April, 2009

  • April 29, 2009
  • Some vendors and commentators have coined a new phrase the “private cloud” which may turn out to be more oxymoron than anything else.

    To review, cloud computing refers to what were once called on-demand or SaaS applications combined with applications that live in the cloud because that’s where they can do the most good.  Salesforce.com is a SaaS application and its broader footprint of Force.com and hundreds of applications built on it represent a part of the cloud.  So do Facebook, Amazon and numerous applications that only exist in the cloud and that provide meaningful interconnection of daily life for millions of people.  I call this second category WebNecessary applications because they really can’t do their jobs without being cloud resident.  Cloud applications are typically multi-tenant, easily configurable and integrate well with one another.

    What’s this private cloud thing?

    The private cloud is an interesting twist on the idea of cloud computing and in my mind it is a way to extend the older paradigm of data center computing.  Let me explain.  Over the last ten years, we have seen a shift in conventional computing from client-server to leaner applications in the data center (DC).  There has been dynamic tension between on-demand up to and including cloud computing and conventional data center style computing.  Over that time, cloud computing has become more robust and conventional computing has adopted many of the improvements brought about by on-demand systems.  If you look at a conventional application in a browser today, it’s almost impossible to tell if it’s being served across the Internet or from the data center (DC).  But there are differences.

    Multi-tenant cloud computing delivers economies of scale to host many applications and many users on a single architecture.  It was once called utility computing because the capital-intensive infrastructure was centralized and, much like electricity or water, a service to the customer was the net result.  Most people don’t have their own electric generators and multi-tenant architectures mean they don’t have to run a data center either.  This brings us to the private cloud.

    The private cloud is in some ways a contradiction in terms brought about because some vendors have decided to spruce up their conventional computing architectures with the improvements pioneered in cloud computing but they stop short of supporting full multi-tenant architectures.  This is not simply a philosophical difference.  Single tenant architected solutions cannot be simply or cheaply converted to full multi-tenant architecture.  So the next best thing is to adopt some improvements and a name that blurs the distinction between the two.  The private cloud is pure marketing genius.

    You might ask, Why this is happening?  Why now?  The answer is rooted in economics.  Simply put, we are in the middle of a paradigm shift and the shift is accelerating.  The last ten years were a slow build-up to this point and we can expect things to continue accelerating from here.

    The economics of software heavily favor cloud computing.  For the customer it is significantly less expensive but for the vendor, it requires a semi-prodigious investment in servers, data centers, smart people and re-architecting products.  Companies that have done all this over the last decade are at a decided advantage over companies that resisted change.  In this economy, the latter companies face what the politicians in the last administration in Washington once called an “existential challenge”.

    If you can’t beat ‘em, change the subject

    Recessions are a time when everything is tested or re-evaluated to one degree or another.  Today (April 29, 2009), the New York Times reported a government announcement that the US economy shrank at a 6.1% annual rate in Q1 2009.  The article went on to say that “…business investment cratered as companies slashed their spending and their inventories as they rushed to cut their costs.  Business investment in software and equipment declined by 33.8 percent….”  In this environment finding more cost effective ways to do everything, including supporting the IT infrastructure become paramount.

    The recession is one of the factors that will put more pressure on organizations of all types to move from conventional computing to cloud computing.  In this environment the idea of a private cloud is simply an attempt to extend the old paradigm and deliver at least some of the benefits of cloud computing.

    Vendors with large customer bases want to hang on to them while they re-tool their businesses to adjust to the new paradigm.  As a result, we get these half-way measures that attempt to prolong the existing paradigm while giving vendors some breathing room.  That’s the private cloud.  Its purpose is to extend conventional computing long enough for the big guys to catch up.  Will it be enough?  That’s hard to say.  For an analog you might want to look at Detroit. 

    For thirty years the American automakers knew there was a need and demand for fuel-efficient cars but their business models were oriented on selling large, fuel inefficient models.  They made some attempts at paradigm extension, for example, skirting the CAFÉ fuel efficiency mandate by spawning a fad for trucks and SUVs, which were exempted from CAFÉ.  It worked for them for a long time.  But then, seemingly without warning the bottom fell out of their market.  Fuel prices went over $4 per gallon and the recession hit.

    A year ago GM and Toyota jousted for the title of world’s largest car company but today two out of the big three US automakers are teetering on bankruptcy.

     

    Published: 15 years ago


    Zuora, the on-demand billing service for on-demand companies, is turning one year old.  Last week, the company announced one hundred product improvements with its 2.0 version and said that it had attracted one hundred customers in its first year.  Why all the attention to this start-up?

    I think what’s cool about Zuora is that they are the first on-demand infrastructure company delivering their product as an on-demand service.  They may not have invented the car, so to speak, but they are inventing asphalt and in some ways that’s better.

    We’re now accustomed to thinking about on-demand solutions as rather commonplace and that’s good for the industry.  But it’s worth remembering that we are in a transition state moving towards an on-demand world and that will be the case for a while.  Until Zuora, part of the transition meant that on-demand companies had to use conventional billing applications.  That may not sound like much but it’s a big deal.

    Conventional billing systems deal with selling a product, usually once.  The concept of recurring billing is common enough but the subtleties of billing for on-demand services go beyond the conventional definition of recurring billing.  As a result, on-demand service providers have been constrained by their billing systems to more or less offer products that the billing system understands, not necessarily what the customer wants.  It is not an overstatement to say that a company can only make and sell what it can get paid for.  If you don’t sell and you have no revenues you have a hobby, not a business. 

    Zuora is interesting to people like me because it represents the first piece of on-demand infrastructure.  A company can run its billing operation from the cloud with Zuora instead of from some printing press; more importantly though, that company can customize its offerings because of Zuora. 

    There may be other billing systems that do these things but they tend to be owned by the wireless carriers and those proprietary systems cost many millions of dollars to develop.  At least some of them are not on-demand and I don’t know any that are available to the general market.  The wireless industry has shown us that a company’s billing system is at least part of its secret sauce. 

    So Zuora is making secret sauce available to any company that wants it and that ultimately means having the ability to tailor not only products but also product terms and conditions to the needs of the customer, and that’s part of what the big deal is.  The other part is that Zuora enables companies to do this kind of thing for large numbers of customers with minimal error.

    In the short year it has been in the market Zuora has delivered billing and payments functionality as well as a platform and integration with what else Salesforce.com.  They’ve also struck up some interesting partnerships with companies like PayPal.  All in all a good year’s work.  There’s plenty to like about Zuora so far and I expect they’ll be another company that’s a lot of fun to watch evolve, sort of like Salesforce itself.

    The evolution will indeed be interesting.  In the first year of its life, Zuora has taken us from an industry constrained by billing systems to the opposite, though I don’t know what to call it.  This oppositeness is most starkly brought to light by the newspaper industry. 

    You can’t point to a major or even minor city in the US whose local paper is in good financial health.  We know the outlines of the story once lucrative classified ads have left the print world and headed to the Internet where they are cheaper and instantaneous.  Help wanted, personals and for sale ads are all being done on the Web taking a lot of revenue with them. 

    At the same time, the papers have done without mitigation a terrible job of monetizing their Web presence.  Part of the reason is the newspaper business model that is rooted in the industrial revolution news publishers manufacture bundles of paper and ship it just like any other manufactured good.  Unfortunately, we all know that the news business is about content, not manufacturing, though the papers have yet to catch on. 

    There might have been a point in time when papers were constrained by the delivery model but today they are at least equally constrained by their subscription model.  A subscription billing model like Zuora’s is one part of a solution for the papers, a way to charge for content that is effective even at a few dollars per week per user.

    It would be great to see at least one paper decide to think different and at least experiment with an on-line subscription model.  The paper could still print for its diehard local customers, but beginning the transition to on-line subscriptions might do a lot to stem the flow of red ink. 

    The debate rages.  Some analysts say a subscription model won’t make papers profitable but these people are not banking on other structural changes that would come with the change.  For example, what if the papers got competitive at selling on-line classifieds?  You have to start the process.

    Papers are just one example.  I wonder what other products or services might convert to an on-line subscription in the next few years.  It makes me curious to know what Zuora will look like on its tenth birthday nine years hence.

    Published: 15 years ago


    I spent some time with Microsoft the other day.  I was invited to one of their technology centers in the Boston area to participate as a judge in an event that brought together entrepreneurs and developers to prototype applications using Microsoft products.  I was on a panel consisting of several venture capitalists and me.  The object was to give people some real world feedback on their ideas.

    Microsoft is trying to position their CRM product as an ideal platform for application development and they use the moniker XRM to signify applications that can be based on that platform.  It makes a lot of sense to me.  CRM is, at its heart, a comprehensive database for all things customer related and building on top of that should get you a lot of new application ideas.  After all, this is what Salesforce.com has been doing for a long time with each successive iteration of its development environment.

    I have to say though, that I was not impressed with any of the application prototypes that I saw.  Without giving away the store, the applications had several shortcomings in common that I think are serious.

    First, there was no non-Microsoft content involved.  No application had the semi-bright idea of mashing up some data from another application on the Web from, say, a social networking site or even a mapping provider.  The applications we saw that day were all conventional database applications built on top of a conventional database.

    Second, there was little reliance on SaaS computing even though Microsoft Dynamics CRM makes this possible.  Some vendors said they’d go that route but I’d say most focused on the old tied and true licensing model.  You might say there’s nothing wrong with that and you could be right.  But what made me skeptical was that in the business planning part of the competition, multiple vendors were telling us they needed many hundreds of thousands of dollars just to buy hardware.  Didn’t they do their homework enough to know how to avoid that expensive approach?

    Now, don’t get me wrong, everyone buys hardware, for example, Oracle just bought Sun for good reasons.  It’s necessary.  But in a startup environment where every penny of expense has to be scrutinized, it seemed perverse to see an entrepreneur proposing to spend 30% to 40% of their capital on gear.  It didn’t and doesn’t make a lot of sense to me.

    The whole experience left me with the impression that Microsoft is becoming the General Motors of the tech world.  I know that might sound cruel or arrogant but I haven’t seen the kind of thought leadership from Microsoft in many years that would give me confidence that they are still major innovators.  Moreover, the company seems addicted to a business model that is ending.

    To be fair, some of that alliance with the business model is most likely an artifact of their go-to-market strategy.  They sell a lot through resellers who make a living on the margins and on the added value of their services implementing, customizing and training.  That’s a relatively high cost model and I don’t think it goes well in a world that, as Thomas Friedman famously described it, will be hot, flat and crowded.

    Given the recession and the tectonic shifts going on in the software industry, it does not seem to me that Microsoft is preparing very well for the next iteration of this industry.  That world will rely on personal interactions made possible by social networking.  It will require lower costs to reach the large population of potential users who don’t live in first world countries.  And the technology will have to be dead solid idiot-proof.

    So far in its long life, Microsoft has done well with a portfolio strategy in which it invests in multiple ideas until one catches fire and then it goes all in.  These days I can’t tell what’s in the portfolio though it seems like a lot of the wrong stuff.

    I hope I am wrong.  I hope they surprise me and invent the next great thing in our business.  But so far all I see is a giant in a defensive position.

    Published: 15 years ago


    If Craigslist CEO Jim Buckmaster was a basketball player, sportscasters would be speaking today about the brick he threw up at the buzzer yesterday.  Instead the CEO wizkid is holding a clinic on bad CEO behavior.

    Some background for you.

    In Boston recently there has been a series of crimes including murder committed against women who advertised personal services on Craigslist.  Unless you live in Tibet, the news has probably penetrated your life.  There is a suspect in custody in this strange case a Boston University medical student.  The story seems to out do itself for weirdness by the day.

    If the alleged med school murderer or the salacious details of women selling personal services out of hotel rooms aren’t enough to perplex you the words and actions of Buckmaster may be.

    Buckmaster is quoted in today’s Boston Globe as saying “I would not describe any section of our site as ‘sex related’”.   He does admit the site has an erotic services section that somehow skirts the definition and only includes, “legitimate escort services, sensual massage, exotic dancers, etc.”  He also said that offers to exchange sexual favors for money are “strictly prohibited” and removed from the site.

    A blind horse could prove the lie here and I will let you do the research if you like.

    What’s even stranger is a 1996 FCC Act that gives companies like Craigslist and eBay immunity from prosecution for content that they have no role in creating.  It’s like saying, “I only deliver the porn.”

    Despite the immunity, more than 40 state attorneys general reached a deal with Craigslist to try to control the amount of porn and sex ads on the site.  I wish we could all agree that what we’re talking about here is victimless crime but the fact that multiple women have been terrorized and one is dead says otherwise.  Moreover, Craigslist is in trouble with organizations like the National Center for Missing and Exploited Children and the Polaris Project, which said it views Craigslist as one of the largest purveyors of illegal activities involving child trafficking and enslavement activities world wide.

    My point for bringing this all up is to say this: A CEO’s job is to promote his or her company and to make it as profitable as possible but when those objectives begin to hurt innocent people with what looks like borderline criminal activity, to continue actions that make money while harming people is criminal itself.  More importantly, such blatant lies as the ones coming out of Buckmaster’s mouth undermine the credibility of the organization and ruin its reputation.  In trying to protect Craigslist Buckmaster has trashed the company. 

    CRM is more than technology, it is a way of doing business and Jim Buckmaster ought to be pulled from the game for his ineptitude.

    Published: 15 years ago


    Even at what I consider to be an early stage, social media has penetrated so many niches that it is beginning to feel like, if not an old technology, a mature one.  This was brought home to me recently when I realized that we now have technologies leveraging social networking concepts that play both offense and defense. 

    I was intrigued by two ideas from opposite ends of the spectrum recently.  The first, a study by Sector Intelligence on Passenger a company that supports on-line brand communities and the other my own digging into social media monitoring.

    Passenger is one of a small handful of companies (Communispace is another) that supports private communities that large companies use to find out what customers really think.  The study I saw involves findings from a small survey of 16 Fortune 500 companies using Passenger communities. 

    Most of the results were not that surprising to someone who has been following this space for a long time.  But the findings may shed some important light on how companies can leverage communities in a recession.  For example, companies using communities use fewer traditional, and expensive, focus groups and they get richer insight into customer needs.  The insights can be translated into products and messaging.  None of this is surprising, it’s what Eric von Hippel, the MIT marketing guru, wrote about several years ago.

    Here’s the interesting part for me.  In a world where it is a lot more expensive to get a new customer than it is to retain an old one communities, done right, give customers a sense of validation, which appears to drive retention and that’s a nugget worth having in a recession.

    The other point I can derive from this attention to some long held ideas about community affects operations.  I believe we are in an era where operations are becoming more important than product.  There are fewer unique products on the market than when innovation rates are higher.  At times like these brands become more important because a brand and a customer’s experience with it can be unique even if the product or category isn’t.  Communities can tell us a great deal about a customer’s interface with the whole product (brand and company).  It’s what used to be called the whole product and it is therefore very important especially in an operations oriented business strategy. 

    So much for offense what about defense?

    We are used to thinking about social media and affiliated technologies as things that can only do good (ok, mostly good, sorry Google) but there is a new side to social media that I had not considered.

    I recently started watching a space called social media management that helps companies to track and gather all of the things written and otherwise published about them.  The applications involved are straightforward.  Various spiders and crawlers can deliver links to blog posts, comments, blogs that aggregate your posts, keywords relate to you or your company and more.  There are similar applications that monitor the video social sites like YouTube and Flickr too. 

    So far so good, I guess.  But an issue pops up when you understand that if you can do all this so can your competition.  Add to that the idea that modern cell phone cameras make us all ersatz reporters today and the potential forI won’t call it abuseredirecting these assets can be huge.  With the emergence of sites like YouTube, Facebook and Flickr, just to pick a few, it has become fashionable to post weird photos and clips for the world to seeand the world can see them. 

    Furthermore, unlike just a few years (months?) ago, the world has remarkable resources for analyzing what comes back from a search.  NLP or natural language processing, sentiment analysis and relevance analysis are standard tools that can be used to intuit meaning from something said or left on the Web.  To me, it all has a spy vs. spy feel to it.  Companies can find out a lot about a competitor simply from monitoring the new job postings left on-line, for instance.

    I am trying to figure out what this all means.  Social networking may have lost its innocence with this turn of events.  I am not naïve enough to believe this sort of thing never happened beforethink of how many of us pore over SEC filings and the like.  And politicians have always run opposition research.  But the pace at which information can be captured, digested and delivered to your screen is breath taking.  We’ve come a long way from the days when we used communities for co-creation of value.

     

    Published: 15 years ago