You know what they say about the third time doing something. They say a lot and some of it is bound to be true even if it only means throwing away the high and low scores and dealing with what’s left like they do in Olympic diving competition. This is the third and final post on the Oracle-Salesforce announcements of this week, which I hope, will provide more light than heat. I reserve the right to discuss Oracle-Microsoft in similar detail though.
You know the basic outline at this point. Oracle and Salesforce have announced that they will work together on certain strategic issues especially integration to provide greater value for customers. Here are my considered thoughts having now heard from the CEOs of both companies.
- Integration is the key. With this announcement it appears a line has been drawn down the middle of the market. On one side is front office and on the other is the back, but we knew this already, didn’t we? The agreement to produce off the shelf integration that will solidify each company’s position in its respective marketplace and enable their front and back office products to instantly inter-operate and that sends specific signals to the market. Over the next nine years look to Oracle to spend less effort and investment in the front office. Siebel is getting old as is PeopleSoft and the Fusion approach is a slow burn. It will not surprise me if each side stays on the side of the fence it is building and produces front to back office solutions based on their integrations. For Oracle this would be an admission that their front office strategy won’t catch up. For Salesforce, it simply codifies what Marc Benioff has always said, that he doesn’t want to build ERP. Over time, look for each party to renew its innovation in its respective space. As I detail below, as a new paradigm comes into view there will be plenty of innovation on each side required — and that will only happen if they split the effort.
- Competition in the middleware and Linux part of the stack is simmering down. Oracle’s solutions in those areas are standardizing the industry and there isn’t a great deal of profit to chase there any more. Also, Oracle’s emerging dominance in cloud hardware with Exadata and related products militates for greater stack standardization.
- Oracle-Sun may be a big winner here as that unit’s Exadata storage system seems poised to become the de facto standard for public and private cloud data centers. The idea of public and private clouds no longer seems quite as foreign to Salesforce as CEO Benioff was touting his company’s decision to provide a separate instance of its system for the federal government. This decision is less about CRM than it is about application development, an area in which Salesforce has become one of the very dominant players.
- Security and related issues are becoming ultra important requiring new solutions. You can’t read the 2013 Verizon Data Breach Report without understanding the tremendous opportunity that the People’s Liberation Army Unit 61398 is providing companies like Oracle, Microsoft, and Salesforce. If we’re going to the cloud it has to offer better security than what we now have or all bets are off. Otherwise, the only good news might be your voodoo-like ability to order mooshi pork through your ERP system someday.
- Drop your tools, there’s something bigger on the way — get to work on it! Guys like Larry Ellison, Steve Balmer (of Microsoft) and Marc Benioff don’t come to these kinds of agreements without reason. The reason is a new paradigm which necessarily commoditizes conventional IT and even conventional cloud computing. It’s the Internet of Things or as Benioff (a board member of Cisco) said, the Internet of Everything. This is at once scary and hopeful. It’s scary to think of everyone and everything being connected to the network and hopeful that we will finally have the sophistication to optimize tiny processes that will, in aggregate make a huge difference as the planet races toward a human population of ten billion. We will reach a computer population that size long before the human population gets there.
That’s what I think everyone is suddenly gearing up for. President Obama gave a well received talk about the environment at Georgetown University this week. In it he told us that American business has always been able to innovate and engineer and provide the entrepreneurial boost we’ve needed to meet tomorrow’s challenges. Well, those challenges — especially energy and resource optimization and carbon abatement — are wrapped up in a new paradigm that is itself wrapped in the Internet of Things.
Paul Krugman’s column today in the New York Times expresses the latter half of it, the front half is where great value will be produced and huge profits stand to be made. On the back-end Krugman rightly predicts this will be a big economic stimulus that the global economy badly needs.
It’s rare that you can spot a paradigm emerging in real time. No one really understood what the steam engine or the industrial revolution it spawned meant when they happened. It took many decades to see the pattern emerge. Not this time. This week the future emerged; it’s been incubating for a long time and the future looks very interesting indeed.
The case for stimulus and against austerity is blindingly obvious and recounted here in a two year old post by Paul Krugman. Regardless of your political beliefs I hope you are pragmatic enough to understand the difference between what Krugman is saying and what’s happening right now in America and Europe. The history of the last two years demonstrates that austerity is the wrong horse to be riding.
Chancellor Angela Merkel of Germany is in trouble. So is David Cameron, Prime minister of Great Britain though not as much. Merkel has an election looming and both have been caught on the wrong side of the most important political-economic issue of the generation, the continuing depression and joblessness plaguing Europe and to a lesser degree the United States.
Economists disagree about what to do. We often call them political economists in part because their judgments and advice are sometimes couched more in political terms than in the social science of economics. Thus we have two schools of thought on how to recover from the economic crash. One school, holding sway mostly in Europe, demands austerity while the other, a mostly American driven idea, call for stimulus.
So far the stimulus advocates can claim better results and if you read Paul Krugman’s new book, “End This Depression Now” you get the unmistakable notion that additional stimulus could do a lot to pull the global economy out of its tail spin. So why don’t we all stimulate? Krugman owns a Nobel Prize in Economics and knows what he’s talking about. He considers himself a Keynesian after John Maynard Keynes, the mid twentieth century economist who invented, more or less, the branch of economics we call macroeconomics which is the obverse side of the coin from microeconomics.
It’s difficult to quantify, but if you’ve had any conversations with regular people, as I have recently, you see the two camps run deep. The Austerians as Krugman calls them want austerity, smaller budgets, increased savings, less government spending. The Stimulators think this is exactly the time for government to spend money, deficits be damned. There will be time later, they say, when the economy is back on its feet, to raise taxes and pay for the spending.
Who’s right? Each side thinks it is. And you know what? Each side is, though only one can be right in the context of today’s economy. Economists have been famous for this kind of duality, so much so that Harry Truman once got tired of economists speaking to him in the vernacular of “on one hand and then on the other hand,” that he asked his staff to find him a one armed economist.
But back to stimulus and austerity or macro vs. micro. The austerity people have a clear idea of how to pull out of a personal economic crisis. Stop spending more than you take in, pay down debt, save a little and you will be out of the woods before you know it.
The macro people say that’s the problem. We’re not dealing with micro or personal economics but with macro, global economies and they operate differently. If everyone takes the austerity approach spending will decline and the economy will go into a tailspin. As Krugman rightly points out, my spending is someone else’s revenue and in a big economy that inevitably drives the spending that results in what I call a paycheck. That’s why when everyone is not spending either the government picks up on spending for a little while or the economy spins down into a deep hole.
Typically, governments spend on roads, bridges, teachers and other public infrastructure. They also spend on unemployment insurance. Unemployed people are a great investment because you can count on them to spend the money they get and spending is what spins an economy up. Also, in a recession, with construction at low levels, government can get these things at bargain prices again putting money into the economy. And if you buy productive assets like infrastructure, you have these things to work with as the economy improves. Government spending is like training wheels, soon you don’t need them and you ride off on your own. Think of this as investment.
Unlike the U.S. the Europeans have a small problem with infrastructure spending or any other kind of spending. The spending, if it happened, would occur with German money in non-German countries so the Germans are reluctant to try this approach. That’s the problem of having a unified currency but a non-unified government where each state is sovereign. There is also more than a touch of righteous moralizing going on by the haves over the have-nots.
The German conundrum notwithstanding, there is a huge body of evidence from studying the Great Depression of the 1930s onward that shows government spending drives recovery from severe economic crashes. The body of evidence also shows that failure to spend simply deepens the hole everyone is in.
Krugman and his colleagues would have liked it if the U.S. stimulus had been bigger or if multiple tranches of stimulus had been applied. The people who say stimulus doesn’t work are the same ones who denied further spending and fought against the original stimulus plan. All that is water under the bridge. A kind of social experiment has nonetheless been performed and the economy that was stimulated, even inadequately, is doing much better than the economy with the brakes on.
If that’s not enough, what Merkel sees is that the French just elected Francois Hollande, a Socialist who promised to focus on stimulus and job creation in diametric opposition to Nicolas Sarkozy, a Merkel acolyte. So we were treated to a delicate face saving about face by Merkel this weekend when the leaders of the G8 convened at Camp David with the unofficial goal of convincing Germany that austerity isn’t working and won’t.
Merkel really likes her policy and is not going to change her mind easily. But with that election looming, she is at least now saying that austerity and job creation must go hand in hand. Such is progress in international politics. One wonders how much faster things would go if Merkel had a chance to see first hand how her policies are affecting millions of people.
The Labor Department just reported that the US economy added 120,000 jobs in March. That’s less robust than in the recent past but a positive number nonetheless. Recoveries go like this — in a saw tooth pattern rather than straight lines so I am not worried.
That said the sluggishness in the EU caused by wrong headed austerity policies plus the rise in energy costs can be expected to have a suppressing effect on the recovery. As Paul Krugman wrote in today’s NY Times, we could stand a little more inflation to help the economy pick up steam but we have our own share of wrong headed thinking on this side of the pond too.