Today Bloomberg was atwitter with the rumor that Salesforce is in talks with bankers about possible tender offers from some big companies in the industry. Aside from wondering if there’s any validity to the speculation does it or would it make any sense?
For starters, Salesforce has a market cap north of $50 billion and buyouts command a premium so we’re looking for someone with deep pockets. Regardless of pockets, Oracle, Microsoft, and SAP have their own cloud projects and while any of them could afford the deal, would they contemplate throwing away their other investments? Ordinarily I’d dismiss a sunk-cost argument as illogical but we’re talking about a lot of money.
IBM could do the deal too and they need a future. Right now they’re buying back stock to keep their share price up and because they don’t have much else to spend their war chest on. Salesforce would be good for soaking up some of their cash. Ditto the others on the list.
Salesforce has a commanding lead in business software because while others were too timid to go after things like cloud, social, mobile, and IoT, Salesforce jumped in and made markets. Their future is full of all the new markets they’re going after and it ain’t small.
From that perspective, I wonder if the Justice Department would want to weigh in on an acquisition. Despite there being other vendors in the space, Salesforce occupies a unique place as the innovator. Can we really expect one of the possible suitors to be as aggressive with Salesforce and new markets as Benioff and company? Me thinks not.
That said though nothing is forever and Salesforce has had a great run. Murphy’s Law would suggest that someone could come in and mess it up.
I was discussing Watson, the IBM super silicon brain that won Jeopardy! the other day with a reporter writing an article. Around the same time, I was also looking into Google Glass, the wearable computer that enables people to record what they see and to see what they’re recording through a teeny tiny screen mounted on a frame over their eyebrows. It’s all very Buck Rogers or Dick Tracy or Special Forces or just so last week depending on your worldview.
Then it occurred to me, as I am sure it has occurred to many other people, that the two things could/would/should merge especially as wearable computing is already nearly passé and on the way to being replaced by implantable computing which could rapidly give way to ingestible computing once they figure out how to, you know, make the ingestion part more or less permanent. But now I am racing ahead of myself by at least seven years. Besides, what kind of sauce goes with ingestible computing? I’m betting on black mole.
Watson has a tremendous ability to learn and to digest huge volumes of input to come up with an answer. I was told that to appear on the Jeopardy! program, Watson’s handlers force fed it about 200 million pages of structured and unstructured content. I also recall from the show, that most of Watson was not in the studio with the other contestants because it’s less of a computer and more of a network. No matter though. Google Glass would be the thing that could put all that hardware out of mind. Glass: the killer app for Watson? Hmmm.
Glass Watson might be great in any high-pressure situation where snappy answers are important. That would not include things like stock trading assuming Watson is already doing that sans any help from carbon-based life. Glass Watson might be a lot of fun in a traffic stop. “Really officer the light was yellow” or “I was going 37.593 MPH in the 35 MPH zone officer.” And in social situations where it’s hard to read the social cues Glass Watson might be a boon to introverts like me who want to be more lifelike.
Naturally, those social situations extend to vendor customer interactions especially where selling might be involved. A retail clerk with a Glass Watson might be able to assess a customer better and faster than a human though I have to say that twenty years later I am still in awe of the woman in a Nordstrom store who nailed my shirt size in the blink of an eye.
But what if the customer has a Glass Watson too? Would we then be in a situation where the people are skipped over entirely? I worry that my Glass Watson would like everything it sees and the retail Glass Watson would scour my bank accounts even finding the one I misplaced in Geneva (maybe it could retrieve my passwords) and over sell me on everything thus turning into a Glass Watson Hoover as in a vacuum cleaner for my wallet. All of this could happen in the blink of an eye.
Still, I always come back to Groucho Marx, an interest I share with Paul Greenberg. Groucho once quipped, “Time flies like an arrow. Fruit flies like a banana.” What would Watson do with that? I wonder if you can get Google Glass with one of those fake Groucho moustaches? Now that would be cool.
The CRM world has been atwitter, to borrow a phrase, ever since Gartner released its CRM market size report on April18. Since I am not rich, I do not own a copy of the document but the table of contents provides some very interesting fodder. The top five, in order, are Salesforce, SAP, Oracle, Microsoft and IBM.
My world is buzzing with reporters’ calls seeking comment and colleagues at the Enterprise Irregulars offering up opinions. Here are a few things to think about that I have ruminated on.
- For some companies figuring out CRM revenue is easy. Just ask Salesforce about their revenue or read their SEC documents and Voila! But it’s not so easy to tease apart CRM from other revenue if a multi-product vendor like SAP or Oracle decides that apples is apples and doesn’t split out the different revenue streams — effectively asking the analysts, “How do you like them apples?”
- I can understand a financial analyst firm doing this kind of work but less so a technology or industry analyst firm. Sure, these reports make for fun reading but they are backward looking. Financial guys look backward all the time. Heck, I know some that haven’t seen the recession yet. But my peers ought to be looking forward. Imagine if ten years ago we were all saying SaaS and Cloud are the future instead of: On-prem forever! But I digress.
- When you don’t have hard numbers to deal with, and I strongly suspect that some of these vendors undoubtedly did not give the analysts dollars and cents results, you start having to triangulate. The vendor might say that their revenues were in the x to y range and a competitor or two might say they’re in the low end of the range or whatever. The result is that the analysts have to read tealeaves and do some math that is based on assumptions. When that happens, all bets ought to be off. Averaging everyone’s estimates just gives an error prone result if you can call it that.
- Ditto for the size of the whole market. About ten years ago I saw some work that looked like it took a long time to compile that said the CRM market had an absolute size of about $46 billion. We left that number in the dust a while ago and we still forecast $20+ billion in products and services per year and growing. Go figure, if you can.
- Then there is the matter of how you measure. Fiscal years differ, measurements differ — Seats? Dollars? Currency Conversions? Canasta? — the analysts have to rationalize it all so that we’re all talking apples. That’s hard to do.
A few years ago SAP was battling Siebel for the #1 ranking and according to financial analyst reports at the time, they were booking any revenue that was not nailed down as CRM. I still have the reports. I think SAP won the derby that year but the next year the analysts started counting the shelfware in major IT departments and guess what they found? Only about half of SAP CRM had been installed or was likely to be while Siebel, Oracle and some others consistently had about 25% shelfware.
Market dominance became important when Geoffrey Moore published Crossing the Chasm because his data showed that most markets consolidate into a three horse race with numero uno taking most of the business, due hanging on to keep uno honest and tre looking for a buyer. But each of the CRM vendors in the top five is a complex, multi-product company. Each sells CRM for its own reasons and one of them is surely to offer a complete product line that keeps competitors at arms length. The number one spot is still coveted for bragging rights but trust me, if the ranking disappeared tomorrow, very few CIOs would have trouble rounding up the usual suspects for an RFP.
So to net it out, take this all with a pound of salt. It’s a beauty contest at best and in my humble opinion not a representation of the best work that analysts — either of financial or industry variety — can do.
I saw an ad for a webcast the other day and it said in part:
“The scope, scale and complexity of enterprise data centers is rapidly rising due to increased use of virtualization, cloud, big data and mobility. Applications and workloads are becoming more dynamic and volatile and IT staff are being asked to become more efficient and responsive. Automation across physical, virtual and cloud data centers is vital for effective operations and consistent service levels.”
Did you catch the change? Today it’s virtualization, cloud, big data and mobility the new four horsemen of business advance. In case you’re wondering they replace social, SaaS, mobile and cloud. Small difference? Yeah, but big change. If you were hip over the last five or so years you did the social, SaaS, etc. thing but if you missed the onramp, virtualization and big data give you a chance to save face. You weren’t being overly conservative. No, no, NO! You were being prudent, waiting for the technologies to mature into a coherent whole.
Really? After all this time and all the disruptive innovation cycles, you were waiting? Coherent?
In case you were wondering, virtualization and cloud made SaaS acceptable to those who worried obsessively that their data, the same data they couldn’t find an elephant hiding in would suddenly reveal golden nuggets to hackers. Big Data gives us all a way to accept social without ever for one minute admitting that our employees were not simply “playing” with social media at work — you can and should thank analytics for that. And mobility is mobility because your customers and employees are walking — some away from you and some towards you and you need to know and use it.
I was in The Valley the other day talking with a guy who is sometimes a client but always a friend. He’s a young guy who has already worked at Salesforce back in the day, did another startup with a Salesforce alumnus and is on his third company, this time running the whole marketing shebang. His take? Companies are looking to form data centers of excellence around analytics.
My take? It’s IT’s way of preserving itself. Remember Gartner’s forecast that the CMO would soon be spending more on technology than the CIO? This is IT’s response and I think it’s a good one because it potentially shows both groups reaching out to create greater value for the enterprise.
As commodity servers take hold of the world, it becomes less and less rational for a company to run its own IT so virtualization and cloud here we come. But what’s left behind is very interesting. IT might be buying the commodity farm but the secret sauce is still information and how you use it. So the IT data center of excellence is both a way to keep IT employed and more or less in house and an important way for IT to save some serious coin on commodity processing.
Larry Dignon of ZDNet put his finger on it about a week ago when he examined the possibility that IBM might sell off its x86 server business to new pal Lenovo. Servers are not going away but they are going to the farm and with that change comes greater focus on management systems overlaying everything because server farms are becoming quite huge. This opens up opportunities for companies like Oracle/Sun. Despite the catcalls from critics calling advanced servers the new mainframes, they have an important purpose and a growing niche, not to mention a new and as yet unstated goal of nine nines of reliability to achieve the promise of true utility computing.
So, yes, the scope, scale and complexity of data centers, wherever they’re located and whatever they’re called, is rapidly increasing and as the economy continues its rebound I will remain interested in finding
Sugar CRM took its annual customer and partner show on the road this week bringing what had been a Bay Area extravaganza to the Big Apple, the better to attract a sizable population of customers and partners from Europe and other points beyond North America. It seems to have worked because even though New York is one of the most cosmopolitan of cities regardless, I hear a lot of European languages in the corridors and I met many people from countries across the Pacific.
Sugar is a happening thing at least in part because, of all the CRM vendors, it has an innovative business model and a new assertiveness. CEO Larry Augustin tells me the company is growing in the area that is most important to mature and maturing software companies — the enterprise. According to numbers shared with me, Sugar is growing its enterprise customers at a rate quadrupling last year and I hope they keep it up. Admittedly that’s easy to do if you start from a small base but, still, it shows growth and validates the strategy nevertheless.
Sugar comes to New York off of some difficult transitions. The marketing and sales groups have been largely restaffed recently and I met more than one person who has been in a job or with the company for only a few months. But veteran, lead guitarist and Sugar returnee Martin Schneider anchors the group. I don’t know Schneider’s official title but a good approximation might be keeper of the flame. He came to Sugar about five years ago from the 451 Group, an analyst firm where he did some very good work. He stayed at Sugar for those five years doing more good work but ultimately went back to 451 only to return a couple of months ago to help the company through its transition.
It seems reasonable to say that Sugar needed a transition. For while the company has been making good numbers with its fundamentally different business model that included open source, but I think there was a realization that open source messaging would need some tuning for the enterprise corporate world. Also, the executive team was obviously looking for new members with the chops to play in the enterprise.
While it’s true that open source has done very well for the industry in areas like the Linux operating system, Apache Server and MySQL database (the core of the LAMP stack along with the PHP and PERL programming languages), open source is also representative of fierce commoditization. There’s little money to be made in operating systems, server software and databases today. They’ve run their races and the market has chosen a small handful to make standards. I know I’ll get mail on this but the issue isn’t how much money any of these items is generating today, Web servers are in the range of $2 billion, I think, but it’s how much the industries generated in dollar adjusted revenue in their hay days. Commoditization drives a market into a singularity where one vendor does most of the business and others eventually fail.
Yes, but what about Oracle, Microsoft and IBM in database? True enough, but databases are so embedded that they’re part of the hardware sale. Database might arguably be less far down the path that operating systems have already trod. We could go on but my point is that CRM is not in the commodity column yet and probably won’t be for many years. So Sugar’s initial thrust as an open source supplier was at best premature; it might have made sense if you didn’t see social coming. But CRM continues to be a jump ball because of all the innovation it spawns. SugarCon, to me, is a continuation of an effort to move the company from commodity supplier back to mainstream CRM supplier and it is largely successful.
In his keynote, Augustin was careful to focus on three things about CRM that keep it from being a commodity with a theme that stressed “every customer, every user, every time.” By this he meant making software that addresses the unique needs of users at all levels. Fair enough, but the messaging felt too reminiscent of days past.
I can’t help but note a small disconnect between the messaging and the reality of the software. The demos show a competent and easy to use product set complete with activity streams and social and other inputs. But the overall effect is one of automation rather than innovation and that has become my new yardstick and dividing line — more on that later.
You have to walk before you run and I accept that there are a lot of companies out there still learning to walk. By Sugar’s estimate, for every CRM user in existence today there are a whopping 25 who are not users or who are using some home grown system cobbled together from old databases and spreadsheets. I might start calling them home-groan soon.
The existence of so many uninitiated CRM-ers is plenty of reason to walk back any thought of CRM commoditization and to focus on helping those customers to walk the CRM walk. That said however, I think the whole industry has a short fuse burning on getting over the automation-innovation divide.
Some vendors have clearly crossed that chasm but the majority has not. You can see it in the demos of SFA that focus on the sales rep serendipitously having a big deal to close. The reality is that sales reps have fifty or a hundred deals to close and the hard part isn’t getting to the close. The hard part is finding the deals in all the sales data noise that need help in the first place. They are the deals revealed by analytics as having stayed too long in stage three of a sales process or the ones that have raced through and tweeted about their imminent need. It takes more than conventional CRM automation to find those deals and to take action on them.
That is where I think CRM is today and where most vendors need to apply elbow grease. Sugar’s special challenge (and you can say this about Sage too) is in communicating this to its partners. The messaging I heard at SugarCon straddles both worlds as it must if they expect to educate the partners and bring them along. So in many ways the most important messaging at this event is the future and most important constituents are the partners. Time to saddle up and ride in a new direction. It will be interesting to see how all this evolves.