Oracle open World 2006

You have to give credit where it is due, and today that means kudos to Oracle (Nasdaq: ORCL). More than 40,000 customers, analysts, press and others have converged this week in San Francisco for Oracle Open World (OOW), the annual user conference. It is mind-boggling to think that the 40,000 people in San Francisco represent only a small portion of the people all over the planet who know the company’s products and use them in mission-critical business processes every day. More than that, it is a tribute to one man’s vision of what information technology needed to become that started more than 30 years ago.

I attended the conference wearing my CRM hat, but below the hat there were plenty of memories of relational database technology wars — and a revolution the wars caused in computing that led directly to the jobs many of us have today. I went to the sessions and heard the keynotes and came away with these observations.

A Tale of Two Businesses

Oracle is a giant company with two businesses. Some would say it could easily be two companies, and I might agree, but I won’t quibble. Despite its size and obvious resources, I don’t think I would want to be running Oracle at this juncture, because both of its primary businesses are in the process of being disrupted by changes brought on by on-demand computing.

The first business consists of the database and what many people call the stack — operating system, database and middleware. This stack will continue to be important indefinitely, at least until someone figures out how to do away with databases all together — fat chance.

The database business is changing significantly, because on-demand separates the customer from the database vendor. The on-demand customer today hardly knows — or cares — what’s behind the application service that is running in the browser, and that’s equally true of the operating system and server hardware. Linux, Unix, Windows? Who cares? Ditto AMD (NYSE: AMD) or Intel (Nasdaq: INTC), and ditto again Oracle, DB2, SQL Server.

Trying to maintain differentiation for any of these companies is going to be tough sledding as long as they are contending for hearts and minds in the IT department of individual companies. It was interesting to see the word "choice" bandied about at Open World as in choice of hardware (AMD was a major sponsor) and operating system. In that logic though, it is hard to see how choice stops at the database, and it is hard to see how Oracle’s database business will not be disrupted by low-cost providers — and if not low-cost providers, then by providers of on-demand solutions.

I think Oracle could stem the tide if the company takes a more aggressive position as the premiere provider of infrastructure for on-demand solutions. At the moment, the company positions itself as the backbone of the data center, and I think it could offer a strategy of being agnostic about whether a data center serves one or many companies. Such an approach might bolster its facilities management business too. That’s a manageable shift that I think the company will begin to make as on-demand gets more traction.

The Other Side

At the same time, it doesn’t look like a fun ride to be on the application side at Oracle, either. The company has enormous inventory of disparate applications that it acquired in the last several years. It strikes me as a flawed policy to build a platform — i.e., Fusion — that knits them all together. While building a platform architecture is important going forward, I hope the architecture will not be constrained by the multiple demands of making all that legacy code work together. It would be far better for Oracle to pick the winners and announce sunset strategies, where needed, and migration paths for its customers.

Most importantly, I think the time and resources currently being invested in redundant applications and making everything work together would be better spent on building the applications of tomorrow. One thing that came through loud and clear to me at OOW was that the current batch of products are reaching the ends of their useful lives. The CRM applications were built for a marketplace that is receding from our view. They were made for situations where vendors had the upper hand; where major new products were being introduced, and vendors were fighting for market share.

In a word, contemporary CRM was made for the part of the lifecycle that Geoffrey Moore called the "tornado" phase. That phase is gone. We are now living in a phase that Moore dubbed "Main Street," and the tools needed for selling, marketing and service on Main Street are vastly different from what we now have. At OOW, the words "customer experience" were sprinkled into a lot of CRM discussions like band-aids. While paying attention to the customer and the customer’s experience are valid and important — even necessary — the juxtaposition of the words and the late 20th century applications seemed strained.

In applications, as in infrastructure, it seems to me the market place is in need of leadership that few people or companies are providing. More than anything, the industry could use an injection of thought leadership and vision. What passes for that right now are discussions about information overload, choice, platforms, and the like. All of these ideas are important, but they are only tactics in a strategic vision that leaders like Oracle should be articulating but are not.

Coming Together

Give Oracle credit for bringing together Peoplesoft and Siebel. In only a few months, they have made three disparate companies with different cultures work together, and Oracle has begun delivering on many of its promises. Nevertheless, there is some heavy lifting ahead and some, perhaps painful, decisions to be made. If those decisions are made in time, we could see Oracle move into an even more dominant position. If not, this technology colossus will stagnate — and the market will look for leadership elsewhere, and the cycle will begin anew.

In a way, this all reminds me of the George H.W. Bush administration, in which strategic vision was derogatively referred to by the President as "the vision thing." When it came time to renew the lease on the White House, the voters went with an upstart governor from Arkansas who had multiple flaws — but lack of vision was not one of them.

The Power of the Incubator

I keep thinking about the idea of this incubator that Salesforce.com is launching.  As you know I am a student of inflection points and I think the incubator potentially represents a very big one.

There is a popular trend in economics to look at economic systems on the same plane as living ecosystems and there is a lot of merit in that line of thinking.  When I think about inflection points I associate them with something called punctuated equilibrium, or PE for our purposes, an idea brought forward from biology into economics.  The basic idea of PE is that in a complex adaptive system like an ecosystem or an economy, things stay the same for long periods of time.  When change happens it tends to be quick.  The change resets the equilibrium at a different level and we go on.

The definition of quick is all over the map.  Living systems inhabit geological time—millions or billions of years—and change seems slow.  In comparison, economies live and breathe more on a human scale.

Punctuation in this case can be rather dramatic.  The flowering and decline of the Internet was extraordinarily quick in my book and that’s the nature of PE.  On one side of the equilibrium there was no e-commerce, no search engines, no basic Web based information, then there was and no one can imagine going back to the way things were. 

I think the introduction of an incubator for on-demand applications could foster the same kind of dramatic change.  I can’t imagine there will be only one incubator; there is simply too much money to be made and VC’s will be all over the idea. 

Innovative ideas may be in short supply but the success of an incubator might not rest solely on new product innovation.  Think about it, if the business world decides to make a headlong rush for on-demand computing, savvy developers won’t have to invent the next new thing, there will be plenty of opportunity for entrepreneurs to reinvent the infrastructure that is out there right now.

Although Salesforce.com has, at every opportunity, shied away from saying they would build the next ERP systems that only means the field is open to some other innovators.  NetSuite is one example, but they aren’t within the Salesforce orbit and the market can stand to have some competition.  It’s not unlike the re-invention of computing after mainframes gave way to client-server.  Suddenly, new companies were re-inventing things like networking and accounting systems that had been doing just fine before on larger computers.

What all this potentially means for the competition is significant and a little scary.  After years of pooh-poohing the idea of on-demand, many of the biggest names in software need to put their on-demand programs into high gear and that will be very hard to do.  As I have mentioned before, change for the big guys will require change not just at the technology level but at the business model level.  For public companies that is a hard but not impossible trick to pull off though few succeed.  (Separate idea, might the next move in finance be something to support companies in the position of making a business model transition?)

The existence of incubators, though, adds even more urgency to the task for conventional software companies.  In a punctuated equilibrium environment incubators are like steroids for the change process.  Keep in mind that the incubator idea put forth at Dreamforce was not simply to accelerate application development but leverage every aspect of company development.  The incubator will provide access to capital and some smart people to help with strategy and marketing.

The key ingredient, if used appropriately, which other incubators historically did not have, is the idea of a pervasive, multi-purpose platform that not only enables application development, but which is also an architecture that enforces standards to the point that unrelated developers can build systems that work together without much integration effort.  The practical effect is that these entrepreneurs will be building modules that have integration in their respective DNA’s.

For large traditional software suppliers, incubators hold out the possibility of death by a thousand paper cuts.  In a nutshell, that’s punctuated equilibrium in the making.  For the conventional companies whose drive has been to build everything in-house and to avoid integration where possible, this is a serious threat. Amalgamations of smaller companies with compatible products (read modules) can band together to deliver complex and customized solutions that are less expensive than conventional monolithic products.  If you have any doubt, just ask any seven year-old with a box of Legos.

Dreamforce highlights

There are so many things that I could write about Dreamforce that I have had to quickly conclude that it won’t all fit into one column and I will be writing about it for some time to come.  I bet I am not alone.  Here are some ideas that I thought were important.

The big announcement was Apex, Salesforce.com’s programming language that will soon enable developers to customize any aspect of the on-demand service or applications built on it.

What Apex is

Apex reminds me of a mini-computer programming language.  The minis were never known for slick displays.  Most of the applications I used ran in teletype mode meaning that a line of text scrolled up from the bottom of the screen to prompt the user to do something.  The programming language was really a data manipulation language that let developers control flat files or hierarchical databases to add, change, or delete data items or whole files.  SQL came along later and did the same thing for relational data.

At its core Apex is like one of those languages.  You are not going to use Apex to build a CAD system or to build the next great UI.  Frankly, that’s what other parts of Salesforce.com’s development platform are for.  In the new Salesforce.com paradigm you use graphical tools to build applications that behave in a well defined way within the on-demand service.  The programming language is only used when you want to alter the behavior of the system as it relates to data.

So, for example, you might build a screen with a standard button that executes specific functions but the functions supplied do not meet the full needs of your organization.  In Salesforce.com’s world, Apex would be used to customize the functionality associated with the button.  Apex is therefore rather limited and that’s a good thing.  Developers can use Apex to change the behavior of their applications relative to data, period.  Salesforce.com tells me that the changes will be associated with the application and upgradeable along with everything else when Salesforce upgrades the service.  They tell me that developers will not be able to build things that could crash the service.  It sounds logical but the proof of the pudding is in the eating and that means wait till Q1’07 to see it live.

What customization means to on-demand

Salesforce took their on-demand service about as far as you can go given there was no facility for true customization of the applications.  Until the Apex announcement you could extend applications, build small applets or even large applications but you had to accept the limitations imposed by an environment that let you configure to your heart’s content, but you couldn’t do something truly custom.  Now you can and that is the difference, and it is significant.

When Apex is released it will provide the missing piece that on-demand needed to be fully competitive with traditional application development and that will have profound implications for the industry.

As with every other aspect of on-demand, it will represent an order of magnitude reduction in the cost of application development.  It means more people will be able to afford to build and sell applications commercially and it means that more new applications will enter the market.  When costs drop like that, the existing order gets shaken pretty violently. 

Just as the rapid acceptance of the World Wide Web layer on the Internet spawned the dot.com boom, this development could spawn a similar but less explosive boom.  You might call it an echo of the original boom in the same way that the children of the baby boom generation carry that same designation today.

Making a case for on-premise

Order of magnitude cost reductions also pose an interesting problem for established traditional software companies.  If comparable functionality can be built and delivered on-demand for a small fraction of the cost of traditional business applications then conventional software companies are now going to have trouble explaining how they deliver value at much higher price points.  There might be valid reasons for sticking with expensive on-premise solutions but justification will need to be made on a case by case basis to increasingly skeptical boards of directors who will be looking to redeploy assets within a budget.

There are two responses that I can see conventional software companies making.  The first would be to deny the importance of the announcement.  It makes a certain amount of sense to deny the importance of Apex and on-demand—after all the only thing we have so far is an announcement.  We need to see the product.  But if the product arrives as advertised, denial will not be an option any more.  Companies with vast investments in enterprise software will need to scramble to make their products into on-demand solutions.  That won’t be quick or easy and enterprise customers won’t likely want to make a wholesale swap over night, so look for a transition state to exist that could last for a decade or more. 

The example I always look to in a case like this is mainframe computing.  Mainframes have survived from the green screen era, through client-server, and well into the Internet era but the direction of their market share has been down for years.  Conventional software will travel a similar path because some applications are simply too big to move or their owners are in the middle of the depreciation cycle and can’t abandon the investment.

On the other hand, and this is the scary part, the decline of on-premise software might mirror the decline of mini-computers which was a faster and more violent end.

But wait there’s more

Perhaps the most far reaching announcement was the fact that Salesforce.com is opening an incubator for emerging companies.  There were 157 partner vendors on the Dreamforce show floor and many of the applications on display were pretty cool.  All of the vendors had built on-demand applications that enhance the functionality and usability of the primary service.  Each of those companies represents an investment in capital, other resources, and time for entrepreneurs with good ideas that they want to bring to market.  When Salesforce.com opens its incubator (in a former Siebel building on Route 101, ironically) it will effectively move some of that entrepreneurship in-house. 

The importance for entrepreneurs and competition alike is that an incubator industrializes innovation and new ideas and solutions come pouring out of an incubator rather than dribbling into the economy.  The pace of innovation in on-demand is about to accelerate.

The incubator sounds like a cool idea.  If you can come up with $20,000 for a year, you can get your own cubicle, free access to the Salesforce.com on-demand development tools and you can try to make your dream come true.  Salesforce.com is not stopping there either, the incubator will also offer emerging companies help with things like capital formation, marketing strategies, and more.  I expect the incubator will be one of those things that drives adoption of the model as well as a bunch of new ideas.

At the beginning I said I would have to write more than one piece on Dreamforce and I plan to.  This piece is already too long and we’ve only scratched the surface.

What I’m looking for in San Francisco

A lot of people will descend on the Moscone Center in San Francisco this week for Salesforce.com’s annual user meeting, Dreamforce.  I think I have been to every one of these events and this year marks a turning point.  Previous meetings have been held in local hotels and other venues around the city but this year there is no denying it, the event is big enough to occupy at least a part of the city’s biggest hall. 

By the time you read this it will be almost over and I may have filed another story depending on what I saw and heard, but I thought it would be good to at least get on record some of the things that I will have my eyes open for while there.

I think the big story will continue to be AppExchange.  No offense to the applications, but there are a lot of CRM applications these days as well as a lot of on-demand applications, but there are very few with the integration capabilities of the Salesforce.com suite and I think that’s where the emphasis will continue to be for the foreseeable future.

There has been a lot of buzz about platforms and integration lately and the reason I think it’s the story is that I have not seen or heard of many solutions that take much advantage of integration from the perspective of the customer.  There is a lot of talk about the technology but not much about the business benefits.  In this case I believe the benefit is found in support for end-to-end business processes.

Over the last week I have taken two or three briefings per day from various vendors who have integrated their solutions with AppExchange.  Most of the briefings were pre-briefs meaning that the information is under embargo until formal announcement at Dreamforce.  That’s fine I am not going to reveal any company’s secret sauce recipe here.  However, it there was a theme running through the briefings it was that virtually every vendor wanted to give me the details about what the integration did and what their products do as technology instead of solution.

What’s wrong with that, you might ask.  There’s nothing wrong with it except that it’s so 1999 or 2005 or 1980.  The point is that these vendors now have the mother of all integration facilities and all they can come up with is a story about how well they work with the SFA tool.  It’s like going into Ben and Jerry’s and ordering vanilla.  Why?  From what I have seen, the industry has changed again and if all you can come up with is bi-lateral wonderfulness, you’re not thinking hard enough.

With integration solutions being so ubiquitous, there is a lot more than can be done than these simple amalgamations.  Mash-ups gave us our first glimpse of what might be possible when a database of addresses got married to Google Maps.  Instantly you could have a mapping of your customers, service calls—whatever.  That was nice but it’s really table stakes.

One of the big ideas that I hope will come out of Dreamforce is what happens when you define an end-to-end business process and then look for specific applications that you can string together via AppExchange (read integration technology) to produce automation for all the points along the way.  I don’t think that’s very far fetched and I have seen one or two vendors iterating towards that outcome.

I will call the new solution class, when it appears, meta-applications.  The difference between meta-applications and traditional best-of-breed approaches are several.  First, best-of-breed implied a couple of applications working together and second, the applications have usually been brought together at the customer’s expense by high priced integrators.  No matter how many times an integrator put front and back office applications together the engagement always seemed to be happening for the first time, with all the attendant costs and risks.

Meta-applications will be different because they will be integrated by visionary vendors (on their nickels) who understand the larger business processes involved and who know that their individual solutions alone do not suffice.  Meta-applications will be symbiotic groupings of applications and vendors to offer out-of-the-box integration of technology in support of specific business processes.

I think the emergence of meta-applications will be an important next step in the disruptive innovation that on-demand computing has become.  With that innovation, the cost differences between on-demand and on-premise solutions will continue to grow and the decision processes that buyers face will become even more stark.

So that’s what I’m looking for in San Francisco, integration at the business process level, and maybe some good sushi.

Remember strategic software?

I was having a discussion the other day with a client about changes in the software industry and we got to talking about different trends when the subject turned to the current tendency of discussing business software in terms of the size of the company that uses it.  “Enterprise” software has certainly gotten a lot of play though the “SMB” and “mid-market” descriptors have also been well aired out and in aggregate those two groups might outspend the enterprise today. 

Interestingly, when I ask people what came before the small-medium-large connotation their faces go blank, but really, it hasn’t been that long since vendors described their solutions as “strategic”. 

Remember strategic software?  It was the stuff that made big enterprises run and most importantly it almost always ran on a mainframe.  Big iron.  Strategic software usually encompassed accounting, finance, and manufacturing applications and from a certain myopic perspective, if the C-level officers wanted it, then it must have been strategic.  In part, though, using the strategic descriptor was also a ploy to prop up mainframe sales at a time when other less expensive platforms were coming on strong. 

At that juncture there were a lot of computing choices coming to market such as mini-computers, and servers and networks were beginning to make themselves felt though real computer guys thought of them as toys.  Well, no one could stop the eventual shift to smaller and less expensive computing and the software that ran companies eventually had to run on all sorts of platforms.  Wordsmiths had to retrench and strategic became enterprise and today we have what followed that.

Nothing is permanent in this industry and the idea of enterprise software hit its zenith in the late 1990s when lots of companies finally had to swap their mainframes with two digit date tracking for new systems that could handle the millennium change.  As the Internet took off, the focus on small or emerging companies was the fashion and every kind of software imaginable was thought to be useful to an enterprise and our current small-medium-large regime took hold.

What’s the point of all this?  Well, I think that the idea of strategic software is in need of rehabilitation, a new coat of paint, and a full tank of gas.

While enterprise software has been in vogue, the easiest way to sell it has been to show that it saves money.  Selling that way simply meant proving an ROI any way you could.  Now, don’t get me wrong, ROI is important, sort of, but it’s also rather tactical in many cases and in my humble opinion, we have over done it going from a focus on the strategic to a focus on the tactical.  Focusing on the tactical is not a bad thing either, in fact, it made a lot of sense at one point. Once the big strategic issues are settled a market will naturally settle into an era of tinkering around the edges, looking for a few percentage points of improvement here and there.  I think that era is over though.

We are in new era in which strategy is vitally important.  This time strategy is focused on retaining customers and driving loyalty rather than gaining new market share. In this new world there are lots of software choices, many opportunities, and too many potential pitfalls.  As I have said elsewhere, the market is different and so is today’s customer and the business processes that support the new reality cross departments and areas of responsibility.  The software that supports these processes must also cross those boundaries and even more critical, it often must cross vendor divisions too.

Crossing the lines that separate vendors has never been easier or timelier.  No software vendor today can possibly provide world class solutions for every business contingency.  There are new vendors and new technologies growing up in the cracks between the conventional CRM stovepipes and they represent the missing parts of end-to-end business processes. 

A growing number of integration solutions and platform providers is making itself felt and with that comes the opportunity to integrate what I refer to as meta-applications.  In earlier times when you wanted to integrate solutions from two vendors for the purpose of providing more of an end-to-end business solution to your customers you bought the company, but not any more.  Today, you can achieve the same effect by being standards based and by working with other vendors that adhere to the same set of standards, and that is becoming easier. 

The state of the art seems to be mash-ups between application vendors and things like Google Maps but I have a feeling that in a Web 2.0 world we will see more exotic—and strategic—combinations between multiple vendors as they define new business processes.  That’s why I think strategic software needs to be rehabilitated.  The difference this time is that standards and platform technologies are making it possible for any company to map its strategy into software with the assurance that there will be vendors out there who can make the strategy reality.