After Davos
Some of the global leaders attending WEF in Davos.
The just concluded World Economic Forum in Davos, Switzerland, was a time for world political and business leaders to come together to think bigly. But it would be a mistake to think that a confab of leaders would produce the last word on anything though you can certainly see the outlines of the future from what they all said.
From another perspective though, Davos, looks like an echo chamber of the bright and the powerful talking about what would be good for them, not necessarily what would be good for the global community. An article from the conference by Joe Kaeser, president and CEO of Siemens, AG provides a synopsis of the meet-up and its ideas giving a strong and unintentional implication of what could go wrong.
He begins with a big idea percolating at the conference, the Fourth Industrial Revolution:
Although we have only seen the beginning, one thing is already clear: the Fourth Industrial Revolution is the greatest transformation human civilization has ever known. As far-reaching as the previous industrial revolutions were, they never set free such enormous transformative power.
This would be the first time a revolution of this type was telegraphed in advance. Usually they are discovered by historians and other social scientists trying to figure out how we got here. Kaseser implies we know where we’re going and we do but only in a general sense. We need to maintain some respect for randomness as expressed by Ian Malcolm, the character in “Jurassic Park”. Malcolm was always reminding us to consider the unknown unknowns. For him it was living things mutating, for us it’s the free market, mutating. As for great transformations, let’s not forget inventing agriculture and civilization back in the Bronze Age.
Kaeser’s piece is really a self-serving paean to technology, which his company knows a thing or two about. But it should not be taken as a recipe for future success. He writes,
If we get the revolution right, digitalization will benefit the nearly 10 billion humans inhabiting our planet in the year 2050. If we get it wrong, societies will be divided into winners and losers, social unrest and anarchy will arise, the glue that holds societies and communities together will disintegrate, and citizens will no longer believe that governments are able to fulfill their purpose of enforcing the rule of law and providing security.
Acknowledging there will be 10 billion of us on this tiny planet by mid-century is good. But it would be better if he acknowledged that there are more than 60 million people on the run from their countries according to the UN, because they are (mostly) climate refugees. Another 780 million people live on less than $1.90 per day. Provisioning for these, and other, classes of unfortunate people, classes that are likely to grow by 2050, should be something that Siemens and the other engineering and tech companies at Davos will of necessity have a hand in. Absent that the descendants of the politicians in attendance will have some harsh conflicts to settle one way or another.
Last week the New York Times ran a story that could easily foreshadow a more dystopian world at mid-century. In “Warming, Water Crisis, Then Unrest: How Iran Fits an Alarming Pattern,” Somini Sengupta writes of the devastating affect climate change has on the world community,
Nigeria. Syria. Somalia. And now Iran.
In each country, in different ways, a water crisis has triggered some combination of civil unrest, mass migration, insurgency or even full-scale war.
It traces how declining water resources turn farms to wasteland incapable of producing crops to feed domestic populations. Sengupta writes of Syria,
Its drought, stretching from 2006 to 2009, prompted a mass migration from country to city and then unemployment among the young. Frustrations built up. And in 2011, street protests broke out, only to be crushed by the government of Bashar al-Assad. It piled on to long-simmering frustrations of Syrians under Mr. Assad’s authoritarian rule. A civil war erupted, reshaping the Middle East.
The Syrian mess, along with Nigeria, Somalia, and the potentially nuclear tipped Iran, could give very different meaning to Kaeser’s trope “If we get it wrong, societies will be divided into winners and losers, social unrest and anarchy will arise.” By the way, that’s not even all of the bad news. The Times article also offers this,
“The World Resources Institute warned this month [January 2018] of the rise of water stress globally, “with 33 countries projected to face extremely high stress in 2040.”
You can count China and India in that group right now. Both countries have nukes and they might also have the wherewithal to escape that eventuality but others might not be so lucky.
My take
It’s great that Davos turned its attention to the world at mid-century. But it would be greater if they and we didn’t stride around thinking that we have it all figured out. We don’t. The free market and human behavior can assure us of this. The problem of too many people and not enough resources should be top of mind in a gathering like this for if we can’t discuss these hard issues at Davos, where can we discuss them? And if the answer is that we can’t discuss them anywhere then what’s the point of rich people swarming over the Swiss Alps in winter like ants at a picnic?
Discussing 4IR in mostly technological and economic terms short-changes everybody. It frames a discussion of the future that only extends the current technology paradigm but doesn’t replace it. The paradigm has served us well but the demands of the future include more jobs and more resources to support more people, not automation and commoditization. They are polar opposites.
But the free market is operating just fine. Next year virtually every carmaker on the planet will begin bringing out electric vehicles in quantity. That is a signal event that will transform the world creating new market demands and reshaping the world. It will help to determine, what we make and how we sell it and where and how we live. That’s a revolution. Davos will catch up but as a fast follower and not as the innovator it fancies itself.
Salesforce’s pivot
Faced with increasingly robust competition on all sides Salesforce is doing what comes naturally. It is proactively innovating including increasing its market by creating new customers. That’s no easy trick but they found a way.
In my research I’ve seen that diffusing a disruptive innovation throughout an economy is inversely proportional to the cost and effort required of the customer. After all it’s the customer that determines what to purchase and on this the future success of almost any new endeavor rests. Telephone, electric service, cable TV and many other disruptions over the last two centuries succeeded both because they were desirable and because vendors made it simple for customers to adopt them. You might quibble with cable but desirability and ease of use form a product that is diffusion and the multiplicands are often not equal.
Salesforce is a leading vendor of cloud computing but its success has attracted a legion of competitors and all of them seem to be nested at the intersection of lower cost, ease of use, and fast time to market. All of them are right too. However, each has the same diffusion challenge and all are discovering that their cloud universes are not exactly analogs of their on-premise business. In other words they need to behave differently in the cloud in no small measure than because customers can easily leave.
As a company born in the cloud, Salesforce has been watching this phenomenon play out for most of two decades so it quite possibly has a lead in thinking about how to address it. Part of the solution, introduced a couple of years ago, is Trailhead, an online learning and certification utility that teaches all sorts of skills relevant to Salesforce users. From system administration to development, with or without coding, Trailhead offers small digestible training courses and certifications that are all gamified. One’s value as a user and potential employee of a company using Salesforce is directly related to the number of badges or proofs of certification that you hold.
By implementing Trailhead, Salesforce has hit on an approach to growing its market while simultaneously creating career paths for thousands of individuals who might not have the “right” educational backgrounds for careers in IT. If you can succeed in Trailhead and earn badges you have the requisites for helping a company to be successful with Salesforce and you become a consumer of Salesforce services at the same time thus Salesforce is able to “create” customers or at least consumers.
According to Salesforce’s website, Trailhead is composed of 4 elements,
- Trails are guided learning paths that chart your course through Salesforce skills
- Modules are short self-paced tutorials that cover individual topics you want to tackle right away
- Projects reinforce your learning with step-by-step instructions on customizing Salesforce and building apps
- Superbadges are skill-based credentials that showcase your Salesforce skills
Perhaps most interestingly, Salesforce has recently opened up Trailhead to its ecosystem partners who can now build training elements for their Salesforce apps thus enabling them to quickly and efficiently train new users. Also, since its inception Trailhead has had its own conference as well as a massive cut out at Dreamforce. All of this adds up to more training, more learning and more qualified users to swell demand for Salesforce’s core CRM. But most importantly, Trailhead aims at developers who might at best only have a tangential interest in CRM. These people could easily build database apps for almost any purpose using the tools.
This directly translates into sales, which is Salesforce’s intention. There are well over 300,000 job openings for people with Salesforce skills so there’s clearly demand for some kind of training. Other Vendors like Oracle, SAP, and Microsoft no doubt have similar demand so attending to the training need is likely to be an issue for all of them in the near term. There’s already customer pain that has to be addressed. A study recently published by Nitro Software highlights the importance of training in customer success including,
- Insufficient user training is a common pain point, with 42% of organizations identifying it as a challenge.
- A collective 37% say user training, whether led in-house (19%) or managed by a vendor (18%), was ineffective during software implementations.
- The most neglected change management strategy is user adoption tracking—one in four organizations do not effectively watch this metric.
Source: Nitro Software
You might not think these numbers are high enough to be threatening but they can be additive affecting one of the key causes of customer attrition: failure of customer onboarding. Attrition in the early phases of deployment is especially expensive since it uses up resources without producing profits. Consequently customer training is becoming one of the most important areas of competition in zero-sum markets today.
My take
Salesforce’s competition includes Workday, Oracle, SAP, and Microsoft, to name only the most obvious players. Each has some form of training provided directly by the vendor or through a third party. But many, if not most, of the training appears to be specific to managing specific products and apps and not so much about getting to the internals of the system or performing development. It’s also unclear how they treat partners that develop solutions on their platforms or whether partners can develop courseware too. Training isn’t exactly sexy but it has the potential to upset some apple carts if it is ignored.
Salesforce’s triangulation strategy
Announcements may be playing the role usually reserved for M&A activity in the CRM world right now. Generally a company purchases another when it wants to capture the benefits of another business’ R&D or established market base. But at the moment it appears that the desirable partners are too big to swallow and the result is more partnering between the big guys and the really big guys. Salesforce has been pursuing this strategy for most of the last year with Amazon, Google, and IBM. This says a lot about the state of the marketplace on several fronts.
First Salesforce and Amazon announced a partnership in which Amazon and its AWS infrastructure service would become Salesforce’s strategic infrastructure partner when Salesforce absolutely had to deploy a data center in a foreign land.
This makes perfect sense. As I have often said, it makes no business sense to build (in this case a datacenter) when you can purchase the solution at a reasonable price on the open market. As a competitive issue, Salesforce’s choice of Amazon is a direct challenge to Oracle because it offers a safe haven enabling Salesforce to diversify its partner portfolio while keeping Oracle and Microsoft at arms length. Given the rumors of salesforce being acquired by a big tech firm over the last few years, this seems a good way to help preserve its independence.
Much the same can be said of the alliance with Google. This is primarily a play for more SMB business and it’s a good one. Salesforce and Google announced their partnership around G Suite, Google’s free office apps. A while ago Salesforce and Microsoft created an integration with Outlook effectively making Outlook another UI for Salesforce. This parallels Microsoft’s own integration with its CRM and Outlook. So this partly neutralizes Outlook as a differentiator in any CRM decision.
Google integration gives Salesforce access to all those G Suite users who need CRM, especially in the SMB space. It also gives Salesforce another way to compete against Microsoft CRM. But, of course, they didn’t stop there. Salesforce also now has an integration with Google Hangouts too, an effective counter to Skype which is now owned by Microsoft.
Away from the SMB space in the Enterprise market Salesforce also forged a relationship with Google Analytics. Not that they need more analytics but the two partners have developed plausible processes that use Google Analytics to surface macro trends and Salesforce Einstein to go the last mile, a model that works with IBM too.
Last week Salesforce and IBM got closer with Salesforce naming IBM a preferred cloud services provider and IBM calling Salesforce its preferred customer engagement platform for sales and service. The agreement leverages IBM’s Watson analytics and its cloud as well as Salesforce Quip (more office software) and Service Cloud Einstein.
In all of this we can see that Salesforce is working to maintain its independence by linking with anything that can enhance its CRM and make it less desirable as an acquisition target. But of greater importance, it’s these relationships and others like them that will help Salesforce reach its goal of $20 billion in revenues in a few years. When your revenue needs are this big, you need to leverage the market penetration of similar companies. And while all of the companies named are bigger than Salesforce, they each need the bragging rights of working with the most popular CRM in the world.
Another question in all this is what’s happening with M&A activity, which seems to lull while partnerships blossom. The merger market is notorious for running hot and cold and right now it seems tepid, like there’s more opportunity for large companies like Salesforce crafting relationships with bigger partners. It’s not clear if this means there are few attractive acquisitions out there or simply that the times require different approaches to the market.
More than once in talks since Dreamforce in November Marc Benioff has used the logic, my enemy’s enemy is my friend. This logic is being played out in the partnerships his company is spawning. On one level it’s just smart business but in the back of my mind, I see the information utility of the 21st century forming. It will resemble the current electric utility in that no single provider will dominate and a high degree of interoperability will be needed. Standards like 120 volt and 60 Hertz electricity are what give us the impression of a continental electric utility grid but in reality, the grid is made up of smaller vendors adhering to the standards.
Likewise there’s no single vendor capable of dominating the information utility market and standards will be vital. That’s why it’s so important when a company like Salesforce announces partnerships. These incremental agreements have more significance that the press releases might allude to. They are steps on the road to something bigger.
Infrastructure as an anchor
Oracle’s race to the cloud has offered multiple successes to its investors and some disappointment as well. No transition of this magnitude can be expected to run like clockwork but the difference between revenues for Oracle’s SaaS apps for last quarter, $1.1 billion, and those for its cloud infrastructure, IaaS, at $396 million, should at least get you thinking.
There’s a good explanation for this and it’s surprising that the company hasn’t done more to provide guidance to its financial analysts but then again, the purpose of reporting your finances is just that. There’s no room for anything that can look like an excuse. That’s too bad because it can lead people to wrong conclusions.
I spent a day at Oracle last week receiving a briefing on the company’s roadmap for the year ahead. While some of the information was presented under nondisclosure, I can say that the briefing ran the gamut and went into areas that I am not expert at such as serverless apps, bare metal servers, and the new autonomous database. But I am coming up to speed as fast as I can.
The company’s cloud architecture and IaaS offering gave me one surprise. Oracle intends to roll out 13 distinct regions for IaaS connected by a very high-speed backbone. Each region is highly modularized with triple redundancy and can easily scale as demand increases. All of this is very important because, I believe, this is not simply about cloud computing but about another disruptive innovation we will all face in the next few years.
The disruption is the formation of an information utility and it’s all but certain that no single corporate entity will own all of it. As big as Oracle’s plans are, Salesforce has similar ideas and while we’re at it so do Microsoft, IBM, SAP, Amazon, and a number of hosting services too numerous to mention. Yes, there will be consolidation and those too numerous vendors will likely be scooped up first.
But back to Oracle—$396 million is a lot of money but small change compared to its SaaS number and small compared with the company’s aspirations. The logical conclusion that many finance people drew from that number is that Oracle has a “problem” or that it’s not executing well in PaaS and IaaS, but really? Not exactly.
According to Oracle President of Product Development, Thomas Kurian, who led off the analyst briefing, only 3 of the 13 regions have been deployed so far. More will hit their markets this year but the rollout takes time and we’ll still be talking about it next year.
Not having the regions up and running means that in some strategic places, the company doesn’t have IaaS to sell. So the $396 million is a look into a still very much expanding world. Just for fun you could say that 3 of 13 is just under a quarter of the deployment. If the other regions were running as well as the three in place the IaaS and PaaS numbers might easily be four times the reported revenue number. It’s unclear if that’s good or not since we don’t know a lot such as capacity and utilization of the existing regions, but still…
So for now, the revenue picture remains lumpy but now we have more explanation and color for the results. Hopefully this also gives financial analysts something to consider as they try to figure out what the numbers mean to investors. The rest of the market seems to expect a bright future for Oracle as its stock continues to do well despite the lumpy earnings.
There’s also discussion about renewed competition in the database market circulating after a story in The Information suggested that companies like Amazon and Salesforce were building competitive database products and would depart Oracle in the near future. I don’t agree. If for nothing else, building a database is a big effort and one that detracts mightily from a company’s primary business interests. It is dilutive of effort and cannibalistic of resources. For these reasons it should only be taken on as a last resort. That’s the way any business should look at any effort to self-source rather than go to the marketplace for needed resources.
On top of that I spoke with Parker Harris CTO and co-founder of Salesforce recently and when asked about the story he said, “We have a good relationship with Oracle and we use a ton of it. We are not getting rid of the Oracle database. We are working on technologies that add capabilities around the edges, like sandboxes. We will have SQL Server and Oracle for a long time.”
No surprises there. It’s been true for a long time that in these big markets sometimes we compete and sometimes we cooperate. In the era of the Information Utility I expect a lot more co-opetition.
4IR (wonkish)
I’ve taken the lead from Paul Krugman who labels some of his blog posts wonkish if the subject gets into the weeds to make a point that might not be appreciated by the average reader. In addition, this piece reflects some of the arguments in my new book, “The Age of Sustainability,” which I think you should purchase.
It has become fashionable to talk about the times we live in as another Industrial Revolution and for some reason popular culture suggests we live in the Fourth IR or 4IR. The meme seems to be floating around Davos and it’s only a matter of time before we’re all uttering 4IR in our sleep. Not for nothing but I am certain we live in the 5IR and it’s ending. The 6IR is on the tee and people are taking practice swings. Why does it matter and can I prove any of this?
Well, it matters and here goes.
Scholars differ on exact beginning and ending points but most agree that the original IR began in the middle to end of the 18th century about the same time that people like Adam Smith were writing about the invisible hand of the market, supply and demand, and what would be called capitalism. Smith’s enduring classic, “The Wealth of Nations” was published in 1776.
Just prior to that others like Rousseau, Locke, Burke, Hume, and Hobbes, to name some of the more famous ones, were writing about the natural rights of man and things that were eventually subsumed into democracy. The age is generally referred to as the Enlightenment. So the philosophers came first, then by 1760 practical men (yes, they were all men) began putting Enlightenment ideas into practice. The result was capitalism and in Jefferson’s America, democracy. Capitalism spread everywhere especially in the UK.
Many scholars use 1760 as the kickoff for the first IR and the date is important because later researchers discovered that any IR has a lifecycle of 50 to 60 years. The cycles are based on disruptive technological innovations that ripple through the economy creating wealth and jobs and in some ways improve life.
From 1760 to 2018 is a span of 258 years, which gives us a bit over 5.16 lifecycles using the 50-year interval or 4.3 lifecycles using 60-years. For completeness, here’s a table from, “The Age of Sustainability” with IR’s or ages stipulated at 50 years.
| Technological age | Beginning | End |
| The Industrial Revolution | 1760 | 1820 |
| The Age of Steam and Railroads | 1820 | 1870 |
| The Age of Steel and Heavy Engineering, Mass Production | 1870 | 1929 |
| The Age of Oil, Electricity, the first electronics, and the Automobile | 1929 | 1971 |
| The Age of Information and Telecommunications | 1971 | 2020 (est.) |
| The Age of Sustainability and Ecosystem Services | 2020 (est.) | 2080 (est.) |
The difference 5 or 6 ages isn’t very great if you simply adjust the time frames for each age but what to leave out? 1820 and 1929 seems opportune. Steam, railroads, steel and heavy engineering seem like they could go together. But steam and railroads had a long life when iron was the structural material. Steel was a known quantity but hard to make until Henry Bessemer invented his steel-making process in the 1850s. Steel enabled railroads to develop into the continent-spanning network they became thus fulfilling the promise of early rail.
Also steam power goes back to the early 1700’s well before the official start of the IR. But early steam engines were impractical, took up a whole building and burned and wasted coal at a prodigious rate.
Similar stories can be told about the age we live in, The Age of Information and Telecommunications (IT age). But now the lifecycles become important because we need to understand if we’re at the beginning or end of the age. If you think the IT age began in about 1971 suggested in the table, it would coincide with the introduction of the mini-computer about 5 years earlier by Digital Equipment Corporation.
As with steam engines, iron, and steel, mainframes were introduced in the early 1950s but they were big, consumed resources prodigiously, and were generally too hard to use and expensive to make significant inroads. If you accept this reasoning then the 5IR is getting long in the tooth and a new disruption is likely. If you take the longer 60-year view of the lifecycle then we’re right in the heart of 4IR and the new meme makes all the sense in the world. This is where it gets interesting.
The lifecycle
Regardless of your position on the 50 or 60 year split, the lifecycle, like all cycles, has an upside and a down side. The upside produces a booming economy (yes there is some lag time) because the disruptive innovation driving things needs new infrastructure, which investors gladly pay for. That spending permeates all parts of the economy. But when the infrastructure is fully built out the down side of the cycle emerges caused by two things.
Early on customers pay high prices for the innovation causing an opening for anyone with an improvement on the basic design. High prices are used to build out the delivery infrastructure. When the infrastructure is finally built and paid for a wave of automation takes hold and the cost of products and services dives. Consumers make out with scads of low priced goods and services but too soon they discover that high prices paid the salaries of suddenly unemployed workers themselves included.
So where are we? Are we closer to the middle of 4IR, suggesting a 60-year average? Or are we at the end of 5IR and a 50 year cycle? Logic tells me that we’re at the end of the Age of Information and Telecommunications. The IT market has already expanded to global proportions, it is increasingly automated by way of AI, ML, IoT, and other advances. Their products and services are now dirt-cheap—think handheld devices and 99-cent apps—so it’s hard to make money in IT these days.
My take
It’s much more likely that we’re at the end of the IT era than in the middle of it. This is important because the frame of reference determines what’s most important to invest in. Further investments in technology such as the IoT and machine intelligence will continue regardless of this discussion. They will be easy investments with opportunities in big markets but the possibility of failure is high because a small number of large vendors, an oligopoly, already control these markets.
When cloud computing was new you couldn’t count the number of vendors in the space. They sold infrastructure, software, and platforms. Most were acquired or went bust. Today Oracle, IBM, Google, Amazon, Facebook and other social media, Microsoft, and Salesforce are the dominant players and invading that space with a new offering is problematic at best. That’s not a new IR it’s a continuation of an older one.
At the same time there is a boatload of renewable energy companies and more electric car companies than you can put arms around. That’s the new IR. Next year most carmakers will begin deploying fleets of electric vehicles causing a further ripple effect in demand for a new electric infrastructure and all that entails.
So how you think about it, 4 IR or 6IR, is important. The free market will determine who is right, as it should be.
