OpenWorld 2017 and beyond
I spent the first week of the month in San Francisco at Oracle’s customer event, OpenWorld 2017 and when I wasn’t drinking from an information fire hose, it was alternately fascinating and exhausting. There were major announcements in database, blockchain, AI, cyber security, and other stuff I have only a tangential association with. For instance my eyes glaze over when they start talking about bare metal servers and going serverless so I’ll limit these observations to database and security with a few dashes of other things.
But primarily OpenWorld 2017 was a coming out party of sorts in which the culmination of billions of dollars of investments in advanced technologies became unavoidably visible. From here on Oracle might still support its legacy customers but make no mistake, they are legacy and the future is at minimum about moving the datacenter to the cloud and moving your traditional licenses there. Oracle even has a name for that practice BYOL or bring your own lice
Oracle is making that task as easy as it can be and I spoke with customers who were doing it or just finishing who were pleased with the experience. We don’t often think about it if we keep to the big picture but there are a lot of old systems in the enterprise that need to be replaced because they no longer support their missions. There is no better indication than that for determining that the next few years will be full of stories about cloud migration.
The key to successful and necessary transfer to the cloud is Oracle’s autonomous database, 18c. The new product will be available by end of year and is supposed to self-provision, self-maintain and self-patch while running thus eliminating the need for most downtime. CTO and founder Larry Ellison said that it takes an average of 13-14 months from when a patch is available to when it is installed in a majority of customer shops. If a patch covers a security problem that leaves bad guys a huge amount of time to steal data, which has become epidemic.
As Ellison said in his opening night keynote, “People are going to get better at stealing data, and we have to get better at protecting it.” Fair point. The database will be a big part of that protection along with some semi-autonomous security software (that will become autonomous soon enough). Both products rely on Oracle’s AI and machine learning tools as well as advanced database hardware.
That’s the catch, but it seems eminently reasonable: you have to be on Oracle gear to get the full benefits of the software’s power. Actually it’s less of a catch than you might think. While there are enterprises that are big enough to need and to purchase the hardware, many if not most, customers will receive the full benefits of Oracle’s technology as consumers of its cloud services. So many of these announcements can be rightly seen as further inducements to move to the cloud.
Ellison is fond of saying, “You can get all of this, but you have to be willing to pay less.” That’s fair if you’re looking at the monthly or annual subscription charge but one suspects that over time many companies will be paying more overall though there’s the issue of refresh that many companies avoid but which are a standard part of the cloud. We’ll see, in the end you get what you pay for.
Oracle also announced a foray into blockchain, the distributed ledger technology that provides greatly enhanced security, speed, and transparency to inter and intra-company transactions. For instance you will soon be able to use blockchain to track the provenance of parts in a supply chain, and one can only hope that credit reporting adopts similar safeguards in the future. We can also hope to track some customers and their purchases that way, especially in a B2B setting to facilitate sales.
Lastly, there’s AI and data. Whether it’s called AI or machine learning, the technology requires lots of data to train a model to be useful in predicting the future. Most enterprise data is deficient in one or more axes of data on hand so Oracle’s solution has been to provide clean data to augment private data and deliver the big picture view that’s needed in sales, marketing, service and a lot more. Oracle also introduced a new set of IoT applications aimed at specific business outcomes. It’s impossible not to say more about this later.
But to summarize, Oracle’s long-term investment in cloud technology has begun to pay off. We’ve seen this in the company’s earnings reports over the last year and OpenWorld was a kind of coming out party for numerous solutions at literally every level of the software (and hardware) stack. The company will be a formidable competitor in the years ahead as its legacy base is up for grabs. They’re all going to move to the cloud at some point and Oracle wants to keep them. Other vendors with good solutions are competing at every level from Amazon and Google to Microsoft, SAP, and Salesforce. At Oracle OpenWorld 2017, Oracle more than made its case. Time for the others to step up.
Taming the world’s wild web and figuring out Facebook
Facebook is big, profitable, growing, and at a crossroads. The little social network that started in a Harvard dorm room is no longer the cute app that people can use to hook. It’s going through its terrible two’s as in its second decade and there’s plenty of evidence that the world wants it to use its indoor voice and to play nicer in the sand box.
Several recent news items provide background.
First, governments all over the world are trying to rein in its anything-goes approach to its presence on their turfs. In the West we might think a lot of the right to free speech but that’s far from a universal truth especially in the East. An article in the New York Times highlights Facebook’s fungible approach to free speech in repressive societies like Vietnam where according to authorities, the social network
“…had agreed to help create a new communications channel with the government to prioritize Hanoi’s requests and remove what the regime considered inaccurate posts about senior leaders.
It’s hard to tell what’s worse the company’s stand on the first amendment in this country or its capacity to be easily rolled over on the subject by foreign dictators. It seems they’ll do anything to gain market share with which to sell ads. Facebook is happy to aid and abet repression while at the same time it stonewalls investigations into how its service was leveraged in the 2016 election.
Perhaps most dangerous to life as we know it, Facebook is not in control of its sales process or its platform. In the mad rush to sell, sell, sell their algorithms inadvertently sold questionable ads to people fronting Russian institutions during the 2016 election. After denying it for months, the company finally came clean admitting as much last week. In the process they gave up a number of ads to the authorities and cancelled the accounts of fake individuals. So much for fake news, there are now fake people to worry about.
Reporting in the New York Times as well as most major media outlets says that
“Facebook has identified some 2,000 other ads that may have been of Russian provenance,”
and CNN chimed in that “…we may not be able to set the number at 2,000, it could be higher.”
Worse, it’s clear that law enforcement doesn’t know what it doesn’t know. Another Times story says that
“The users who purchased the ads were fakes. Attached to assumed identities, their pages were allegedly created by digital guerrilla marketers from Russia hawking information meant to disrupt the American electorate and sway a presidential election.”
The times also said that we still don’t know what the ads looked like, the content, who paid for them, and how many Americans interacted with them. There’s even more to the story and it’s easily pursued through the links provided in this story.
This is important because it profiles a company and an industry that grew fast, reaps huge profits and is poised to influence how we live and it is being coy about its legal rights and responsibilities.
This is a difficult road to tread. On one hand we have federal law, the Electronic Communications Privacy Act xxx 5, which prohibits government from unduly spying on electronic communications. While that might seem reasonable, should the protections of this law apply to foreign governments intent on disrupting a US election at the same time that the Federal Elections law prohibits any spending on American elections by foreign entities?
In many cases, social networks like Facebook, Twitter, and the other social sites like What’sApp, WeChat, Snapchat, YY, VKontakte (Russia), QZone (China) are awakening to their responsibilities in free societies, or have reached critical mass to impose significant strictures on the free flow of information around the world. It’s a situation that cries out for the “R” word, regulation, before freedom of speech becomes a quaint memory.
My take
Some of my friends say this is no different from the US having tried to influence elections overseas for decades. They are right about US attempts but the US always did so in an above board way. We identified ourselves for instance as the Voice of America. We didn’t invent fake news we simply reported the truth, which was often bad enough. In the 1960’s former Illinois Governor and UN ambassador, Adalia Stevenson, told the Soviet Union, “I offer my opponents a bargain: if they will stop telling lies about us, I will stop telling the truth about them.” That’s the fundamental issue.
In disguising their efforts to upset the 2016 US election, the Russians hid their efforts in social media, inventing fake identities and made effective use of psychological research to plant ideas that divided the American people. They didn’t need to hack into voting machines (though they did some of that too).
In the aftermath a bigger set of questions arises for free societies and for heretofore unfettered social media companies like Twitter and Facebook. Is there a point beyond which appearing to protect cherished values like free speech does more harm than good? More specifically, is there missing nuance to such positions?
Other societies such as the EU are chafing under the open rules of a Vox Americana and are they are organizing to circumscribe not only Facebook but the other big American companies that make up what they’re calling GAFA or Google, Apple, Facebook, and Amazon.
Various governments have serious objections to how these companies operate and it would not be surprising in this era when they are, for the most part, maturing into their colossal world-girding selves, to see some initiatives to regulate or even break up these behemoths. It would be smart if the GAFA members plus Über and a few others, decided to short circuit the uproar and develop a set of rules to live by that go beyond not being evil, whatever that means. But that’s not how free markets typically work.
Counting down to ASC 606
There will be little New Year’s Eve celebrating but much potential morning after hangover for US businesses not preparing for ASC 606, the Financial Accounting Standards Board’s (FASB) new rules about revenue recognition set to go into effect on January 1, 2018. The news is much the same for Europe though with only the rule’s name being different; for them it will be IFRS 15.
A recent KPMG report, “The Deadline Is Approaching for Accounting Change” has some hard numbers and equally hard facts, among them, the change is hard to do. Where have we heard this before? Some findings include,
- Even though the effective date for revenue recognition is just months away, 60 percent of public companies said they are facing challenges staying “on track,” and a similar percentage of private companies felt the same way.
- Only 6 percent of respondents believed they were faced with minimum impact requiring “little of no action” on their part
- Total expected implementation costs had increased from the prior year for 57 percent of the public company respondents
- Most respondents did not think the new rules would have a significant impact on their company’s tax issues
- Internal communications need to be improved; 33 percent said C-level executives had little or no involvement in the process
Additional data shows that the largest clusters of companies were either still in the assessment phase (39 percent) or in implementation (35 percent), only 6 percent said their implementation was complete.
With so much foot dragging, it’s a reasonable bet that a healthy number of companies will miss the January 1, 2018 implementation deadline. Then what? To put it all in perspective, many companies don’t have a revenue recognition issue and 57 percent, according to the survey, say their organizations are not planning for system changes for the new standard. This may be a good indicator of the percentage of companies throughout the economy don’t rely on subscription business, at least not yet.
But it’s hard to see what companies are in this group. Even companies as old school as Caterpillar, the earth moving equipment maker, have significant initiatives in offering their products as services. So, a logical follow up might be, why aren’t these companies more focused on the economic opportunity provided by subscriptions?
The answer might lie in the way that subscriptions have been handled so far. With few standards for revenue recognition or definitions for how sales are booked and commissioned, it’s likely there are companies that offer some form of subscription services that don’t think the new rules apply to them. But since the new rules also apply in the EU and there are penalties for non-compliance, we might look for a sudden burst of activity in this area after the first of the year as the laggards finally discover that the new rules really do apply to them.
To be fair though, there really are companies for whom the new accounting standards really are a non-issue. Zuora, the subscription billing and financial management company trying to shepherd as many businesses as possible into the new standards, has developed a website that tracks many big-name companies that might have an issue with the new rules. Indeed some do but it’s surprising the number of them that don’t foresee an impact on company cash flows, including Salesforce, Caterpillar, General Electric, and many others. Perhaps that’s because these companies are so big that they’ve had to deal with revenue recognition for a long time. Or perhaps they’re so rich that they’ve been tracking the issue and getting ready for it. The information is gleaned from public records of 10-Q filings so it’s reliable.
What’s a company to do if it doesn’t fall into any of these buckets? It’s not too late and Tien Tzuo, CEO of Zuora has this advice.
“Even if a company has not yet started their ASC 606 project, there are a few things they can do to get set up for reporting under the new standards immediately. First, get an accounting firm to do an assessment and determine the risk of impact on revenue. Then, identify the timeframe required to fully automate revenue recognition to reduce that risk. If that’s not possible, a company will be forced to suffer with expensive, manual-intensive labor to report on time. Doing manual calculations will be error prone and can cause restatements later due to complexity of 606. If you’re stuck doing manual processing now, think about launching an automation project at the same time to collect data and analyze it for the first reporting cycle under 606.
Ok, it’s time for the other shoe to drop. All of the above is for the consumption of public companies. If you work in a privately held company, and especially if you’re one of those large pre-IPO outfits called unicorns, you’ve got an extra year to figure this all out and you ought to do it ASAP. As Tzuo points out the danger for the unicorns is this,
“Deloitte released a new survey of 3,000 companies indicating slow progress among private companies on implementation of the new revenue standard may delay IPOs. That’s a bad sign, especially when Fortune’s Data Sheet reported that the IPO window is now again open for tech companies following successes of Roku, CarGurus and MongoDB.”
Imagine working for ten years to build a company and bring it public but then failing to do so at the optimal time. Come to think about it, don’t, it’s too depressing. Better to get to work on finding your optimal solution. It’s out there.
The road to Dreamforce, Salesforce IoT strategy
Salesforce is a large and well-disciplined development company. They’re pretty good at marketing too. They continue to innovate in all product areas from core platform to applications and the one criticism I’d make is that it’s information overload at times. Reminds me of Oracle.
Lately they’ve made a big deal of adding their AI product, Einstein, to every application area to provide insights and stack rank options. Given that this is the first year of Einstein, it’s not surprising that the foundational layer looks similar across all of Salesforce’s disciplines; in cloud after cloud we some version of next best… . I expect that we might see examples of this at Dreamforce.
But back to discipline. Salesforce is paying a good deal of attention to the applications level these days in addition to spiffing up its platform and it’s noticeable in banking and finance as well as in the IoT but the differences in approach are what’s most interesting.
In IoT, the company is taking a very different approach than in finance. The company recently announced IoT Explorer and the ability to develop IoT applications quickly. App building tools are a part of the platform so it’s not much of a surprise that more agile development is coming to IoT though it reveals an interesting take on company strategy.
IoT has a lot of moving parts right now and the natural inclination for some might be to try to dominate the end to end process from intelligent devices to connectivity to IoT platforms and finally on to business applications. But three of these four areas might easily not bring in a nickel for a company like Salesforce. Specialized vendors that Salesforce would have trouble competing with dominate devices and connectivity. IoT platforms is a similar area with companies like Amazon Web Services dominating. So Salesforce wisely didn’t try to compete and is dedicated to supporting the leading platforms leaving the business application area as its chosen place to compete.
By focusing on the apps, Salesforce is positioning itself as the key to capturing value from investments further up stream in devices and platforms. Typically a business might make independent decisions about those areas and the business app company better be able to work with whatever is in place and that’s the strategy.
Given the state of the early IoT market, it makes good sense to go with an app development strategy. It’s too early to have standardized apps that vendors might want to buy off the shelf so having a quick and efficient development tool set makes all the sense in the world.
On the other side of the industry there’s financial services and banking, two mature marketplaces with specific application demands and here the strategy is less about new development than it is about using the platform to make clean and effective changes to process oriented operational systems. So in banking and finance Salesforce can deploy its many platform based tools as well as partners like nCino and Vlocity to produce systems that cover the institution’s critical processes, like loan origination and customer service. Again, Dreamforce might have more to reveal here.
Salesforce gets granular
If you need an example of digital disruption, you can’t do better than the retail banking industry. A byzantine collection of rules and regulations plus the overhang of many legacy systems have conspired to prevent banks from becoming more involved with their customers. And even innovations like the ATM from several decades ago, only serve to distance banks from their customers. This leaves plenty of opportunity for upstart technology vendors to disrupt the applecart. All of this combined with a generation of potential customers who were raised on digital products and services puts an important demographic up for grabs thus setting the stage for disruption.
Not long ago Salesforce recognized the dynamics in play and moved to develop vertical applications for selected industries including banking where large institutions need to address the requirements of large customer bases. The result is the Financial Services Cloud for Retail Banking, announced last week.
Some of what Salesforce delivers in its Financial Services Cloud will seem revolutionary to many bankers. Things like a rich assortment of applications for all phases for banking from loan origination to customer management. But a good chunk of the benefit comes directly from being a cloud solution with easy onboarding and updates scheduled three times per year.
Where the Salesforce Financial Services Cloud differs from many banking products is in how it brings together banking products resident in its AppExchange that together deliver concerted solutions. For example, nCino tells a powerful story of reducing loan origination time by orders of magnitude not by building a closed system but by integrating other platform products.
Vlocity, another partner with strong banking apps based on the cloud platform is another example. It provides intelligent agent and omni channel services for financial services and insurance. In these and other relationships you can see the Salesforce go to market approach solidifying. Partners bring expertise, which can be as big as loan origination or as specific as document signature capture. All of it goes into a solution that customers can craft for their specific industry needs.
As I’ve noted many times before, when companies get to the multi-billion dollar revenue level, they can’t expect to sell the same products in the same ways they did when their businesses were much smaller. To show growth a business needs help and that means acquiring other complementary businesses and selling in concert with partners that can add specificity to the core product. Salesforce has done both and I look forward to hearing more about vertical strategies at Dreamforce.
