focus now is on gaining efficiencies from earlier innovations and product line extensions.

    In the second half over-qualified people have a hard time finding a job, wages are flat, and capital reaps significant returns on investments made much earlier in the cycle. Sound familiar? But the good news is that if you know where and how to look you can see the next wave forming just as sure as a surfer can spot the next big one. That’s the nexus on my friend Vinnie Mirchandani’s new book, Silicon Collar—Dear reader please be aware that I am quoted extensively in the book but that I’d be writing this piece regardless.

    In Silicon Collar, Mirchandani gives us a surfer’s-eye view of the next wave or at least the candidates for next wave. At this point there are many pretenders competing for the mantle and often the winner is hard to predict. Our current era, Information and Telecommunications has roots in the Space Program and the race to the moon. If you were alive then you would have bet anything that the next big K-wave would have had something to do with flying cars and many people predicted this but they were wrong.

    IT and Telco were still embryonic in the 1960s and nothing like what they’ve become. Telco was a sleepy oligopoly, a regulated monopoly, printing money and delivering so-so service. Computers were things that required climate controlled rooms and lots of paper to perform really trivial tasks. Few people predicted that the miniaturization required to place a guidance computer on a space ship would have such far reaching effects, but it did.

    That’s my look backward but Mirchandani tries to peer into the future. In this meticulously researched and reported book, he interviews leaders in about 50 new companies/industries and lets them tell their tales of the future. It’s an optimistic look at a future that far too many have glanced at with fear and suspicion rather than optimism and curiosity. You can’t blame them for their insecurities. We do live in interesting times. But our strength and the strength of Silicon Collar is its hopefulness and inquisitive nature. It’s worth reading even if you think you already know what the future will look like.

    It might surprise you because you might find some backwater idea that only has a low power proof of concept that you think couldn’t possibly go anywhere.


    Published: 7 years ago