Briefing season
This is one of my favorite times of year because it’s announcement season, the time when all sorts of vendors book briefings to tell me about what’s new in their worlds. It has been a busy couple of weeks and I expect the briefing deluge to continue for the rest of the quarter.
I love this because I have a ringside seat to what’s happening and I get to see first, or at least early in the cycle, some cool new technology ideas. Some of the new ideas will stick like cooked spaghetti to a wall while others won’t. I write about some of the best but that needs to be tempered by the reality that it’s just my opinion.
I will have a few things to say about individual vendors in the next few weeks but the thing that got me thinking this week was how all this relates to a maturity model of the industry. Where are we in the life-cycle of CRM? Early-middle? Middle-middle?
The trouble with keeping score is that before CRM gets old it morphs into something else and though we don’t start over, we don’t seem to get any closer to an end either. That is as it should be because CRM is a process not any one product. Taking a maturity model approach tells me that we mostly end up somewhere in the middle, no longer neophytes in CRM but few of us reach the ninja state either.
This year’s crop of briefings can be divided into two classes — the really new and some good but unexciting announcements from the majors. I suspect that some of the announcements coming out of the big CRM and SaaS vendors lack a little in the oomph department because we’ve heard the announcements before.
Companies like Salesforce.com, NetSuite and Microsoft have all made official announcements in the last few weeks that were pre-announced or leaked some time ago. Salesforce announced a tighter integration with Google but that had been revealed a while ago when some of Google’s on-demand applications had not been released yet. Now we all wonder about a future merger of the two.
NetSuite intimated a while ago that it was working on a capability that would give its users access to company-wide roll up data across multiple countries and currencies. It was an announcement that lacked a little in sizzle but had plenty of steak. In fact, the official announcement was held back until the company could say it had more than a score of customers implemented. It was a good strategy and something that will be important as NetSuite tries to bring the innovation to market.
Finally, in what must be close to a world record for rollouts, Microsoft re-announced its on-demand CRM with a new name — On-line CRM — and re-emphasized the importance of its integration with its office products.
None of this was particularly earth-shattering news and I got the impression that it didn’t make a lot of sense to announce really new news given the state of the economy. That’s a debatable point because on the west coast, where these and many other software companies are from, it’s hard to see the effects of recession.
What is more surprising to me is the number of companies that are springing up. The people who I have known when they were at large and successful post IPO companies like Siebel and Oracle and who are now forming new companies is impressive. Mark Organ, who started Eloqua, has a very new company. Andrew Salzman who ran advertising at Siebel is CMO of a startup. Cary Fulbright, who ran marketing at Salesforce and several other places is at it again. Tien Tzuo came from a senior strategy position at Salesforce and he’s got a new company too. In the last year there are even more names we could call attention to.
My list is far from exhaustive but you get the idea. On one hand you might look at all this activity and say the economy must be doing pretty well but I think smart people like this take advantage of a downturn to reposition themselves and get ready for the next upsurge. Buy low, sell high.
What’s most interesting to me is how, in their own ways, each of these new companies is building something new, taking advantage of the buzz in social networking and community and applying it to the old problem of making money. The first generation of CRM applications that addressed social networking made rather tentative efforts but, from what I am seeing in some briefings, the next generation will begin to put more wood behind the arrow.
Briefing season, like spring, re-starts a cycle and I am not surprised that the two coincide.
Salesforce and Google
Salesforce’s announcement that it would partner with Google to integrate and deliver Google Applications said more about the software industry today than it said about either company or even about the propensity of software makers to deliver software as a service.
The software industry, like many others before it, has always had a tendency toward bigness though each time the dominant companies of an age reached dominance, market forces changed the rules and we were back to the beginning more or less.
You can tell a lot about a civilization by what dominates the business-economic discussion and you need not go all the way back to the stone age. In relatively recent eras there has been an industrial age, an automotive age, an electronics age and Dustin Hoffman’s character discovered in “The Graduate” even an age of plastics. Each age was made up of industries like big rail-road, big steel, big automotive or big petrochemical companies.
As each age passed you could watch the companies that made them passing — even now we can watch as big oil liquidates itself. It is a little remarked fact that for much of this young decade, big oil has used its tremendous profits not to look for new sources of petroleum or to invest in new refining capacity or new fuels — that’s what government handouts are for, after all — but to buy up its stock. Exxon-Mobile for example made a shade under $40 billion in 2006 and spent three-quarters of that buying up its stock. Even at that prodigious rate it will take many years to complete a buy back and Exxon is not alone.
The software industry is somewhat similar in its latest incarnation of delivering its wares as services rather than products. The SaaS movement has caused a disinflation of software’s true costs which has accompanied a financial zeitgeist that promotes all things low cost and efficient which rewards consolidation and bigness.
So what to make of the Google-Salesforce chumminess on exhibit at the Four Seasons Hotel last Monday? CEOs Eric Schmidt of Google and Marc Benioff of Salesforce.com focused attention on their similar technology architectures but also on their corporate cultures and even their philanthropy models.
The ostensible purpose of the event was to showcase a teaming up of on-demand applications that would enhance the productivity of front office workers who could now use all of their essential office software from the cloud rather than using installed versions from Microsoft or whoever else is still in that game.
It could not have been great news for Microsoft, the dominant force in the current (last?) software era which still gets a significant portion of its revenue from selling boxes full of manuals and CD’s that contain software for installation. True enough Microsoft is certainly still in the game with products from its Microsoft Live product line that do some of the same things that the Salesforce-Google alliance does.
I say ‘some’ here not to qualify Microsoft out of any front office discussion. The Redmond company has much more experience in office productivity applications than Google and many people say a richer product set. But at some fundamental level, Microsoft is looking more and more like a dowager than a dominator, like General Motors than Toyota, like a company focused more on finance than on product. Much the same can be said of Oracle which looks more dysfunctional by the day.
Into that milieu Salesforce-Google launched their partnership and an observer may be compelled to ask, where to next? The above mentioned Zeitgeist, if it were animate rather than simply a metaphor, will approve of this partnering to the point that it will expect more, a deeper partnership and I think eventually an acquisition. How would Marc Benioff run Google? (LOL!)
The shared cultures and philanthropy will become one and bigness will arrive for SaaS just as it did for mainframe computing or client-server. But just as nature abhors a vacuum, the software industry seems to abhor bigness and I wonder if the arrival of bigness (again) is simply equivalent to a TV series jumping the shark.
Financial matters are what could be different this time. Previous changes-of-the-guard have always resulted in economies being achieved — mini-computers were less costly than mainframes, browser based and on-demand applications less expensive to own and operate than client-server. But there has always been enough cash in a transaction to make it worthwhile for entrepreneurs to innovate. One wonders, even in light of emerging platform technology, if the same will hold true this time.
There is no doubt that platforms make it easy and cheap to build software products, but will new software vendors be still able to build companies to market and sell their products absent the margins the industry has traditionally provided?
NetSuite One World
Last week NetSuite announced OneWorld, new technology that enables multi-national companies to manage their finances. If you are not a financial person the distinction that the new offering provides may be lost but let me tell you why you might want to care.
Multi-national connotes bigness — big company operations, offices, factories and personnel — working at different locations all over the planet. In fact this connotation is valid but it applies to smaller companies too. In fact, these days success for an emerging company is often closely coupled with the speed at which the company can achieve distribution in many geographies at once.
To complicate things, people in different places have their own currencies, work habits, laws and regulations and these differences represent a significant barrier to success for small companies. The same company might operate in English and use pounds sterling (and drive on the wrong side of the road) in one part of the world and use Kanji and Yen (driving on the same wrong side of the road) elsewhere.
Meanwhile, if the company has headquarters in the US there are obvious language, currency, regulatory, and driving differences. Managing a company that has operations in all those places and then some can be a real challenge whenever the CEO wants to get a sense of the company’s health.
Not being much of a financial expert, I thought most companies had that consolidation and reconciliation problem figured out but NetSuite CEO Zach Nelson likes to refer to it as a giant hairball. And people with direct experience in running multi-national companies just seem to smile and nod knowingly.
This all got me thinking the other day that for several years, NetSuite has been playing the part of the tortoise from Aesop’s fable. This isn’t the company that comes first to mind when you think about brash CEOs or mind-blowing new technology. But the company has assembled quite a track record in its short life of listening to customers and delivering products that help them run their businesses. NetSuite is the only on-demand company that I am aware of that offers ERP/accounting, CRM and eCommerce all in one pre-integrated deliverable.
What’s remarkable to me is that NetSuite has maintained its position as a solution for small and medium businesses rather than climbing the ladder to enterprise computing. By doing this, they have avoided direct competition with SAP and papa bear’s other company, Oracle. There’s plenty of opportunity at this end of the market, made obvious by how many companies keep trying to shrink their products into the space.
One thing that might be a yellow flag for any small company implementing enterprise-wide software is complexity. There is not a lot anyone can do about it. Whether your are a ten million dollar company or a five hundred million dollar one, it takes work to set up all the applications you need to operate. So my advice to small companies thinking about enterprise-wide solutions — whether it’s NetSuite or something else — is to make a plan, engage outside assistance and set realistic goals. It’s a slow and steady approach and it works pretty well, just ask NetSuite.
A Busy Week by the Bay
They may be still waiting for the first signs of the much advertised recession in the Bay Area. Everything I see here, especially this week points to growth and all that goes with it. Multiple people have come up to me, phoned or emailed seeking introductions or support as they confess to having itchy feet or the promise of some capital to start a business. Some — a few lucky ones — also have some cash from their last IPO and, having tasted victory, they are eager to do it all again.
I came here for announcements from two of the most successful and recent companies to run the gauntlet from start-up to IPO, Salesforce.com and NetSuite. It is rare that two such companies have events so close together that I can consolidate a trip and I am not complaining. While the two companies shared time on many analyst’s and journalist’s dockets it continues to amaze me that they only infrequently find themselves in the same deal. Salesforce is squarely in the CRM camp with aspirations in the application development world and NetSuite is all about providing a soup-to-nuts solution for small businesses front and back offices.
This last might seem surprising in light of NetSuite’s announcement that it was offering new enterprise capabilities for its target customer base. Specifically, the company said it now has fifty companies using its solution to run companies that operate in multiple countries with different currencies and accounting rules so this was more than an announcement of intent.
NetSuite increasingly looks like the company that will compete head to head with SAP, Microsoft and Sage in the on demand market. While I like Sage’s diverse collection of front and back office products and I respect SAP’s market prowess, I think it’s safe to say that NetSuite has room to stretch its wings. You also have to respect all three companies’ money and marketing budgets but since its IPO, NetSuite can play that game too — come to think of it, with Larry Ellison’s money, NetSuite could always compete.
Salesforce-Google again
In a move designed in part to show the market place that Salesforce.com is sticking to its knitting, CEO Marc Benioff announced on Tuesday that his company’s flagship CRM system is tightly incorporating Google’s on-demand office tools such as email, calendar and instant messaging into its core capability. I found this announcement interesting not so much for the technology as for the chess game that is going on in enterprise computing.
Salesforce is making a bigger commitment to on-demand computing by so visibly incorporating additional on-demand office applications. More than that the Force.com platform is intimately involved as well which means that there will be development and customization involved. It’s is another clear sign that these two companies are not simply looking to automate what’s already there, they are seeking to inspire new thinking and new applications as well.
You might be tempted to say that there’s no news here and you could be right, but what I see is the on-demand approach gaining more steam as Salesforce and Google make it possible to deliver new functionality from the cloud.
Salesforce.com is a superb marketing company among many other things. They religiously adhere to the rule of three — tell them what you what you are going to say, then tell them, then recap. All of the announcements I remember follow this pattern and this week was no exception.
I forget precisely if this was the second or third time they announced an alliance with Google. There was a Google AdWords announcement when Salesforce bought Kieden and there was an announcement about integration with Google applications last year. This week CEO Marc Benioff told the world that Google Apps are tightly integrated with Salesforce CRM and that Salesforce will be delivering that functionality as part of its product set. That’s three if you count AdWords as part of the same group.
I wonder though if this is all window dressing and that another announcement is in the offing. Lots of tongues have been wagging about an acquisition of Salesforce by some larger power. Last year, Oracle was the designated suitor but that never seemed like a real idea you could sink your teeth into. The rumor was for $75 per share and it went no where. I said at the time that it was too low, that Force.com has too much potential to let it go for such a small fee. Also, mixing Oracle and Salesforce seemed like some medieval alchemy experiment — let’s see if this blows up!
The new idea that has people looking closely is, of course, a marriage between Salesforce and Google. Without commenting on the utility or futility of such an arrangement, let me say that the two parties seemed rather chummy at the announcement. Google CEO Eric Schmidt and Benioff each made reference to the two companies “shared values” and there was even a slide on the topic. The reference involved each company’s philanthropic foundation which uses a model Benioff made popular 1:1:1 donating one percent of his company’s time, equity and product (profit). Shared values make a good basis for a long term relationship, I think.
Perhaps the big loser in the Google-Salesforce announcements is Microsoft. The company took its time to respond to the on-demand threat and only recently fielded a credible product in CRM. This announcement threatens Microsoft not in a peripheral application area but where it lives. Microsoft is being buffeted by market reaction to Vista and the increasing utility of on-demand office products will begin eating into an important franchise. The operating system miscue has caused a lot of people to look elsewhere at Linux and at Apple — all the demonstrations at Salesforce-Google announcement were performed on Mac’s which, I believe run Intel chips these days.
I know there is a Microsoft Live product set so there’s no need for panic but it has to be said that Google has street-cred in the office world now and that’s something Microsoft could do without — as the OS business goes so does the office automation business.
Multi-tenant matters
There is an interesting debate beginning to brew in the on-demand market. Although most people are still clearing their throats, sides have been chosen and trial balloons have been floated. It appears that a small group of big companies including Oracle, SAP and Microsoft are trying to slow Salesforce.com’s momentum by going after the crown jewel. Another way to say it is that these companies are trying to hop on board a moving train.
In one corner is Salesforce.com, the incumbent and still champeen with its multi-tenant architecture. In the other corner are the challengers singing a siren song about freedom of choice offering various flavors of hosting ranging from multi-tenant to single-tenant with a lot of wiggle room in the middle and a Cheney-esque “So?”
Of course, all this tenancy refers to the way the software is put together and made to work. Single tenant means one computer (usually) and one copy of the software and all of a company’s users. In single tenant, or single instance, each additional company has to buy its own software and a system to run it.
Multi-tenant is different; it means one or more computers, one copy of the software, and as many users as you want — it’s all you can eat and it doesn’t matter what company you’re from. Behind the scenes in multi-tenant architectures there is a lot of sophisticated software that keeps things separate but it’s all invisible to the user. The benefit to everyone is that one copy of the software means one copy to manage, maintain, improve, patch and generally take care of.
Not long ago, there wasn’t much choice, every application or package you could buy was single tenant. It was client-server software and it was expensive to buy and implement but that’s the way it was. Then Salesforce.com came along and made several changes almost over night. In addition to leading the charge in on-demand and multi-tenant they achieved a new price point for business software that ran in a browser and just about killed the market for conventional business applications. That’s not to say that enterprises all jumped on the bandwagon but there’s been a steady erosion in the on premise market ever since. I can’t remember the last time a new software company raised its hand and said, we’re going to make ours using the old recipe.
That’s all ancient history. Fast forward to today and you see the challenge I alluded to. Companies are trying to sell single tenant on-demand and they are saying that the architectural underpinnings don’t matter. To hear the other vendors tell the story multi-tenant is snake oil and everyone ought to have a choice to go in whatever direction they like. That sounds pretty reasonable but is it a valid proposition or just convenient marketing of single tenant software?
For example, according to Anthony Lye, senior vice president of CRM at Oracle, “On demand is just that, a service, a subscription, a delivery option to an application that provides business value to its users, we do that and do that well. We have chosen to provide our customers with choice.” By choice Lye means using single or multi-tenant as needed.
Lye makes a good point. Some companies are not willing or able to go with a multi-tenant approach. Some entities, like banks, have regulatory mandates to keep their data behind their firewalls and I hear the EU insists on keeping some types of data inside the EU. Nevertheless, providing a choice of single or multi-tenant is not the same thing as saying that on-demand is just a delivery option.
I like Anthony Lye and I think he’s one of the bright spots in the Oracle bureaucracy but I think Oracle and the others are trying to blur a distinction that really matters. In the years since Salesforce.com came on the scene every software maker worth it compiler has been working hard to eliminate the biggest causes for customer angst. They’ve replaced client-server software with browser based applications that put nothing on the client machine and they’ve worked on making their applications less expensive and easier to use — all good things.
However, now the message seems to be if it’s low cost and delivered in a browser across the Internet, it’s good enough. I believe that single tenant or even an application that can be distributed as either single or multi-tenant poses hidden problems. The biggest challenge I see is that single tenant delivered on-demand is not simply another delivery option, it is a neat way of perpetuating a vendor’s hold on the customer and it is facilities management by another name.
With single tenant all you’ve really done is to place a longer wire between the server and the client and it reminds me of a very old approach called facilities management (FM). In FM a vendor hosts your data center at another location and takes care of all the management for you. In this it sounds a lot like any other flavor of on demand but in the FM data center, rather than having a single copy of the software to manage, there are hundreds or even thousands of copies running on a similarly huge number of servers. The vendor achieves economy of scale, takes a profit and passes some of it on to the customer so that the cost per user these days can approach that of multi-tenant.
But consider what that means. By choosing the single tenant approach, you also choose a more limited number of applications that you can work with and often that means locking in to the vendor’s own portfolio. In contrast the multi-tenant approach gives you no choice over which delivery mode you use but the number and kind of third party applications is greater. In the Salesforce.com case, we all know that the AppExchange contains about 800 applications from third party developers and all of them are pre-integrated.
So, in my mind the debate really isn’t about giving customers a choice between single and multi-tenant — that’s a false choice, like saying my way or the highway. The choice is really about giving customers a choice between vendor lock down and the freedom to choose whatever applications make sense for their businesses. In my mind, single vs. multi-tenant and the idea of choice are a big side show designed to deflect attention from the success of multi-tenant and save an empire’s worth of old code.
