It has been my belief for several years that our industry is trending toward the formation of an information utility. I draw this conclusion carefully based on my understanding of how markets develop and commoditize. I also believe large swaths of this utility deserve regulation (that’s you Mark Zuckerberg).
I take the beginning of the modern IT era as the early 1970’s. You can graph a rising line of performance, and a declining one for price, essentially Moore’s law and that signals the economic importance of information technology. This view eliminates a chunk of the mainframe era as well as the earliest computers of the 1950’s. My reasoning is simple: the earlier era was seminal but had so little economic impact that it was not important to this story. For instance the moon mission had onboard computers but it has been referred to by people in a position to know as an era of analog rockets.
The 1970’s formed the High-Tech era because of the relentless diffusion of technology throughout the economy. From there you can track a timeline that includes mini-computers, relational databases, SQL, third and fourth generation programming languages, general purpose operating systems, GUIs, microcomputers, PCs, networks, the Internet, client server, cloud computing, social media, wireless and other stuff that I am leaving out.
The net effect has been to not only constantly reduce costs and raise performance but also to democratize technology so that anyone can afford its benefits today. Along the way we’ve seen a great deal of commoditization take place. What’s cloud computing but the commoditization of IT?
The last steps in any disruptive innovation are commoditization and utility formation. We saw the same thing happen (if you have a good historical perspective) in things like telephone and electricity. They weren’t always utilities capable of taking on all customers; first they were private companies. But growing markets made them indispensable and that provided technical and political pressure to form utilities.
The same thing is happening right now in IT. It is happening before our eyes. Large vendors like Oracle and Microsoft are announcing increasing compatibility. Others like Salesforce have built vertically integrated stacks that enable them to support the needs of partners and customers and to integrate with third parties too.
Becoming a utility in my book entails having a vertically integrated stack plus the necessary communication, integration and security needed to give customers a soup to nuts experience.
There are many candidates for inclusion in the pantheon of utility IT providers, a forming oligopoly that, much like today’s electricity market, will provide the appearance of a homogenous market through adoption and strict adherence to standards. To that group we should add Zoho.
Zoho has been around for decades and it is still private. Founder and CEO Sridhar Vembu has been at the helm since 1996. He likes not being on the treadmill of quarterly reporting preferring instead to think independently about the deep future.
Remaining private, Vembu and his team have self-financed and focused on customers and they have developed a maniacal focus on building everything in-house up to and including employees many of whom graduate the company’s rigorous training program. Increasingly Zoho’s combined strengths are serving it sell as it challenges the commoditizing efforts of other software providers. It can become the low cost provider if it wants to.
So it is no surprise to see that Zoho today introduced an updated Zoho One “operating system for business” to the world. What’s most interesting to me is how closely Zoho One resembles a fully functional part of an IT utility that I had thought was still a few years off. Let me elaborate.
Zoho One is both vertically integrated and outwardly connectible, it sits on its own stack, and tries to do as much internally as possible by offering over 45 apps. But it also acknowledges the greater market’s need to integrate third party apps. It’s connectible by virtue of its platform-based integration and single sign-on. It also sports the numerous advanced extensions to CRM like BI, AI, bots, voice assistance, video, and much more that are now essential. Taken together all of these components add up to a big chunk of a utility grid.
Anyone considering a new CRM system whether it’s a first for a business or a logical upgrade, should add Zoho to its shopping list. Zoho may not be right for all customers and the company has made its bones working with companies that have about 4,000 employees or fewer. But the reality is that Zoho’s architecture is more scalable than that and some customers are already testing its limits.
Markets like CRM today have a good deal of stability. For instance, any number of emerging CRM businesses today is ready to take on Salesforce but they will not likely have the chance because they are me-too solutions. But Zoho may be different if only because they are not trying to become the next Oracle, Microsoft or Salesforce. They are happily trying to define their own vision and that may be different enough to spark another disruption. That’s why Zoho One is so interesting.
If you’re confused about loyalty programs, it’s understandable. The vast majority of loyalty programs in the marketplace today are really nothing more than glorified discounting schemes. Whether it’s an active discount for a current transaction (the worst kind) or a promise of a future discount through accumulating points, miles or other tokens, it’s all the same. Such loyalty programs eat into profits without changing customer behavior, yet the objective is to get customers to return and buy more at a price you set without a massive discount. What’s wrong?
There’s ample research that shows when the discounts stop, so does the loyalty. So, is that really loyalty? You know the answer, but what do you do about it? I suggest taking a hard look at root causes and work forward. In this case I developed a small “equation” that illustrates the point:
Customer experience > Customer engagement > Customer loyalty > Profits
I use the arrow as a substitute for “drives” as in customer experience drives customer engagement and it’s really engagement that we should be focusing on and not loyalty per se. Loyalty is a natural by-product of engagement which I’ve written about in one of my books: so, in other words if nail the engagement aspect, loyalty comes along for the ride.
So how do you get to that point? Other research that I detail in a book, shows that it all starts with experience but not the kind that entertains the eyeballs, just the opposite in fact. A great customer experience is governed by serving customers’ needs as they see them. Often this means being prompt and accurate thus respecting customers’ time so that they can get on with their to-do lists. I know this sounds incredible but ask yourself this: Would you prefer to hear 10 minutes of your most favorite songs while on hold or to be able to get on with your life?
Once you have experience nailed think again about it because for the customer engagement is about a lot of experiences you are likely not supporting. For example, how often do you say thank you to a customer who demonstrates loyalty by endorsing your brand online or by helping a newbie to use a product correctly? It’s increasingly easy to discover these hidden acts of loyalty and if you do, saying thanks costs nothing but makes an impression that drives true loyalty.
Those hidden acts of loyalty can be encouraged and, if rewarded, can do much more work to promote loyalty in your world than all the discounts you can imagine. Think about it. A customer who displays a hidden act of loyalty might be out of budget or need and would likely not be ready to re-invest soon. But that customer can still be loyal and influence others’ behaviors to your benefit. That’s why rewarding them with discounts on future purchases often has little effect other than to function as discounting mechanisms that have no chance of resulting in observable loyalty.
So, the message is clear. To promote real customer loyalty, identify the experiences that really matter to customers and don’t forget praise, everyone likes praise and it costs nothing, unlike your expensive loyalty program. Promote engagement that matters based on your new thinking about experience. Then stand back and let loyalty happen as you reap the profits.
So now Oracle is appealing the Pentagon $10 billion JEDI contract to provide cloud computing solutions, which was awarded to Amazon. A release on PR Newswire states,
“The Court of Federal Claims opinion in the JEDI bid protest describes the JEDI procurement as unlawful, notwithstanding dismissal of the protest solely on the legal technicality of Oracle’s purported lack of standing. Federal procurement laws specifically bar single award procurements such as JEDI absent satisfying specific, mandatory requirements, and the Court in its opinion clearly found DoD did not satisfy these requirements.”
At the same time the DoD announced an official review of the award saying among other things
“We are reviewing the DoD’s handing of the JEDI cloud acquisition, including the development of requirements and the request for proposal process. In addition, we are investigating whether current or former DoD officials committed misconduct relating to the JEDI acquisition, such as whether any had any conflicts of interest related to their involvement in the acquisition process.”
Frankly, a lot of people probably (likely, definitely) don’t care about JEDI and what it means, but if we were all small-d Democrats in this republic, we might (ought to) care. Here are some reasons.
Advancing the technology
Throughout the post war history of tech and its relationship with government there’s been a great symbiosis that has advanced the frontiers of technology while giving government better, faster, and cheaper solutions. Government’s investments in numerous companies and think-tanks drove research and development R&D and supported emergence of globe-leading new companies and millions of employees who pay taxes. All in all, it has been a productive relationship and a good investment.
But now the Pentagon wants to chuck all that and go with a single provider that it hopes will continue to advance cloud computing and, ironically, it can be argued vociferously as Oracle continues to do, that the JEDI process has not selected the strongest technology for the job.
For instance, Oracle founder and CTO, Larry Ellison, takes no small measure of glee when he presents benchmarking data at Oracle OpenWorld (coming to San Francisco in September) comparing Oracle’s technology with Amazon’s. By many measures, it’s just not that good for huge deployments though many Oracle users use Amazon products for sandboxes in their development labs because it’s less expensive. But if you’re offering $10 billion take it or leave it for what amounts to the kitchen sink, might cost suddenly move to the back burner?
But the Pentagon’s concern about having multiple vendors in the soup for what will be its cloud computing foundation at least to the middle of this century, is also understandable. Cloud computing, heck computing in general, is still a Balkanized jumble of vendors with often uncooperative standards that prevent information sharing. It’s getting better but it is still unacceptable when you’re dealing with technology that will be used to make split-second decisions about friend and foe, war and peace.
I get that.
But it’s no reason for a sole source award. With history as a guide we should be encouraging a multivendor award that demands that vendors do a whole lot more to advance inter-connectability. Moreover, that’s the direction this industry is moving in anyhow, i.e. toward a big information utility much like the electric utility we all use. The JEDI award should be used to accelerate this process.
Don’t be confused, there is no single vertically integrated electric utility from sea to shining sea. Instead there are thousands of companies and solutions that work within the same standards so that there’s an appearance of a utility and a grid. That’s what the JEDI procurement should be working towards.
Sole source award and Oracle doesn’t have standing?
Okay, I’m not a lawyer but you have to admit that a ruling that Oracle doesn’t have standing in the appeal seems at best contrived. This procurement is a gnarly, complex can of snakes that about 1,000 people on the planet truly understand and virtually all of them work for DoD, IBM, Microsoft, Amazon, Oracle and a few other places (China, Russia), but essentially the companies that competed for the business in the first place.
So if Oracle doesn’t have standing, who does? Anybody? And is that any way to run a democracy? The PRNewswire piece also says that
“The opinion also acknowledges that the procurement suffers from many significant conflicts of interest. These conflicts violate the law and undermine the public trust. As a threshold matter, we believe that the determination of no standing is wrong as a matter of law, and the very analysis in the opinion compels a determination that the procurement was unlawful on several grounds.”
Bragging rights and picking winners
Aside from the $10 billion (plus overages) that some lucky vendor will gain from this award, there’s the matter of bragging rights in the marketplace. It’s hard to believe the successful vendor won’t try to put some marketing muscle behind claims of superiority thanks the endorsement such an award provides as a natural consequence. That means picking winners, something that politicians raged against when the Obama administration made an investment in a solar panel maker.
That’s why the after award litigation is so hot. Oracle has the resources and is known for being a persistent litigant when it feels wronged and, in this case, it’s hard to see how they could not challenge the award.
This litigation could tie up and real work on the contract for years and deprive the Pentagon and the American people of advances in defense and security that they should expect from their government. It’s not too late for the Pentagon and DoD to take a step back and re-evaluate their goals.
My two bits
JEDI should be thrown out. It’s not a stretch to say that the better technology was not selected, at least by some important measures. Also the belief in a sole source was misguided at best. But even if you throw JEDI on the ash heap of history, you don’t have to begin again from zero. A broader requirements set based on a demand for interoperability could be put forth and several other vendors (all of them American companies) should be incorporated into the process. It’s hard to believe that Microsoft, with its expertise in system software, networking, apps, tools and databases wasn’t included. You can say similar things about IBM and HP both of whom have significant hardware, networking and Unix chops. And don’t forget IBM’s Watson. Add Oracle to the mix for their autonomous database, fault tolerant and ultra-secure hardware, apps and more.
The trend so far, to me, suggests that there are too many Ids and egos involved in this deal and not enough logic and dispassionate decision-making. The American people deserve better as does the planet whose fragile peace depends on it.
Salesforce continues to grow albeit a little slower than in prior quarters, at least that’s my reading of a $4.0 billion quarter that’s 22 percent better than the same quarter a year ago. I am used to seeing growth percentages in the high 20’s but I am not concerned about a slowdown.
From reading the press release and perusing the earnings report I don’t know if the spending spree on Tableau and ClickSoftware had anything to do with the numbers. My guess is the financing comes out of a different pocket since the Tableau acquisition alone was roughly equivalent to a year’s worth of revenue. At the same time, Tableau hasn’t had a chance to contribute to the bottom line in any meaningful way which should provide some amount of optimism for financial analysts.
At this point, Salesforce has a lot of products and they’re getting involved in major corporations’ digital disruptions, so it takes longer to sell stuff and the deals are way more complicated. All of that plus the reality that despite a stellar history over the last 20 years, the company doesn’t walk on water tells me that 22 percent growth at the 4.0 billion level is just fine.
It’s true every year but right now, we should be eagerly anticipating Dreamforce to better understand how the many acquisitions of the last few years are going to accelerate the deposition of black ink on the bottom line.
Salesforce has always been a visionary outfit and the Customer 360 initiative distills a lot into a simple phrase. With all of its analytics, platform, and networking capabilities Salesforce isn’t simply trying to make better applications, it is presenting a different way to do business that could become something of a standard from here to the middle of this century. Think about it. Salesforce, and its competition it must be said, are putting a lot of wood behind the arrow of systems of engagement, i.e. systems that can anticipate needs and satisfy them.
But Salesforce is also trying, through its philanthropy arm, to change capitalism enough to give it a kinder, gentler face that admits to the need to satisfy all stakeholders. A recent declaration by the Business Roundtable, articulated in Harvard Business Review, strongly suggests that CEOs understand the importance of corporate engagement and efforts beyond simply making profits for shareholders. In this, like so many other things, it appears that Salesforce has been ahead of the curve.
Engagement, the secret sauce
One of Salesforce’s keys to success has been its effort to disrupt the old order by promoting systems of engagement. Systems of engagement move us along a continuum from old style systems of record to those anticipatory systems. Consider the differences between systems that self-diagnose a fault and call for support without human intervention, systems that interface with retail customers, and systems that provide service and support. Finally, consider systems that assist in diagnosing disease and support practitioners who need to formulate treatment plans. They’re all systems of engagement stemming from the same technology impulse and they forecast a very interesting future.
That’s just scratching the surface because there are a lot of other approaches in between. So the acquisitions, at least some of them, are not fully contributing yet to the bottom line and the powerful point here is that development and acquisition aren’t simply adding linearly to growth but one development builds on older ones continuously. That, I think, is the significance of this company’s growth. Advising Wall Street about the possibility of $16.9 billion for the year is nice but that will likely look small in ten years as systems of engagement continue to disperse into the economy.
My two bits
During earnings season we’ve witnessed a lot of good news from the IT vendors each of which has a strategy for supporting the trends in digital disruption with their own disruptive innovations. I expect we’re in the early phases of forming a true IT utility in which multiple players form an oligopoly. Some of them, like the social media mavens face tough scrutiny in the immediate future as society grapples with how to regulate them to achieve the greatest benefit from the least interference. We’re nearing the point where CRM might remain the important outpost that it is but, at the same time, Platform driven application development and deployment, which started in CRM, will become the tail wagging the dog.
For decades a database application was what we called an app that collected data and regurgitated it in preset formats on paper reports and screens. That’s becoming passé but at the time it was a major advance because it gave a worker the necessary information to make decisions and take action. Today that’s rarely enough because downward cost pressures are replacing some of the rote human effort with algorithms that can often satisfy the need. But that leaves more challenging and engaging work for people.
We see this most concretely in customer service apps in which algorithms are taking over some of the work once done by customer service reps. For example, Steve Fioretti vice president of product management at Oracle recently told me that one Oracle customer using a government system focused on tax questions, answers upwards of 70 percent of customer inquiries through automation. What’s impressive about this isn’t the big percentage but the rapid uptake.
But Fioretti also cautions, “The contact center isn’t going away.” The reason is simple. Oracle commissioned research says 60 percent of customers expect that if the wheels fall off, they can still talk to a real person.
In places where agents are still needed, the systems handle the relatively easy stuff freeing up the agents to dig into more basic customer needs and improve the customer engagement. For instance, another Oracle customer, a home goods retailer hires more people with interior design credentials to help customers nail their layouts and color schemes.
The reasons that businesses can do so much more with their CRM systems come back to the platform that the systems are built on. Even hand coding these days is sequestered within a part of the apps and never overwritten by an upgrade, patch or fix. But more importantly, there’s a great deal of coding going on by machines that weave together important ancillary apps like AI and machine learning, social media and a lot more that you already know. The resulting systems of engagement would not, I believe, be possible except with the use of platforms.
In all of this you can see the commoditization of IT and the rising importance of customer engagement and experience. The often-cited concern over lost jobs might be overblown at least in some ways because technology is opening new doors as fast they’re being closed.
I saw the transition reflected in the advances Salesforce is making with its Philanthropy Cloud. If you don’t know, Salesforce Philanthropy Cloud is an interesting app that brings together donors, resources like funding agencies and traditional charities, and people. It works by helping them to find each other, coordinate a donation of time or money, and it captures the needed statistics to make it a useful accounting tool for corporations that wish to engage in programs like Pledge1Percent in which businesses can donate any combination of their assets like revenues or even employee time.
I also saw it in Salesforce’s just announced acquisition of ClickSoftware, a field service and manpower management suite. There are plenty of algorithms in all of these places but there are also plenty of places where humans still need to apply their skills. Everywhere in field service we’re witnessing how algorithmically driven systems can diagnose themselves and summon help before a fatal error. What’s most exciting is that we’re beginning to see these systems operating far outside of the tech bubble where they were born. Healthcare systems use analytics and algorithms to drive care and the IoT is full of examples of machines talking to machines.
What makes all of this work well is the presence of platform technology that weaves together data from what were once systems of record with workflows, GPS, and plenty of AI and machine learning that can do some of the unglamorous grunt work that people once spent too much time on. Most of the apps we see and like today would simply not be possible without platform driven code generation.
I don’t think there are a lot of app designers trying to figure out the right balance of people and algorithms in any of these situations yet. That’s in part due to the reality that a lot of technology is just being built and released and the vendors are expecting their early adopter customers to figure out things like balance. This seems to be always the way it works.
That’s the point. We complain when we see jobs evaporate but new jobs come about from all of the disruption and they rarely make headlines because they come in dribs and drabs and no one is counting. But cool things are happening and they’re sometimes outside of the purview of CRM and that only accentuates CRM’s impact on the later stages of the tech revolution.