2009: Oh boy!
2009: Rough ride ends fine?
What a great time to be thinking about the future. Seriously.
This is my last column of the year and traditionally I try to forecast some movements in the market for the year ahead. This year it takes a special kind of fortitude to even read a piece like this, let alone write it, but if you think about it this really ought to be a good time for prognosticating and for optimism.
I think it’s good to remember that we are always in an economic cycle. Sometimes the cycle is favorable and sometimes, like now, you have to sail into the wind. Fine. Economic cycles begin and end with innovation and we are at a turning point politically and economically and perhaps even in technology—time for innovation.
While you and I have had a ringside seat at a great turning point in enterprise computing—I speak of the shift from client-server to on-demand—over the last ten years, most people have taken everything in stride. The computer boots, you use your favorite applications and when things don’t work you call tech support, that’s what most people know.
We know that on-demand or SaaS style computing has made huge progress in the last ten years to the point that it is ready to take on any business IT task presented. The Economist recently opined that coming out of the recession, SaaS would gain new followers simply because it offers better economics. I can’t argue with that. I could have written the article.
However, it’s not just on-demand or SaaS computing and low cost that will drive the rebound in our little corner of the world. There will be new business processes to support with automation and the default implementation technology is now on-demand and the smart money will be on the on-demand platform for all that it can provide. Moreover, a host of cloud based social applications have been knocking about for several years and the coming economic upturn should be the opportunity they need to be more tightly incorporated into enterprise computing.
When the economy is humming along there is an unwritten presumption that business should stick with what it has—don’t fix it if…. Maybe a company enhances its deployments but very few stick their necks out to try something revolutionary. We call them early adopters and they have been the ones who have so far adopted social computing, on-demand and Platform as a Service.
I think that’s all up for grabs now but before you take your last dime and buy Salesforce.com stock think for a moment about the moment we are in. That the on-demand revolution has crested is not seriously debatable but definitions matter and specifically, the definition of on-demand will be severely tested in the year ahead. Why? Because the vendors who have not fully bought into the new paradigm will either have to or find ways to extend the old paradigm and that’s what I think will be interesting in 2009.
Who are the paradigm makers and the paradigm extenders? It’s an interesting list, yours might be different but here’s mine:
Salesforce.com
The eight hundred pound gorilla. They had a big hand in inventing on-demand computing and promoted it aggressively for the last decade. Now, with Platform as a Service, they are doing for developers what they did for application users. The team to beat, they’ll keep the pedal to the metal in 2009 and they will be amply rewarded for it.
SugarCRM
This is an on-demand company with a hybrid business model meaning that their product is fully acclimated to the web but that sometimes they still sell like an old-line software company. They have a partner channel at the same time that they offer open-source. Their partners look like they’ve really ingested the Kool-Aid so good for them. Sugar is not as far along as Salesforce but they seem to be doing most of the right things in their market. I expect they will become more platform-like in the year ahead and offer some competition to the leaders.
Oracle
Like the monster in some horror movie, you can’t kill these guys (good thing too because the monster comparison is a bad one). The Oracle team, which is the old Siebel team with some upgrades, has discipline, developers, product and a lot of Larry’s money behind them so I expect them to be an increasingly important competitor in CRM and beyond. Oracle is a traditional software company in many ways, and applications chief, Anthony Lye has been walking a tightrope to bring the conventional applications along while playing up not only on-demand but new social applications as well. Lye has played his hand well and his efforts to extend the conventional software paradigm make some sense. For example, Oracle, like Microsoft, has broadened the definition of on-demand to mean not only multi-tenant but a variety of single-tenant and few-tenant versions hosted in their data centers. This is inevitable given that some companies still avoid multi-tenant solutions for idiosyncratic reasons. It’s what I mean by paradigm extension. I expect that 2009 might see more of a clash of definitions as on-demand, SaaS etc. become even more popular and companies like this try to blur or expand the definition.
Microsoft
If Oracle and Sugar represent companies with hybrid technology and business models, Microsoft and SAP look like companies struggling to extend a paradigm that has seen the sun set. The conventional software business model, like heroin, is a tough thing to give up and for every step forward these companies take it seems they take one or two back. Microsoft has debuted Microsoft Dynamics Live applications to good reviews but they also do things like offering a plethora of choices for on-demand and on-premise deployments. More troubling to me was a recent cover story in Wired magazine on Ray Ozzie which talked about a cloud operating system. Say what? Making a cloud OS is like trying to patent the air you breathe. In 2009, Microsoft could benefit from a bit more focus on the market and committing to real on-demand.
SAP
SAP on the other hand is highly inventive and entrepreneurial or at least they’re good at starting things, especially on-demand initiatives. SAP has a tougher space to play in with ERP. However, they haven’t helped themselves with their false starts and I wish them well trying to put a big idea together and deliver it, hopefully in 2009.
NetSuite
Like most of the companies in this piece, NetSuite has both front and back office applications. Unlike the others, I think the company has a clear focus on a single delivery model. Like any ERP company, implementation is tough for the simple reason that there is a lot of input required to define business processes. Also, the company, in my humble opinion, aims at a corner of the market that might be too small to take on everything they offer. A little up market repositioning might be smart, I’m just saying…. NetSuite has the cash it needs to build out its implementation, service and support capabilities and they are working on all of it. They need to ignore the ups and downs of the market next year and continue spending some of the loot from last year’s Dutch auction IPO. If they do they can come out of the downturn in a strong position.
Sage
All of the other companies are more alike than not but Sage seems different from all of them. The company sells through a partner channel, has tons of overlapping products and is bigger than most—not counting Sequoias like Microsoft, Oracle and SAP. Sage has less on-demand presence than all of these companies but the combination of its products and its business model seems to work. There is nothing hidebound about Sage, they just adapt to new wrinkles in the market at a rate that matches their partners’ abilities to absorb change rather than the marketplace’s ability to generate it. In 2009 Sage will be in the process of changing its products to meet some of the challenges of the on-demand world and to adapt to the special needs of its partners.
I could write more but this is already too long. In the first quarter I will look at emerging companies and the new business processes many of them will be offering as we start the cycle anew. Happy Holidays!
2008: Good riddance
I don’t know about you but I will be happy to write “The End” on the chapter we call 2008. Normally, at the end of a year I look back at some of my predictions from a year earlier and look for some indication that I was on track at least some of the time. This year is different. Who cares, really, the big story in the economy was on no one’s radar that I know of.
Aside from the big meltdown that I didn’t predict, there were some things that came pretty close. For example, I suggested that the business cycle was getting a little long in the tooth and that 2008 will “…be a good time to be a software company specializing in marketing so long as your customers have some budget.” True enough, marketing is becoming more important to sales than ever as companies grapple with finding efficient ways to capture customer needs.
I also suggested that GRC, governance, risk and compliance would continue to grow in importance. After the debacle on Wall Street fed by too little governance I think we’ll see a great uptick in GRC’s attractiveness.
Authenticity is the issue, along with the economy, that didn’t capture many imaginations partly because it was overwhelmed by other matters. However, I think that the idea of “making it real” for your customer might become a hot idea as everyone tries to sell into a frozen market. Unfortunately, the idea of customer experience as opposed to Customer Experience still holds sway. Little C and E is still something that vendors try for meaning trying to ensure that an experience is not bad as opposed to attempting to customize a real experience. Big C & E is the secret of authenticity and a key to survival in a demand destruction world. Stay tuned on this one.
The closest I got to pay dirt was the platform. It has been a good year for platform and there will be more to come. I had expected more competition for the definition but that appears to be a future. Few vendors put a lot of effort into claiming platform status and those that did – Amazon, Google and Facebook don’t fit the typical CRM mold. The one exception was Salesforce.com which continued to blaze a new trail in platform, inventing the next stage of enterprise computing in the process. We will definitely hear more about platform from them in the New Year.
In addition to the meltdown, I think 2008 might be remembered in CRM circles as the year that competition started to heat up in the SaaS world. For the prior few years, Salesforce.com had the idea more or less to itself and they did a lot with it. I expect that the company will continue its pace too. However, we saw Oracle make new inroads in SaaS and I expect them to continue the trend along with SAP and Microsoft. Each of these companies is trying to redefine SaaS to mean something that is easier for them to deliver than multi-tenant SaaS, straight, no chaser. Maybe they’ll succeed to a degree. The fact that there are so many hybrid approaches provides great testimony to the importance of SaaS and leads one to think it will be with us for a long time.
The most intriguing thing to me about 2008 is what the economic meltdown and the new president will cause to happen in CRM next year. If the President Obama is as serious about an economic stimulus as candidate Obama then a lot of cast will be infused into the economy with many impacts unforeseen. As I have been writing lately, it seems like a good time to disintermediate the credit industry with something more responsible and less centralized, like vendor financing.
Decentralizing the provision of credit would make the economy more resilient to ripples in the financial economy. On the flip side, though, this is a big change that won’t happen over night. What makes me wonder about the possibility of changing the credit structure though is the lack luster effort the whole credit industry has made to date to get the wheels of commerce moving again, despite repeated government assistance. It’s like the credit industry is abdicating and leaving a vacuum.
Well, there it is 2008 practically in the record books and 2009 a big question mark. Next week I will attempt to make sense of the year ahead. Meanwhile, it has been a pleasure having you along for this ride. I appreciate knowing that there are people reading this column every week (some of whom edit it to make it read like English) and it inspires me to find something interesting to talk about every week. Best wishes to you this holiday season, and thanks.
Breaking News
It’s not often that I get involved in breaking news like this. Typically, a company briefs me on an announcement and if I like what’s being announced I might provide a quote for a press release. But under the rubric of CRM, I got a press release this morning with the following headline which I thought I should share:
“Harvard professor & students fight the RIAA: Come to Rhode Island federal court to protect defendant’s family”
The RIAA, in case you don’t know is the Recording Industry Association of America an association that, among other things, seeks to protect the patents and copyrights of recording companies and their artists. To net it out, RIAA is the group that would sue you for illegally sharing songs across the Internet.
The federal case referred to in the PR headline is one of that ilk. The suit in question involves one Joel Tenenbaum, a graduate student at Boston University who is being sued for more than a million bucks for allegedly sharing seven songs on the Kazaa file-sharing network.
It gets better, or worse depending on your perspective. RIAA is in federal court today not for Joel but for mom and dad a.k.a. Arthur and Judie. RIAA wants the Tenenbaums to produce their home computer for inspection to determine if any songs were illegally shared on that machine as well as Joel’s. Harvard Law School Professor Charles Nesson and his team of students will defend the Tenenbaums against the RIAA in this action and I presume it is not the RIAA that issued the press release.
With all of the negative news percolating through the burned out economy, I guess we could all use a chuckle these days and this is as close as we can get. This action is absurd on so many levels but let me just take one, my favorite, the customer relationship.
On the face of it the RIAA has every right to defend its copyrights but it seems proportionality and commonsense have evaporated. A million bucks? For seven songs? It appears that the RIAA is engaging in predatory and malicious prosecution designed to put a significant financial strain on any family unlucky enough to be caught in its cross hairs. A judgment in the RIAA’s favor would bankrupt most American families though I do not know the Tenenbaums circumstances. So the family must necessarily mount a legal defense that will reach into the thousands and maybe tens of thousands to resolve. Remortgage the house! Cash in the retirement savings! That’s the real punishment the Tenenbaums will face regardless of any verdict arrived at in the courts.
What does RIAA get? Hard to say other than maybe an immoral “moral victory”.
Many years ago, before the fax machine went into general use, I waited tables, tended bar and did what students do to make ends meet. At one of my jobs, at least, we sold Pepsi and other non-Coke products. This was an era when the Coca-Cola company was (and probably still is) trying to protect its brand. Coke would send its “shoppers” into the establishment and order Coke and it was our job to say, “We don’t sell Coke, would Pepsi (or any other brand) be OK?” Inevitably, the customer would agree and that would be that.
It got to the point where you knew who the shoppers were and you would make sure to make the proper statement. Once I forgot and word got back to my boss and I got chewed out. I don’t think Coke ever pressed charges and I am not sure about the statute of limitations but I am in the phone book if anyone cares.
What’s interesting to me about this case in Rhode Island is that the RIAA is fighting so hard to preserve an old paradigm that has so obviously reached the end of the line. RIAA is out in the market trying to protect its franchise on CD sales in an era when kids buy music CDs, rip the songs to their MP3 players and iPods and forget about the plastic or they just download, legally.
Music has been commoditized but the RIAA refuses to accept it. The Internet has commoditized print (ask the newspapers), telephone and photography to name a few industries. In all of these industries companies have to work harder and sell more just to stay in place. Each of these industries has seen a rash of innovation by the vendors to adapt to the new reality—admittedly a work in progress for most. But the RIAA puts all of its energy and innovation into litigation against its own customers. How smart is that?
In the absence of leadership by RIAA, recording artists like the Grammy winning Maria Schneider are quietly going about setting up their own distribution systems. Schneider is a talented Jazz composer and leader of a big band who writes the music, packages it and sells it through her Web site. There’s no record company to tell her what to write or record or what her schedule is. Schneider plays a lot of gigs and solicits feedback from her audience in person and on the Web. Imagine that!
It’s independent artists that are the big threat to the RIAA but RIAA can’t see it because their paradigm of the music industry doesn’t acknowledge people like Schneider. It’s the people like Schneider not the Tenenbaums who will decide the future of the music industry.
In a system like the music industry, there is bound to be some leakage, the nature of the product is that it cannot be completely contained any longer once it leaves the vendor and vendors need to find ways to leverage that reality. If the RIAA was at all clever, it would abandon the malicious prosecution tactic and innovate around the idea of making music affordable and easy to down load legally. Sort of what Apple did.
Check out checkout
AppExchange finally gets a cash register
Nearly five years ago I wrote a white paper that resonated around the industry like a three point shot clanging off the front of the rim as time expired. A brick in the parlance of basketball; nonetheless, I view it as some of my finest work.
The paper, “The New Garage,” takes as its premise that cloud computing—not simply on-demand or SaaS—and platforms would be the next big thing in our business. The title derives from the ancient and honorable tradition of inventors tinkering at home in basements and garages to build the new, new thing, without big and risky investments from venture capitalists a model that was then unwinding.
I thought then and still believe that it should be possible for software developers to build and bring to market new products inexpensively with available resources rather than through high leverage.
Five years later I am happy to report that much of what I forecasted in that white paper has come to pass. Although the entire planet has not caught on to clouds and platforms, and while there remain numerous very large software companies desperately trying to extend the paradigm of on-premise software licensing, it seems clear that cloud computing is here to stay.
A quick glance at the companies nested at the intersection of Routes 101 and 92 south of San Francisco is all you really need for proof. But if you need more proof take a look Route 128 outside of Boston and hundreds of places in between.
On Monday, Salesforce.com announced some of the remaining pieces of the grand puzzle when it introduced Checkout a capability that enables ISVs who develop products for Force.com, Salesforce’s platform, to sell and collect revenues through a cloud-based mechanism that keeps checks coming in on a monthly basis.
Checkout is a necessary component that, though its focus is financial rather than technical, enables the technology to fully function. It appears to me that with Checkout, Salesforce now has deployed a new closed loop business process for cloud computing that starts with development, moves through distribution and sales and culminates in the transaction and payment. Given what I have written already perhaps I am not in a humble mood today so let me only say that I had forecasted this as well as the rest of the incremental rollouts of cloud computing over the last few years.
So what?
There was something else announced that I had not foreseen, something as revolutionary as the rest of cloud computing which I could not predict from my vantage point of conventional economics. In fact I had written the opposite.
My major concern about platform computing has always been that it could end up simply replicating earlier platform business models. Specifically, I was concerned that there would be a proliferation of platforms and that a platform could become as much a barrier to entry for developers and their customers as was the case in the mini-computer era.
The barrier to entry in those days was the abundance of operating systems and compilers that made cross platform migration difficult. I had written that ISVs would need a way to generalize their applications for easy portability from platform to platform to ensure that none would become captive to a single platform provider. To me this made good economic and business sense but my thinking was too mired in the 1980s.
Today there are a handful of application platforms sponsored by large companies including Salesforce, Google, Facebook, Amazon and others with more coming. What interests me is the way these vendors have so far bent over backwards to ensure cross platform compatibility. Applications built on Force.com can use data and applications on Facebook, use computing and storage from Amazon and access documents, spreadsheets and presentations from GoogleApps. This is cool stuff.
Over the last few months while the economic paradigm has been collapsing around us, Salesforce.com and its platform peers have been rolling out this amazing new business computing paradigm. Will this be the computing paradigm of a new economy whose straightened circumstances demand performance anywhere at rock bottom prices? And more than simple computing anywhere, look at the applications: they are highly interactive, social and smart.
We’ll see.
In the nearly ten year march from client-server computing we have been treated to various names including ASP, On-demand, Software as a Service and then Cloud Computing and Platform as a Service but each is crippled by a myopic attention to the single platform provider. The new paradigm requires a new and more encompassing name. Let’s call it Platform as a Standard.
Good-bye, Chicago
Sorry, but I don’t think I agree with the premise that we should not bail out the car guys. Well, to be honest, I don’t like the idea of a bailout either and do not support one per se. However, we’re talking about a loan, not a gift and there are significant strings attached such as eliminating Detroit’s opposition to laws against pollution and for increased mileage standards.
My reluctance concerns method. It’s one thing to talk about capitalism and socialism and letting foolish car memes hit evolutionary dead ends and all that. It is right and proper to extinguish those bad ideas and behaviors but letting these giants fail is like self-immolation. Do we really need to destroy the village to save it?
Part of the problem I see is that we are applying rules for individuals and small businesses to these companies. Individuals have a great deal of responsibility to themselves to stay solvent and healthy and if they fail, under most circumstances the consequences are appropriate.
What is the right stance on the car companies? Well, I think first we need to give up the fiction that there is anything close to raw, naked capitalism or socialism for that matter. When you get to be as big as a car company, you become your own environment which makes you quasi socialist. That is the essence of Charles “Engine Charlie” Wilson’s 1956 comment to congress that “…for years I thought what was good for the country was good for General Motors and vice versa” which was later misconstrued as, “What’s good for America is good for General Motors.”
Democratic capitalism lets the winners continue playing their hands until they run out of luck and for years the car companies designed, produced, advertised and sold cars that appealed to the vanity of the American motorist from the ‘burbs until long after that vanity should have expired. Detroit still builds big, sleek, shiny, fuel guzzling road locomotives, living rooms on wheels. One ad I saw in a magazine this week for an SUV boasted a refrigerator and a DVD player. The Conestoga wagon of the twenty-first century all dressed up and tweaked out with nowhere to go.
Detroit has fallen. Hard. The paradigm has changed and no one wants to buy its products anymore even with gas comfortably below $2 per gallon. Yes, they should have seen it all coming—Peak Oil, economic crash, global warming and all the rest were evident for anyone to see. I bet all the execs in Detroit can quote you a great deal about all of those subjects to the point where you’d think they were advocates. But they did nothing because their job descriptions said maximize shareholder value, not save the planet or anything more idealistic.
Detroit’s problems were really imported from Chicago, specifically the Chicago school of economics associated with guru Milton Friedman and the University of Chicago. The meltdown we are seeing is actually the wheels falling off the Friedman express, a simplistic belief in the power of markets, unfettered by regulation–a Darwinian swamp.
The ascendancy of Friedman style economics made it impossible for Detroit, or Wall Street for that matter, to openly collaborate with government and its regulators to achieve anything close to sustainability. Such collaboration became an epithet—socialism in business, liberalism in all other branches of human endeavor.
So now the socialist chickens come home to roost and what was not paid forward by all parties into the common endeavor we call America, is now being paid backward by the unborn. But it is never that simple. Letting Detroit go bust means millions of jobs, of course, but more fundamentally, Detroit represents a big chunk of our ability to make things that we might need in an emergency.
Fighter jets and ships are built elsewhere but what about tanks, trucks and all the other wheeled war machines? Who builds them if Detroit goes down? Do we gen up a separate wholly owned government ground fighting transport industry? Caution here, the F22 fighter jet has a price tag of $300 million per. I suppose there’s always outsourcing, or is there? Please don’t lecture me about the virtues of outsourcing. War fighting is the one thing a people has to do itself or the enterprise is kaput. Look at Rome. Look at Kellogg, Brown and Root (KBR)! Look at Blackwater!
We might need fewer cars and more mass transit but we also need Detroit. Not the Detroit of the last fifty years, though, run by a bunch of financial wizards, but the Detroit of the first part of the twentieth century, run by car guys. Car guys build cars for reasons that make sense, cars that are fun to drive, cars that accomplish transportation related goals. Financial guys build cars as an adjunct to their effort to make money. They make what they have to in order to achieve a quarterly revenue goal.
So let’s rescue Detroit–save the companies but kill the business model and make Milton Friedman that curious footnote he deserves to be. The rescue will cost much more than the $15 billion or so that congress in its infinite spinelessness has negotiated with a very unpopular president. It will be enough to get the car companies through the holidays and to a new and pragmatic administration. Meanwhile let’s all write on the chalk board 100 times, “I will not be seduced by the siren song of unbridled free markets again.”
At least till the next time.
