What is on-demand?
I have an on-going conversation with an industry executive about the nature of on-demand, SaaS and Cloud Computing. The central question is what is it exactly? Our conversation is always thought provoking and I come away from it with at least some additional perspective. Some times I think the discussion is incredibly philosophical like the question about a tree falling in the forest — does it make a sound if no one is there to witness it?
I was always flummoxed by the tree question. Of course it makes a sound I thought. But then my kids, who are musicians, explained to me that sound is the perception of certain energy waves emitted by the falling tree. Kids! When the tree falls it certainly makes those waves but unless an ear and therefore a person or some other animal is there to hear it the energy is never converted into sound.
So my conversation with the executive goes like that. Is SaaS just application hosting with delivery through the Internet? Is it SaaS if the hosting service is completely within the company? Can a company with such an infrastructure support remote sites that way and claim to have its own cloud?
These are all good questions and they are issues that we are still dealing with. The SaaS and Cloud Computing market is still so new that there are many issues like this that have not been nailed down yet to everyone’s satisfaction and they may never be.
It is my belief that you can’t separate SaaS or Cloud Computing from a multi-tenant architecture. Over the years, and as I have written before, the difference between SaaS computing and conventional applications that are hosted have dwindled to a small core largely consisting of the multi-tenant issue. Initially, conventional applications were client-server and hosting them meant using virtual private networks and high server overhead. They were definitely not SaaS.
Vendors have done a good job of bringing those client-server applications into the Internet age — the user interfaces run in browsers like SaaS applications do, and some even offer the capability of multi-tenancy. Some vendors have become good at offering a choice of hosting options to customers, so are then truly SaaS? Are they candidates for Cloud Computing?
The answer is complicated, like the issue of sound and the falling tree. First things first. As long as a customer has the option of multi-tenancy then I think it’s not possible to call a solution SaaS or Cloud Computing. In an optional setting like that the vendor still has to manage and maintain multiple versions of the application and with that comes all of the overhead and complexity of conventional computing.
Ironically, a vendor who offers the same software as both single-tenant and multi-tenant instances straddles definitions. A customer using that software as a service in a multi-tenant mode is using a SaaS solution. But a customer using the same software tucked behind another company’s firewall in single tenant mode is simply using a conventional solution and the same can be said of a company using a single-tenant solution in some other data center — that’s just facilities management.
As for Cloud Computing, I think it’s not possible for a company to have a private cloud. A private cloud is like an old cell phone gathering dust on a shelf somewhere. The very idea of the cloud is of a network, a communally accessed resource for accomplishing a growing list of personal and business pursuits.
I suppose a company could have and make good use of a private section of the cloud but there is a big difference here. Private clouds imply many incompatible little networks and what good is that? Recall that Metcalfe’s law says that the value of a network is proportional to the square of the number of connected users.
But I think the best way to come to terms with SaaS and conventional computing is through the business model. True multi-tenant SaaS leaves the user completely unconcerned about the nitty-gritty of system ownership — the licenses, the versions, the compatibility, the hardware capacities — all of that is hidden and immaterial to user decisions about provisioning.
The multi-tenant SaaS business model is simpler and much less costly and for that reason it is catching on globally, especially in places where infrastructure costs are simply not affordable. More importantly, though, it’s clear that multi-tenancy is the new standard because the business model is a better fit for the times and for the growing world market.
I expect that single-tenant solutions that look very SaaS-like will be around for a long time for several reasons. Most importantly, there is customer demand — some customers are still not on board with the idea of multi-tenancy either for personal reasons or because of various restrictions. Second, many vendors have not yet converted their technology and so they will continue selling what they have. Third, some vendors’ business models can’t stand the strain of converting — it may still be too early to try to convince investors that a business model shift makes sense.
Business model conversion may prove to be the biggest obstacle.
Fall line-up (in addition to Baseball)
I am looking forward to the fall user group meeting season. Name a company and they’re having an event for customers and/or analysts. I can easily count Salesforce, Oracle, Sage, RightNow, SAP and Microsoft having events before then end of the year and there are many smaller companies hosting them too. Personal commitments are preventing me from going to all of them but nonetheless the frequent flier miles will add up.
I heard a delicious rumor that Marc Benioff will be speaking at Oracle Open World. In fact, it’s more than a rumor but I will believe it when I see it. Of course, Benioff at Open World makes perfect sense, it’s as natural as HP being there but I know what you’re thinking. Why?
I think it’s a great example of that old word, “co-opetition”. On some levels you compete and on some levels there might be a vendor-client relationship. For example, Salesforce uses the Oracle database heavily and is one of a small group of companies on the planet that gives Oracle a heavy duty workout. No disrespect to others, but Salesforce occupies a unique place for while other companies might have more users in, say, an e-commerce setting, Salesforce operates a very different paradigm that we all know is becoming the center of the IT universe.
I am looking for big things from all the majors — announcements that I hope will propel our industry and the economy as a whole as we gear up to get out of this recession.
- Oracle has to deliver on some of the promises made during its acquisition phase a few years ago.
- Salesforce can easily announce some new initiatives in CRM and Cloud Computing.
- Sage announced recently an initiative in cloud computing and I am looking forward to details.
- RightNow made a play for HiveLive thus getting into social CRM and they’ll no doubt have more to say late in October.
- SAP has been quiet lately so it would be a natural for them to break out with an announcement in December in Boston.
- Finally, Microsoft is having an annual analyst event in November and I expect them to keep up the momentum of recent CRM announcements.
- On the next tier several companies are also planning smaller events and it will be interesting to see what they do too.
The smoke signals suggest an industry that is planning an early breakout from the recession. I wish them luck and hope their timing is on target.
Zuora Media Edition
I have been writing for a while about the tough times in the publishing industry, especially newspapers though the pain extends to magazine publishing too. The nub of the situation is that the boring but predictable revenue streams that papers and journals get from advertising is quickly drying up. Add to that the challenge that younger readers gravitate to on-line (read “free”) information sources and you have an industry with transition pain. Though newspapers still distribute plenty of copies daily many analysts, myself included, have concluded that printing is a sunset technology for much of information transmission.
The road out of this conundrum is for papers to sell electronic subscriptions profitably but the infrastructure doesn’t really exist and the papers have shown little interest in building it. Sometimes it’s like watching a drowning man refusing help.
Since buying a newspaper can safely be characterized as a micro purchase, some mechanism that is efficient and very low cost must be found to make it all work. But even a completely frictionless transaction will not provide a paper with a revenue stream that compensates for the dwindling ad revenue and there’s the rub.
Since most big papers are owned by an even bigger public corporation, the idea of losing money or even making less of it for a time — while a new paradigm gets established — is anathema. Rather than continuing with an increasingly out of date paradigm, a smart paper might want to consider planning a transition from print to electronic distribution and with it an on-demand billing and payment system.
As you can see there are many competing needs for any solution that will rescue the newspaper business and for once, a government bailout will not do much to fix these structural problems. No doubt about it, this is a tough nut to crack but today at Demo in San Diego, Zuora announced a new product that might be the missing link to the eventual solution.
Zuora Media Edition is a billing and payments solution that can provide as close to frictionless product billing as possible and it delivers its solution from an on-demand system in the cloud. Most importantly Zuora Media Edition has capabilities that can enable a newspaper to better configure its products for individual customers. Here’s how I envision it working (and no one at Zuora told me I was wrong).
A paper has multiple brandable components. Traditionally the way a paper makes money is to sell ads and content to its subscriber base in a physical geography and papers can also sell their components through syndication to other papers. Editorialists and cartoon creators are the two most recognizable kinds of syndicated content providers that come to mind. But what if your sports section is in high demand in other cities because ex-patriots follow the team or because they’re in the playoffs? Or what if your book review section (we’re talking about you, New York Times) was highly regarded in its own right? Often the only way to get that section is to buy the whole paper if you can get it.
With electronic distribution though, and a billing system that can manage high-volume small transactions, a paper could think about selling single section subscriptions. Depending on the section the revenue might be enough to replace some of that advertising revenue that went south.
But wait, there’s no reason that a paper with a streamlined billing and payments system can’t compete for the ad business again. People went to online job ads, personals and classifieds not because they hated papers but because those sites were better than conventional printing. There is a reasonable chance that, if a paper could be competitive with other advertising media, that it could win back some of the advertising it lost.
You can make a similar argument for magazines though many are still selling many, many pages of advertising. Just look at Vogue, for example. But all magazines are not as fortunate as Vogue. What’s the cost of sending out multiple renewal reminders for a twelve-dollar subscription to a monthly magazine? And does anyone else see the irony in asking the customer to mail in a credit card number to complete the transaction?
As I see it, there are two keys to a “print” renaissance. First, the publishing companies need to get into the current century and adopt a business model that makes and distributes content rather than one that processes paper and ink and distributes from trucks. But they can’t do that without a business model supported by modern technology. That’s where electronic billing and payments come in and that’s why I think Zuora makes so much sense. But what do I know? I’m just an analyst.
Salesforce gives a peek at success
Salesforce.com took an interesting step in its evolution as a platform company today. The company has been in the process of expanding its footprint over the last few years moving from an on-demand application for front office business practices to a Cloud Computing Platform with the intent of moving enterprise computing from the glass room to the Internet. (They have also repeatedly added that they have no intention of exiting the CRM business.) Today they pushed further down that path with an analyst-only briefing featuring one of their customers — Fort Worth-based 20/20 Companies.
In the set up Salesforce revealed some of the results from an internal customer survey of one thousand randomly selected companies from 25 industries. Salesforce Vice President of Product Marketing for Force.com, Ariel Kelman, said that 27% of those customers had already built custom applications using Force.com the company’s cloud platform.
There is no way to verify the data but we know that Salesforce is a stickler for accuracy so the claim of nine times faster development and a 58% cost savings average sounded reasonable. More interesting to me was the statistic that said the average company had built not one but five applications. Clearly, the first experience was good enough to lead to more.
The top five application areas for the survey group in order were: analytics, project management, contract management, quote/proposal and event management. The list is pretty long but what strikes me is that the AppExchange has pre-built products in most of the areas surveyed for so some explanation is needed for whether the developments started from scratch or were integrations with existing applications. For example, the top category, analytics, is not something you’d think that a developer using Force.com would build from nothing. More data here would be enlightening.
The top five barriers that customers surveyed faced with on-premise development resonate and they include ability to customize processes, lack of IT skills, poor requirements, lack of capital and integration costs. The whole point of platform computing is to help reduce most of these needs so that, for example, companies that lack skills or capital can take on projects because they require less.
One thing that platform computing won’t help with directly though is the issue of poor requirements gathering. For as long as there has been software we have lived with poor requirements but the good news might be that with advanced tools, planning can be replaced by iteration. There is far less pressure to get it right the first time when you can easily make a change.
Then Mark Warren, acting CIO, 20/20 Companies, came on to describe how his team developed a complete order to invoice to payroll application for his company that specializes in high quality marketing and sales services. The applications were impressive though the cost savings did not reach the 58% that Salesforce had announced. Warren said his three-year cost for the Salesforce solution was about $1.7 million against the estimated $2.0 million for a .net approach. Warren indicated that the Salesforce solution took only ten weeks to deliver compared to a .net estimate of six months or possibly more. So the risk reduction was certainly an issue for Warren.
Finally, Force.com was not the only product in the configuration but this deployment shows how useful the platform was for integration. In addition to force.com, 20/20 used Data Integrator from Pervasive and Crystal Reports from Business Objects for analytics.
There was no demo though Warren said they had met their objectives with the project. This was a good first effort by Salesforce to bring to the world some indication of the power and real world capability of Force.com and certainly a customer relating his experience is valuable. But it would be better in the future if some independent parties got to kick more tires.
Evil, thieving bastards
I saw this on the Huffington Post and thought it said a lot about CRM. A California woman has refused to pay her bill for a credit card she has with Bank of America. According to Huffington Post, Ann Minch “has carried a balance of several thousand dollars on her Bank of America credit card, making minimum monthly payments of about $130, sometimes paying and extra $50 or $100. She says she’s never missed a payment.”
Minch’s beef is that for all her good behavior and customer loyalty the bank repeatedly raised her interest rate this year, reaching 30 percent in July.
It gets better.
Minch decided to make her fight with the bank public and posted a four-minute video on YouTube to explain her actions and to demand the bank negotiate and reduce her rate. You can see the story here.
Minch is not alone, especially in these hard economic times. Many people carry balances on their cards and pay monthly interest. Banks are only too happy to carry the balance and collect the interest because at 15, 20 or even thirty percent interest it doesn’t take long for the borrower to pay the bank more than the original card balance. For banks, card balances are the gift that keeps on giving.
According to creditcards.com as of June 30, 2009 Bank of America was the number two general purpose card issuer ranked by outstanding debt ($150.82 billion). In 2008 BofA was number three for cards in circulation with 80.2 million and based on outstanding debt in 2008 it was number two with 19.25% of the market. It was also number two in profitability in 2008 earning $520 million in profit. Interestingly according to J.D. Power and Associates 2009 Credit Card Satisfaction rankings Bank of America was tenth with a score of 687 out of one thousand.
Credit cards are a form of unsecured loan with the key differentiator being the loan originator. It’s you and me, not some loan officer. The banks can’t walk down the hall to tell you to stop making silly loans to yourself all they have is the interest rate lever to do that with. So to influence behavior, they jack up the rates they charge in the hope that you’ll stop charging until you get your income and expenses in line.
The difficulty comes when money borrowed at one interest rate is suddenly assessed a higher rate. It’s like moving the goal posts and paradoxically, if you had trouble making a payment at 15 percent, 30 percent will not be an easier climb.
Lest you think that the bank has all the leverage here consider this. Minch says in her video that she owns no property and was laid off. There’s nothing that the bank can do to compel payment — they can’t seize her home or car and the bank can’t garnish her pay.
The bank can and probably will take her to court but as she correctly points out in the video, the civil courts are backlogged and it could take years to get the case heard. Meanwhile she rails against Bank of America and all banks that have received federal bailout funds from the people of the United States and then turn around and treat their customers the way she has been treated.
It looks like a Mexican standoff but it could turn into a circular firing squad because Minch’s goal now is not simply to get the bank to reduce her interest rate — she wants to spark a revolt against big financial institutions and in the video refers to them as “evil, thieving bastards”. So far her video has been seen about a hundred thousand times. It’s going viral thanks to social media and it points to the importance of every vendor having good policies and procedures in its CRM strategy (not just tools, strategy) to avoid this kind of nightmare scenario.
