Heard ‘round the world: Oracle Buys Sun
Originally published on Monday
Ahh, what to make of this? Good? Bad? Creative destruction? All of the above? Probably. Of course, it is too early to offer more than a few prognostications but that is what’s so much fun about this.
First, Sun’s shareholders got a dime more per share than the IBM offer $9.50 vs. $9.40 whoo hoo! Seriously, a dime over millions of shares is a lot of money—think about a good weekend in Vegas.
More seriously, the deal complicates Oracle’s relationship with Dell and HP which Oracle has courted aggressively recently. Last September Larry Ellison introduced the Exadata—part storage array part computer built in cooperation with HP to provide orders of magnitude better support for terabyte and bigger databases. A good idea. But now where does the budding relationship with HP go?
On the other hand, I wish I had a proverbial nickel for every Oracle database that was sold on a Sun box over the last three decades. Sun’s customers are Oracle’s customers but the same can be said of HP.
Oracle made a concerted effort a few years ago to maintain its position as a lead dog in the software market. With it comes stature for sure but also the market position to drive pricing in an era that will continue a long trend toward greater affordability. Too many businesses and their business processes are absolutely dependent on IT hardware and software and that dependency drives an absolute need for cost containment. The best way to get cost containment is to vertically integrate and that is what Oracle is increasingly doing.
Vertical integration can happen in two ways. Oracle is following a more or less time-honored approach of owning all of the factors of production and presumably selling bundles of technology in the future. I think Adam Smith would approve. The other approach, interestingly enough, is to verticalize a la Salesforce.com. Hiding all of the stack, hardware and labor behind the cloud enables the same kind of economy of scale. The first approach is decidedly 20th century the latter tacks to the 21st. The newer approach aggressively commoditizes infrastructure. Oracle must see this and presumably it has determined it is better to drive the commoditization process than to be the victim of it.
Oracle’s acquisition of Sun is a necessary next step for the company if it expects to continue growing and to compete with rivals like IBM and HP each of which is pursuing a variant of the 20th century model. Will it be enough? Probably. In any event we still need—and will for a long time—companies that make the hardware on which the cloud computing infrastructure runs. I think of this news as interesting, not wholly unexpected and symptom of the economic forces every industry is subject to.
Today is Patriots’ Day in Massachusetts, no big deal in most other parts of the world but today we celebrate the battles of Lexington and Concord, which started the American Revolution. Those battles are famous for the “shot heard ‘round the world” and I suppose much the same could be said of Oracle’s acquisition of Sun. This could not have been planned but it offers an interesting historical note.
Paradigms and disruption
I am fond of Paul Greenberg because he’s smart and knows a heck of a lot about CRM — most importantly he’s a good judge of whether a company is for real or just playing around. I am also grateful to him for pointing out that I was the fortunate one to identify on-demand technology as a disruptive innovation.
Paul is busy writing the fourth edition of CRM at the Speed of Light and if it’s like the last one, it will be a big book. Sometimes I kid him that he’s become the Walt Whitman of CRM.
As I recall, my disruptive innovation comment came from doing a lot of market research on the phenomenon. It was new, like nothing we’d seen before, and none of us were very sure if the disruption would last and create its own paradigm or if it would evaporate.
Many early on-demand companies did not last as long as the revolution they helped spawn but I think it’s safe to say that we’ve gone from simple disruption to establishing a new way of thinking. On-demand is such a firmly established idea today that it really is its own paradigm and it has made it easier for others to establish follow-on paradigms.
Zipcar established a different paradigm for car rental, Netflix did the same for movie rental just to name a couple that have almost nothing to do with software or SaaSware. You can say the same about the cell phone business. Today, unless you are buying one of those high-end do-anything gadgets, you can get the hardware embedded in the cost of the service.
Closer to home, Zuora went deep into on-demand computing and established a new paradigm for on-demand billing. Companies that sell their wares as a service now have a billing and payments solution that works the same way they do.
To be sure there are still disruptions going on but as each one takes hold in the market we realize that the disruptive value is decreasing because the paradigm is now well established. We will see more disruptive ideas and companies and I think this recession is an ideal breeding ground but each disruption will seem less dramatic because the paradigm is now so well established.
Nonetheless, there will be more to watch and wonder about, especially as the old paradigm sputters and crashes. If you want to see an old paradigm in its death throes you can look at GM fighting with a business model of building big, fuel-inefficient, cars. The news is full of stories about impending bankruptcy.
Speaking of news, is there anything sadder than the long list of American newspapers that can’t make a profit? Papers are a classic example of the entrenched leader not wanting anything to do with new ideas for fear that implementing them might erode profitability. The Boston Globe, in my hometown, is the latest example. Newspapers in general have been slow to adopt the Internet or to develop pricing schemes that allow them to charge for their content. Their business model is broken but no one has the ability to ask a different question. Instead they cut costs, cheapening product in the process only to drive away customers.
A reporter once asked Ernest Hemingway how he went broke. His answer, in addition to being a great example of his laconic style, perfectly encapsulates the shifting paradigms that are all around us. Papa said, “Gradually. Then all at once.” That’s how paradigms shift, gradually, then boom!
Whether you have a hedge fund, a newspaper, a manufacturing operation or even a software company the nature of business is making progress and that means finding ways to deliver better products and services at more competitive prices. Failure to understand this basic tenet of business leads inevitably to a fall off a cliff.
Other than the few pages I contributed, I have not seen any of Greenberg’s book but I look forward to it. When it comes out, about five years after the last edition, it will have much that is new and in a side by side comparison it will be interesting to see which companies leveraged the paradigm five years ago, and which are absent.
The New, New Economy
I almost couldn’t have imagined it. I give myself a little leeway but after years of writing and talking about “new, new things” it didn’t really dawn on me that at some point we’d be talking about a new, new economy, but we are.
I was speaking with Brian Zanghi, CEO of Kadient, the other day and our minds happened to convene on the idea that we are not so much in a bad economy, though it is all that and more. We are in a new economy, however, one that is more resource constrained and where demand is slack. The question is not so much if we will ever see the golden days of 2006 again but what 2010 will look like.
To be sure things will improve but even given some improvement, in many markets the thirst for new and more is slaked for now and we are re-acclimating to more controlled circumstances. Zanghi and I were talking about sales and how to do it in an economy that is, well, new and I think this recession won’t make sense unless we take that perspective.
If this was a garden-variety recession we would simply hunker down and let the storm blow over. If this really was that kind of recession, then all the talk about selling through a recession might make more sense than it does. But to say that this is a new economy is to say that the old approaches to even a recession will not work very well any more.
So what are the attributes of the new economy that we need to consider? Perhaps, surprisingly, they are some of the same attributes that we were discussing last summer when the cost of a gallon of gasoline easily exceeded the cost of a gallon of milk.
Slack demand
We have slack demand right now—one of the cornerstones of a recession. But instead of having too much inventory that needs to be worked off, we have too little credit. Demand is evaporating because credit is scarce. You might want a new car but if you can’t get credit it won’t matter to the dealer. For the dealer demand is slack.
A sales tactic for these times will necessarily require some enhanced form of vendor participation in financing purchases. Zero finance charges are something I think we will see more of beyond the auto dealership. Retailers are offering layaway plans again—a form of zero interest financing—and car dealers have been offering sweetheart finance deals for many years. The other day I saw an ad for HP notebooks with 100% financing and generous terms. It’s starting.
The need to do more with less
Anyone who has been to the gas station recently knows we’re beginning to see the price of fuels increase. And as the economy begins to improve we will see that trend continue. Economists call it Jevons’ Paradox after the Victorian era economist who first noticed that as the use of commodities becomes more efficient, more—not less—of the commodity is used. There is more global demand for fuels than ever and it is rising while the supply is constant, a classic situation that results in bidding up the price of the commodity. The rising cost of fuel will hit every sector of the economy and therefore one of the big themes of the New Economy is doing more with less.
Practically speaking we’re seeing sales organizations reduce headcount and curtail travel for all but the most necessary situations. But cutting is not the answer, finding new ways to get the same results with fewer inputs is and something that cutting edge sales managers and their bosses are going for. Into this category you can add more virtual events, strategic use of video and more creative use of the Internet and social applications. Do you have corporate video? Is it on YouTube?
The age of operations
We oscillate between periods of focus on customer centricity and operational improvement in sales. This will sound like heresy to some people, but I think the recent era of customer centricity may be ending. It’s not that customers are not important any more (are you kidding?!) it’s that we’ve pushed that rock up the hill about as far as it will go for now. We need to focus on all of the operational improvements that make our companies easier to work with, from providing better financing schemes to making it easier to make a decision, sign a contract or pay a bill. The good news is that there is software or SaaSware for all of that.
I think operational motivations are at the heart of some social media uptake trends. Rather than waiting for vendors to get the idea of improving operations, customers are taking matters into their own hands. Social sites are increasingly where people go when they want to know something—how others have fared with a solution, how a product works, how to configure and fix it. It that’s not streamlining the operational interface with a company, I don’t know what is.
I got an email this morning about a new analyst report purporting to show that social media is not helping to close many deals. Here’s a news flash—it’s not supposed to be a closing tool. Social media is an opening tool, a way to keep lines of communication open and maybe even keep pipelines full. It might even help reduce the sales cycle.
I think Brian Zanghi was right; it’s a new economy, a new era. Markets hate uncertainty, if this analysis is more right than not we should be at the beginning of a recovery soon.
Twelve quarters
A couple of weeks ago at Salesforce.com’s ServiceCloud announcement in New York, something Marc Benioff said stuck in my mind. In the afternoon session for financial analysts, he spoke about management style and how his company operates as if each month was a quarter. In other words the same discipline of selling and forecasting that most companies put into 13 weeks is compressed into just four.
As a practice and in a business where your customers can leave you each month it makes a good deal of sense. Attrition is so much easier in a SaaS business than in a conventional software model so you have to be vigilant. It’s not enough to work for new business you have to protect what you have and that translates into some remarkable customer attention.
Good for them, I thought, it seems to be working. More interestingly, though, the idea of managing like each month is a quarter, takes me back to earlier recessions. They were different times, without the same emphasis on SaaS but astute managers still took up the discipline of managing the month like a quarter.
You do something like this when you simply don’t have the visibility to see 90 days into the future, like right now. It’s good discipline and, truth be told, it’s the way Salesforce has been managed for a long time, even in good times. The lesson for the rest of us is that in these extraordinary times greater attention to the details of pipeline management might be good practice.
More to the point, in a business where your customers can leave at a moment’s notice this kind of attention to detail is becoming essential. The on-demand nature of so many markets today makes the idea of monthly management almost essential. We might not have a clear idea of the sales pipeline but it might look positively predictable compared to the attrition pipeline that exists but that most of us never understand until it’s too late.
Until the recession begins to look like it has bottomed out, monthly quarters might not be a bad thing. For certain it will enable companies to budget better and be more responsive to the turns in the economy.
Tracking the trackers
I have been remiss in not paying enough attention to social media monitoring software. I suppose it’s understandable given that social media is at the margin of CRM—moving to the center, but still in the outer shell—and monitoring software is somewhere beyond that orbit in the software equivalent of the Kuiper belt. Maybe it’s time to pay a little attention there because monitoring software can be a big addition to your marketing strategy, and much of it is free.
First, what is it? Social media monitoring software is a class of applications, delivered on-line that track aspects of how you and your company are being talked about on the Web.
There are applications that track text—twitter feeds, blog posts, comments and the like. These have been around for a while and a classic example is what might still be called a vanity search on Google and other search engines. The basic idea is that the search engine looks for fragments like Beagle Research or Pombriant, and brings links back to your email. If you recall the Steve Martin classic movie, “The Jerk” getting a Google Alert is equivalent to receiving a new phone book.
There are lots of sub-specialties in this area. For example, products like del.icio.us can tell you when someone bookmarks a web page. Blogpulse can tell you who is picking up on a blog posting that you might not think is going anywhere. It can also tell you about the use of keywords, like your product name for example. And Co.mments can track the comments left on blogs—do people like your posting or are they panning it? What else are they saying?
The proliferation of different types of social media, especially video, seems to have spawned a cottage industry of companies that will gladly scour the video sites to bring back tidbits that may be informative or salacious. Suppose someone snaps a photo of one of your executives in a compromising position, a search of flickr, YouTube, Google Video, MetaCafe and other sites can alert you to trouble.
Then there are consolidators like Keotag that tracks which keywords are being used as tags. Is your company name being used as a tag? It might bear looking into. I was impressed to learn there is even a search engine product—oodle—that scours online job listings and aggregates the information. Is your competitor advertising a new position for what looks like a new product line?
Then there’s Edgar Online. Edgar is the SEC site that captures and makes available public filings on public companies. It gives you a window into the health of public companies. There is also SeekingAlpha which lets you subscribe to the RSS feed of conference call transcripts (think earnings calls). Also, Google Patent Search (beta) is self-explanatory.
There’s more too. Marketing Pilgrim (www.marketingpilgrim.com) lists 26 of these and similar sites that are available free to track what the world is saying about you and yours. I don’t have the heart or the stamina to go into all of them though.
What’s the net of all this? A couple of ideas. First, social media is not just for individuals, companies can make very good use of free filters to understand customers and competitors better.
Remember clipping services? They were dedicated to scouring magazines and literally clipping articles for you. Every month you would get a file of clips that helped you understand what the market thought about you last month, or more realistically, three months ago when the reporter filed the story, in the case of magazines.
Now it’s instant. Everyone is a reporter too, wittingly or unwittingly. That photo of you or your boss three sheets to the wind and scantily clad playing tiddlywinks at midnight at the user conference in paradise last month was a lark but it ended up on-line. Can you say damage control? In the arms race that is marketing, you need to know because your competition wants to know and you know what that means.
As you might expect, there are consolidators of these filters and companies that span the differences in media and I think they bring a certain cloak-and-dagger quality to all this. Imagine being able to get a clippings service worth of this kind of information streaming into your face every day. The sheer volume of information out there is impressive and there is almost a CIA-like (I am sure they will track this keyword, Hi, guys!) quality to getting this kind of market intelligence.
It’s a great use of technology but I wonder about some of the ramifications and potential for abuse. In the time it took to write this, it feels like social media just grew up.
By: Denis Pombriant