May, 2007

  • May 31, 2007
  • Will it suffice?

    The line between a disruptive innovation and an innovation without a practical use is very thin and it is a fascinating area to explore. I have probably said it before, but these things can only be seen in retrospect. Did the innovation take off and become a permanent part of our lives like the automobile? Did it become a fad that was discarded after a while like the hoolahoop? It all depends on getting those first critical early adopters and generating some buzz. That’s sort of what Malcolm Gladwell was talking about in his book, “The Tipping Point.”

    One of those moments/products was introduced this week by Microsoft. The Microsoft Surface is sort of a table that acts like a computer and has lots of wireless connectivity built in. So devices like digital cameras and music players can communicate with the surface simply by placing them on the surface of the Surface. Imagine this, you put your camera on the Surface and it extracts your pictures for viewing, sorting, ordering prints or whatever else you do.  Words don’t do this idea justice so take a look at this short video at YouTube when you have a chance.

    The Surface is a cool idea for bringing together people and ideas, perhaps a future iteration will be big enough (this one’s about 30 inches) to replace the whiteboard and all those dried up markers that accumulate in conference rooms.  I expect there will be surfaces in a variety of sizes and shapes to fit particular needs.

    For example, Gordon Bell, computer scientist and guru emeritus at Digital Equipment Corporation, said in an article in the New Yorker recently that homes of the future might be built without windows because this kind of surface could be put in place to provide whatever view we want. An interesting idea.

    More practically, I wonder if it might be time for Microsoft to form a strategic partnership with some national newspapers like The Wall Street Journal, NY Times, LA Times, Washington Post, the list goes on but it is finite. Newspapers have been suffering from financial problems as people spend less time reading and more time in front of the TV. Nevertheless, TV can’t cover news with the same depth that a paper does and our understanding of reality suffers from the tunnel vision that TV provides.

    Microsoft might be on to something with the Surface that could save old line newspapers and the professional journalism that supports them.  One of the capabilities the Surface seems to offer is the ability to drill down into whatever is presented, perhaps much like hyperlinks.  That drill down is the kind of thing that would take newspapers and their advertising to a new and potentially lucrative level.

    Imagine seeing an ad for a vacation and being able to tap it with your finger to get more specific information. The alternative today is to make a call or hit a web site and you still might not get all the information you want. There’s also the risk that you’ll simply forget about it and circle back later only to find that you’ve missed a deadline.

    For now, Microsoft has brought to market a very interesting device that I expect will become an important tool for a lot of different applications. The Surface just may be the first really new technology innovation of the new century but we’ll only know that for sure in hindsight.

    Published: 16 years ago

    I got an interesting e-mail the other day from a reader.   As you know, I have been writing about on-demand computing for close to ten years and the other day a reader sent me an email that I think sums up what a lot of other people are thinking.  The note read in part, “We’ve all read the same books, we all know who Clay Christensen is and none of this surprises us. So why are the big players letting themselves go down the same well worn path?”

    Why indeed?  The well worn path in this case is the slow retreat from a market when a disruptive innovation hits and a company has to decide whether to compete at that level or not.  The decision is never an easy one because there are a lot of false positives, situations that look disruptive but which are ultimately proven not to be.  If a company spent its time chasing every possible disruption in its space there would be neither time nor resources to do much else, so they wait and lose market share.

    In 1942 Joseph Schumpeter introduced the phrase “creative destruction” to emphasize the process of disruptive innovation and the need for companies to continually refresh their products and services or be left behind by competitors who do.  I love the entry on creative destruction in Wikipedia which says in part, “Schumpeter’s contributions are not generally included in most elementary economic textbooks, which focus instead on the theories of perfect competition and static supply and demand, models which Schumpeter claimed had little relevance to the real world.” 

    The Wikipedia selection pretty much brings us up to the present day software industry.  At some point, even the proverbial blind horse can see what’s happening and then the real impediment is revealed in the form of finance.  Shareholders and venture capitalists are never eager to scrap an investment in one business model in favor of another even when standing pat might mean slow death.  Often the only way forward is to straddle both worlds, but that’s harder than it sounds. Perhaps Quantum Mechanics provides the best metaphor here — you can be one or the other but not something in between.

    I spoke about this with my friend, Centive CEO Mike Torto, who pointed out the 800 pound gorilla in the room.  “If you’re a public company,” he said, “your stock price is based on revenue and profit and if you suddenly reduce your top line, investors don’t like it.”  I think that’s putting it mildly but I also think that part of the problem is latency in the shareholder realm.

    Still with all the emphasis on cost control in software and the popularity of on-demand you would think there would be a way to transition and that’s where latency comes in.  Torto is one of a handful of executives to have managed this high wire act but even he admits, “We didn’t jump on the (on-demand) bandwagon because it was popular.  We did it to solve a business problem.”

    Centive was a company with a conventional incentive compensation solution that appealed to larger enterprises because those companies were the ones that could afford to invest in such a system.  Nevertheless, in their quest to find a bigger market they began looking at alternatives.  The logic that worked for them involved finding a lower cost way to deliver their product to more customers, which inevitably led to on-demand but in the transition state, Torto acknowledged that it was not a cheap proposition.

    Centive’s odyssey took them down a path that included offering both on-premise and on-demand solutions all of which involved a lot of redundancy with mirrored departments such as sales, addressing the market.  As Torto said, “Eventually, we decided that it was too costly to run both models, we got to some important milestones for cash flow and profitability and then made the transition.”  Late last year Centive sold off its premises based business and it is now an exclusively on-demand company in a market that is red hot.

    Throughout the process Torto worked closely with his board to make the change — they challenged his ideas, sharpening them in the process, and he made sure they were up dated on plans and progress.

    I see many other companies today in various states of the transition.  For example, Brian Zanghi, CEO at Pragmatech Software, a sales knowledge and content company, tells me he’s about where Torto was not long ago.  Pragmatech is aggressively moving to deliver its on-demand solution (parts of which are already available) while continuing to run its premise based business.  Zanghi is at the point where he is evaluating his milestones but it’s an inexact science and, like any CEO, he has constituents such as a board of directors to convince on issues of timing.

    Many other companies are not that deep into the process.  Most are small and private and their transitions will not be front page news, if they transition at all.  I sometimes wonder if the transition is harder for a small company with limited capital or for a larger company with a large and vocal shareholder base.  For every Torto or Zanghi there are probably a hundred or a thousand CEO’s who never got past elementary economics and thus may have never heard of Schumpeter.

    Published: 16 years ago

    A miracle year comes along very rarely, though any single year could be one depending on the subject matter.  For example, as a member of Red Sox nation, 2004 will always be a miracle year for me because my team won the World Series after 86 years of futility — the Cubs are still waiting for theirs. 

    The idea of a miracle year, or what high-brows refer to in Latin as an “annus mirabilis” is usually reserved for more exalted pursuits.  Isaac Newton is widely described as having his annus mirabilis in 1665-66 when he worked out the laws of gravitation and some other concepts that led directly to our understanding of classical mechanics and informed our understanding of nature for over two hundred years. 

    Similarly, Albert Einstein had his in 1905 when he brought forth his theory of Special Relativity along with three other major advances in physics that laid the foundation for much of what followed in physics and engineering during the rest of the 20th century.

    It is always easy in retrospect to identify the significance of a year in which everything seems to change but it is much harder to point a finger at significant change while it is happening and the pace of modern life makes it both easier and harder for that process.  With so much change swirling around us, it is sometimes difficult to choose among major advances — it is said that human knowledge doubles every decade now, an incredible rate when you think about it.

    I would like to suggest that 2007 might someday be viewed as an annus mirabilis for the software industry though my reasoning is a bit unconventional.  On Monday morning the Wall Street Journal ran a front page story about a possible new relationship between and Google.  Monday was also the day the held its first developers conference in Santa Clara and announced its Service Oriented Architecture (SOA) on demand, which eliminates the complexity that comes with trying to build it all in-house.

    So, guess what issue had reporters ringing my cell phone?  Yup, the Google story that Salesforce CEO Marc Benioff would neither confirm or deny except with a smirk.  You’ll have to wait until June 5th I am told to get definitive information on the Google rumor. 

    You know you are having an annus mirabilis when the press can’t keep up with the news you generate.

    It’s an annus mirabilis alright.  After decades when nothing fundamental changed in the way that software was made, sold, delivered, and serviced, has managed to stage a series of introductions that, barring some major catastrophe, will reshape the industry permanently.

    You could say that on-demand computing caused a disruptive innovation nearly a decade ago and since then nothing else has upset the apple cart but there I would disagree.  The initial disruption caused by and its cohorts has been echoing throughout the industry and reverberating with every new announcement but the number and type of announcements that are coming together in 2007 make this year a candidate for the title of miracle year.

    In 2007, broke the connection between its on-demand CRM service and its application development tools to focus on application development and deployment for the software industry at large.  Moreover, the company had the good sense to ensure that it was not simply delivering a new technology to the market.  Importantly, it actually built an infrastructure that included a way for third parties to become involved in active development, a marketplace for them to sell and deliver their wares, and later on a mechanism for capturing revenue that parallels the conventional software industry in all important details. 

    It has also founded a high level school for new companies and entrepreneurs to set up their businesses, the Salesforce Incubator.  With all that has fundamentally altered the way we think about, develop, deploy and use enterprise software and the number and type of applications available goes way beyond CRM or even the front office for that matter.

    I expect the over the next 18 months we will see a workable ERP solution take shape on the AppExchange as well.  Many people have wondered aloud about why has not yet entered the ERP market and Parker Harris, Benioff’s co-founder and’s guru gave a few insights at a press lunch on Monday. 

    First of all, he said that the company has no interest or plan to do an ERP system. Harris also said that ERP would be a tough slog because companies are even more conservative about their ERP data than they had been about their customer data so there is still some convincing to do.  Last of all I think expects that development effort to come organically from the partner community.

    The other thing about an annus mirabilis is that it tends to destroy the old order.  We never looked at the sun and the moon the same way after Newton and Einstein gave us a whole new way to think about the nature of space, time and reality.  All the news has to make you wonder what they’re thinking at Oracle, SAP and Microsoft.

    Published: 16 years ago

    Sage Software is having its annual Insights user meeting this week in Orlando and I am filing this piece from there.  More than 3,000 partner representatives are in attendance which accounts for a broad array of products that include ACT!, SageCRM,, and SalesLogix on the front office side plus a blizzard of accounting and ERP products for the back office.

    Although it is not the only front office software company to sell through the indirect channel, it is the only one I can think of with such a complete focus on that distribution model which presents some unique challenges as well as some advantages for the company.

    A few years ago Sage was an oddity that didn’t even have rights to its own name in North America and for awhile used Best Software on this continent.  Back then there was no shortage of pundits who said that Sage’s days were numbered and that when the likes of Microsoft, Oracle, SAP and others got into the SMB space it would be lights out for Sage. 

    Well, the short story is we’re still waiting for that to happen and a lot of erstwhile competitors have come to relearn the old truth that the SMB market is a very different game.  In some respects it might be like the difference between chess and checkers but a good chess player can still get his or her clock cleaned by a checker player on a mission. 

    According to CEO Ron Verni’s Monday keynote, since 2003 the company has more than tripled its North American revenue to just under one billion dollars.  This year’s run rate puts it comfortably past that milestone and globally Sage has been a billion dollar company for some time putting it in elite company with the largest software companies on the planet.

    Unlike many other companies in the front and back office spaces, Sage has grown by acquisition and it has sometimes been challenging for the company to present a unified front.  The good news though, is that with time Sage has been able to blend its product lines and its operations into a cohesive group so that today it looks and operates much more like a company with a lot of products rather than a company with a lot of business units trying to make sense of its goulash. 

    The result is that Sage can credibly present itself as a front to back office solution provider in multiple and diverse vertical markets such as construction and real estate, medical office management and numerous other areas where its partners establish areas of expertise around ERP and CRM.

    Sage is by far not a perfect company and it will always have the challenges of a software company trying to build and sell products and with so many products to ride herd on the challenges will not likely diminish.  Sage also has to juggle the requirements of a diverse group of resellers which is no small task in itself. 

    What is interesting to me though, is the forward direction and vision that it is presenting to its partners.  In no uncertain terms the message to the business partners is that delivering traditional systems integration services is no longer enough.  Making sure all the green lights are on is not a way to make a living if you are delivering front and back office solutions to the SMB market.

    For example, one of the keynote speakers was Joe Pine author of “The Experience Economy,” who in the late 1990’s was perhaps the first author to advocate customizing goods and services into customer experiences.  In my mind there is no better setting for that message to take hold than a reseller channel which must compete against other providers — sometimes providers selling the same products. 

    Appropriately, two of the strongest themes at this conference are integration and customization.  A lot of other software companies are striking similar notes on either customization, integration or the ever popular customer experience these days but what I hear from them makes me think that these ideas are things that can be added on as a final step in the delivery process.  It reminds me of the old idea of inspecting for quality at the end of the manufacturing process rather than finding ways to build quality into products. 

    With its army of resellers whose livelihoods are dependent on delivering unique results for SMB companies, Sage can, in some ways, better focus on the customer experience and the customization and integration that make it possible.  In the end, the SMB space might be a classic example of the free market in action where numerous vendors make best fit solutions at specific low price points.  If anything, the partner channel is most likely Sage’s secret sauce and a strong barrier to entry for competition which accounts for why this company that grew by acquisition is such a tough and successful competitor.

    Published: 16 years ago

    Is Web 2.0’s upside capped? by ZDNet‘s Larry Dignan — A report from the Pew Internet & American Life Project reveals Web 2.0 usage is limited to an elite group while half of Americans find technology annoying to some degree. The report dubbed "A Typology of Information and Communication Technology Users (PDF, Techmeme discussion)" reveals that 31 percent of Americans are "Elite Tech Users." The […]

    If you want to know what’s going on in the Web 2.0 world check out this post from the Pew Internet & American Life Project.  It should surprise no one that Web 2.0 technologies — things like text messaging, electronic gadgets in general, instant messaging, music downloading and much more — are largely the province of a small percentage of tech savvy early adopters.  What’s interresting to me is that the data presented in this report is typical of early markets AND so is the implicit pessimism that adoption must increase or the movement will be stillborn.

    Of course!  That’s the way of the world in early markets.  Right now there’s a lot of technology out there that is more or less looking for something useful to do when it grows up.  And more to the point, we will soon discover, or we are already discovering, that some of this blizzard of technology will never reach the mass market but might do just fine in select small markets. 

    Only 15 percent of American adults are classified in this report as either "omnivores" or "connectors" i.e. people who really get use out of their devices while another 16 percent are very awaare and generally do tech cheerleading.  The rest?  They say they’re happy knowing there are more features on their devices than they know how to use and most of them agree somewhat with the contention that new devices in their lives need to come with human help to figure out how to set up and use.

    Blogs are a good example.  I forget how many blogs we have in the US but the number is beginning to mirror the number of cars per household and you just know that isn’t going to continue (as I write I even wonder who is going to read this). 

    In any event the market will do what markets are great at, namely figuring out what to keep and what to throw over the transom.  In this early stage there are a lot of Web 2.0/gadgets that look like they might serve useful purposes for communicating, organizing and helping make better decisions but as usual there is a user adoption issue standing between these gadgets and the companies that make them and mega profits.

    The more things change, the more they don’t.

    Published: 16 years ago