Observations from Show Season
Not that the shows ever end, but as I regain my spot on the ground, I have a few observations from the many shows that I have been to or read about over the last eight weeks.
Platform is changing everything
If you think that cloud platforms are simply a nice alternative to software licenses, you should think again. It’s human nature to apply new technologies to old problems and that’s what such an approach really does. But sooner or later, and that means now in this case, the market figures out the true impact of new technology and things change in significant ways. Platform is like this. For almost 15 years we’ve seen SaaS and its variants taking up space in the market and picking off niches that were less desirable to the big license software vendors. That idea crossed the chasm just before the Great Recession, which muffled the impact for a few years but today, subscriptions are back with a vengeance. All of the shows I’ve been to lately are put on by cloud vendors and all either have platforms or want to convince you that they are well behaved citizens in almost any major platform ecosystem. So cloud computing + subscriptions = massive change, but…
Subscriptions are the tip of the iceberg
Subscriptions are the first of a long line of new business models that will disrupt business as we know it. The world doesn’t need to move completely to a subscription economy or even a majority subscription economy before subscriptions and other models will have a significant impact on the vendor customer relationship — hint, it’s already happening. I got this from my own observations but they were crystallized by Jeremy Rifkin through his book, The Zero Marginal Cost Society which I read on airplanes, mostly. Rifkin’s thesis is simple. If you can subscribe, rent, borrow or, even better share, something (possibly even make it with your handy dandy 3D printer), the marginal cost to the consumer becomes something close to zero. Ditto for home generated electricity from roof to solar panels and greatly reduced logistics needed. The implications are significant because an economy with even 20 percent of its commerce done through subscriptions, exchanges, and sharing makes it very difficult for a conventional company to show growth and profits. So what happens to Capitalism? Thomas Piketty is fascinated by…
Capital in the Twenty-first Century
Piketty’s book, which I also read on airplanes and, which at 577 pages gives you some idea of the amount of travel I have been doing, sees the twentieth century with its wars and economic disruptions as an outlier to history. Piketty thinks the average growth rate of the global economy will settle back into a long term range of 1 to 1.5 percent (from a Chinese high of up to ten percent per annum) in this century but that capital growth will maintain an average between 4 and 5 percent resulting in continued and exacerbated inequality. According to Piketty, the top percentiles in Europe own the equivalent of 6 to 7 times GDP as wealth while in the US the number is more like 5 to 6 times. Piketty’s point is that this kind of wealth accumulation could go on for a long time.
But Rifkin already sees a zero marginal cost society reaction to Piketty in which capital might become irrelevant. The two books should be read together as they form a big picture story. But all of this means that…
We will need to deal with the IoT soon
The Internet of Things (IoT) is growing out of the above-mentioned trends. Subscriptions and platforms including an Energy Internet and a Logistics Internet that together with the Communications Internet are pushing hard on the zero marginal cost accelerator, drive this. It makes sense to me that in a free market where the individual is free to pursue enlightened self-interest, that zero marginal cost models will become a norm. IoT will be the near zero cost approach to understanding customers in an attempt to eek out profit when capital becomes mostly irrelevant. If that all happens, it will be the first time the 99 percent had a revolution that didn’t involve blood shed a la French Revolution or the American one for that matter. All of this suggests that sales is no longer the effective end of the CRM stick and that…
Marketing is leading CRM
Zero marginal costs imply no margin to be dedicated to sales activities or people so it is very interesting to see the leaps that marketing automation is making. From Eloqua to Marketo to the Marketing Cloud and more, marketing, with its superior analytics (compared to sales) is sitting in the catbird seat. Sales and SFA aren’t about to go away but all of the above puts more pressure on sales people to come in from the cold and accept modern techniques without the complaints about SFA or CRM that it’s hard to use or that it detracts from selling time. Those arguments simply don’t hold water any more. I pity vendors using them to sell their favorite sales automation strategies. Interestingly, this affects how we engage because I think…
Customer engagement is wide of the mark
As customers we may not want an interrupt driven, broadcast advertising model for relating to vendors but neither do we want a neurotic relationship with any vendor that is always asking “How do you like me now?” Who are these guys, Ed Koch? In a country that highly prizes independence and a go-it-alone mentality (not saying it’s healthy, BTW) the neurotics won’t prevail. What we’ve been iterating towards all these years, and I suspect what vendors develop a rash to whenever they think about it, is an interrupt model driven by the customer. I really think that’s it. The vendors best positioned in this economy that seems to be determined to re-invent itself yet again, are the ones that can best prepare to be interrupted and not be surprised when it comes. All this suggests greater reliance on platform supported IoT and sensing customer relationships, so here’s a simple question…
Can we please be done trying to accelerate the sales process?
Enough. Done. Finito. Havlicek stole the ball. It’s all over. Railroads accelerated the sales process. So did telegraphs, telephones, automobiles, and maybe fax machines. Everything else is anti-climax. Why? If you follow the train (no pun) of the last few sentences, over the last couple of centuries we’ve been reducing the lag time between sales touches, which has arguably reduced the sales process time. Trouble is we’re now down to nearly instant communication so where do we go from here? If you’re a high-speed trader like in Michael Lewis’ new book Flash Boys you need to work in nanoseconds to affect outcomes. My bet? Not gonna happen in everyday selling in a zero marginal cost world. The key point is that people playing the customer role still make decisions the way they did before railroads. They think about the decision, weigh the pros and cons, sleep on it, or ask a trusted friend. All of this takes time. If your business really, really needs to accelerate selling then refer to the point about marketing above. The way to make it appear that selling is accelerating is to stuff more quality leads and deals into the pipeline and to use good metrics to verify that you aren’t back-sliding.
The end game (for now)
All this adds up to increased emphasis on the customer buying process but we also now have to add in the sharing, networking, community oriented processes too. I still see plenty of daylight for CRM to prosper but the relative mix is definitely skewing towards service and marketing as customers continue to pursue their idiosyncratic needs based on logic they alone fully comprehend. Meanwhile he who has the best platform, one that supports incredibly agile business processes and their constant reformation might not win but certainly will survive. That’s my view from seat 16B.
Zuora, Intacct Deal a Sign of Things to Come
We’re beginning to see an important differentiation, even a schism, in the enterprise software industry. It’s been building up for the last seven years and it will burst onto the scene tied in a bow this year. It’s the separation between conventional software suites and platforms and it is most vividly explained by front to back office integration but also alive and well just in the back office.
Let me digress.
In the conventional software era now heading into twilight, vendors provided more or less soup to nuts solution sets all integrated around proprietary standards, data models, middleware, and the like. It took a long time for suite vendors to get to that point, developing one application after another, delivering additional functionality to the market year after year. The process was not without its flaws and immature products occasionally got to market causing much heartburn for early adopters.
Cloud computing and subscriptions are changing all that and the most obvious change agent is Salesforce.com with its Force.com and Salesforce1 platform — Salesforce1 being the superset.
Rather than offering defined solution sets as conventional vendors have done, the Salesforce strategy has been to provide foundation technologies that include the development and maintenance tools you might expect from a solutions provider but with a twist. The tools sit on a platform that also includes some spiffy data management, workflow, collaboration, social media, and analytics tools. In short, just what you need to build robust apps these days — cloud or conventional. Moreover, any developer can make an app that harmonizes with the platform and delivers a robust solution even if it’s version one.
This foundation also gives developers two things they’ve never had. First, the ability to build apps that automatically integrate with others built to the same platform standards and, second, a way to define apps once and target-generate runtime images for a variety of operating systems.
One of the best examples of this approach is the Salesforce ecosystem and here we rejoin our previous column.
It is more or less expected that Salesforce can easily integrate with the apps in its ecosystem. So the real proof of the platform is in the ability of non-Salesforce apps built on the platform to integrate with each other.
Earlier this week in Las Vegas, Zuora, a native application on the Force.com platform, announced a deepening relationship with Intacct a financial applications provider in the Salesforce ecosystem. IntAcct is not a native Salesforce application set meaning it has its own cloud but no matter. Another attribute of the platform is its API set designed precisely to enable the kind of integration just announced.
We’re not done yet.
Zuora is one of the leading providers of specialized services that help subscription companies and subscription groups within conventional companies, to account for the sometimes squirrely (that’s a technical term) business processes needed to correctly manage customer orders, configurations, billing, payment, and finance. I can’t find an accurate number of Zuora customers but I can say they have offices in the U.S. and Europe as well as $132.5 million in venture capital. The press release says Intacct has more than 7300 customers including startups and public companies.
My point is that the platform is not some gimmick for small companies or cloud only companies or front office only companies. The cloud is for every company, everywhere. This is made abundantly clear by this announcement by two back office companies this week.
This announcement is another proof point for the platform but also a major validation for Zuora that, by this integration, is enabling Intacct customers to build and deploy hybrid business models for its customers that include conventional and subscription businesses.
This is a big deal because it adds significant subscription functionality that will enable Intacct’s users to make better decision because they’ll have more information available. And that information will not come at the cost of storing customer data in two locations and hoping to be able to synchronize everything. The two systems will operate as a single entity for those companies sponsoring hybrid business models that are in need of hybrid accounting.
Obviously, the deal gives Zuora a universe of 7300 new customers but it also gives Intacct an easy way to deliver major new functionality with no drama. That’s why I think this is a milestone event.
Subscriptions in the Enterprise
If this is going to be the year of the platform that I discussed last time, it will also be the year of the subscription business model. This is, I hope, the last time I drag out the “year of” phrase attached to anything significant unless it’s the year of MY Tesla and that’s highly unlikely. The real reason for any description in the context of “the year of” is that it is shorthand for, hey, this stuff has reached critical mass and it’s now time to pay attention or risk having your lunch money taken. So it is with subscriptions and their enabler the software platform.
Curiously subscriptions and platforms have grown up together even though neither is yet a necessary or sufficient requisite of the other. ZipCar and its ilk don’t have formal platforms and the idea is not relevant to their models. Wireless vendors all have homegrown platforms primarily to run their Byzantine pricing and billing models and while that’s closer to the heart of the matter it’s still off center.
Software platforms have lately become the enablers of subscriptions just as subscriptions have opened up the market for platforms. Platforms may be the saddle point of maximum technology flexibility and business agility and lowest cost to operate which fits well with the subscription model.
Late last year a report came out of the Economist magazine’s Intelligence Unit that pinpoints the state of subscriptions. It’s nothing that I haven’t been saying for the last five or six years but the Economist logo adds some prestige. To recap, subscriptions are good at enabling customers to get exactly what they want without the added cost and overhead of ownership. Subscriptions also enable the CFO to spend limited funds more incrementally and thus get greater value for every hard earned buck, pound or euro, etc., etc. What’s not to like?
However, one thing the report takes to the next level is the idea that subscriptions now have sufficient critical mass to be seriously evaluated by the enterprise and that’s breaking new ground. More importantly, the definite implication is that enterprises should not simply consider subscribing to things like Salesforce — if they haven’t already, their lunch money might already be gone. The implication is that enterprises ought to be thinking about how to deconstruct their products and services while reintroducing them as subscriptions.
Surely, the Economist doesn’t mean to say that everything should go to subscriptions in the next three years. If they did there would be much rejoicing at the intersection of Routes 101 and 92 in Silicon Valley, home to a disproportionate number of subscription pioneers. Taking business to subscription nirvana will take longer than three years and when it’s done there will still be conventional companies selling products and services just as there are still a few thousand pesky mainframes in mission critical business processes at this very moment.
I do think, though, that even those survivors out on the long tails of the Bell curve will have to adopt a subscription mentality. What I call the Subscription Culture takes us beyond simply the Subscription Economy to a place where customers think like subscribers regardless of what their vendors are doing. Succinctly, this means people have been trained to expect the same kinds of customer relationship that a subscription company provides and disappointing them is not good for the top or bottom lines.
The subscription relationship includes some obvious goodies like very low costs amortized over the life of the relationship and the absolute right to pick up stakes and move on if ever the customer sees that all the succulence of the subscription has dried up. In that regard, there is nothing as American as a subscription, westward-ho and all that, less obvious, but more critical for the vendor, is the imperative to never let the subscription get stale. That tall order falls again into the lap of, not just analytics and big data, but the platform, which ought to have the analytics, workflow, social listening and collaboration all built in.
By all that, you can see that the Economist’s report is not wrong in expanding the concept of subscriptions to include other related models like renting. It seems subscriptions are slightly more popular in America and rental models are slightly preferred at the moment in the UK. Either way you slice it — and it might just be tax laws defining the relative need to take title to something — the fundamentals of subscriptions like how to configure, price, pay for, and support them will be relatively consistent. So this leaves us with the year of the platform supported subscription service run by, and in many cases purchased by, the enterprise.
NOTE: Next time I write about subscriptions and even platforms it will be with an eye to Erik Brynjolfsson’s and Andrew McAfee’s excellent new book, “The Second Machine Age: Work, Progress, and Prosperity in a time of Brilliant Technologies.” These two MIT professors have their fingers on the pulse of a very important trend and I am advising people to take a look at it in the same way a time traveler might advise you to mortgage your house and put the cash on Secretariat to win the 1973 Kentucky Derby. (BTW, I don’t know these guys and I am not making anything endorsing their book.)
The Year of…the Platform?
It might not be possible to accurately forecast the major theme of this New Year. I have been through several iterations already and while each has its own claim to fame we won’t know until it’s all over what was most important. That’s no surprise.
So as long as I am still in the mood to throw out ideas, here’s another one — might this become the year of the platform or platform computing? There are some good reasons to consider platform’s primacy in our thinking. First, most vendors have some version of a platform that includes a hardware or infrastructure layer, middleware, and applications. Most vendors have been at it for a while now so product sets are reasonably well configured and are in working order — no slide ware here.
Platform makes sense from both the vendor and customer perspective. For vendors, platform re-builds the walled gardens that were prevalent back when compilers and databases drove things. For customers, platforms and their ecosystem partners, offer a reasonably robust environment for doing most of their business processing and this places less emphasis on the wall and more on the garden.
Nonetheless, no two platforms are alike. Oracle touts its hardware and middleware whenever it can while Microsoft continues to insist on a world reliant on one or another version of Windows, and Salesforce peddles a version of nirvana that includes social, mobile, and multitenancy. There’s something for every taste.
Less talked about is the benefit that smaller companies and ISVs can get from a platform and its ecosystem. Platforms reduce an ISV’s need to do everything alone from building product to marketing and selling it and even to integrating it with other kindred applications. There’s never been a better time to be an ISV, especially if you pick your partner carefully. Here are some questions that anyone should keep in mind when selecting the right partner.
- How relevant is the supplier in my chosen market? If you want to supply a front office or CRM application, how is the platform vendor oriented to that market and does it matter? Should you build your solution on a platform that’s oriented toward ERP for example? A lot depends on your application and how you plan to sell it so you have to think hard about this.
- At the same time, what is the vendor’s reputation for supporting ISV’s? The answers can be all over the map. Some vendors set up reseller programs and hold everyone at arms length so as not to ruffle any feathers. Other vendors only accept a limited number of partners but then really push for them. Still other vendors take on anyone without regard to their ability to play in the big leagues. A good ecosystem leader should have programs and services in place that help you prosper without taking responsibility for your success.
- How do you plan to go to market? Don’t fall into the trap of thinking you simply need great technology and that you’ll be able to tap into the vendor’s sales team. They have enough to do making quota and many see partners as added drag in bringing deals to closure. So develop a concrete and clear go to market strategy. When you get some help it will seem like a luxury.
- What about their program will off-load some of your overhead and is it a good fit? If you’re technical and plan to do all the development and maintenance, you’ll want to ensure the vendor has a robust technical platform but at the same time, you might not be the world’s next great marketer. What help does the vendor offer you? The answer might drive the decision.
- How does the venture capital community see your prospective partner? Ideally your partner will have some alumni who have hit the ball out of the park and their investors will be eager to do it all over again. The VC-OEM complex is very valuable and you should inspect this facet with care.
- How do you fit with the OEM’s other partners? If you plan to offer a solution for which there are already multiple similar products how are you going to stand out? Will it matter? Do you plan on going head to head with the others? Also, how does your proposed solution fit with other ecosystem solutions in larger business processes? For example, if you offer a configuration, pricing, and quotation solution, how do you fit with SFA products in the ecosystem?
- Lastly, there is the issue of integration. A good platform will have plenty of APIs and other ways to integrate your solution with other partners in the ecosystem and beyond. Ideally, if you build your solution on a platform you should be able to automatically share data and workflow metadata with those other apps.
Platforms make bringing your idea to market easier than ever. But you still have a responsibility to yourself to evaluate options because there are some very real differences. As my dad used to say, measure twice, cut once.
Dreamforecast
For many years I have written a piece that attempts to forecast the major themes of Dreamforce. I believe I am not always right but the exercise is fun and helps me orient toward what should be happening industry-wide even if it’s not. This year is no exception. With no briefing yet from the company, I am unfettered about what I can speculate on. Had I already been briefed I would be prevented by an NDA and common sense from doing this.
The dominant theme I have witnessed this fall from most of the other front office vendors has regarded marketing. As I have written before, most of the big guys–Salesforce included—have bought and integrated some very nice marketing solutions into their CRM suites. In the process, marketing, which was once the most qualitative and least quantitative of the CRM disciplines, has now become the most quantitative while retaining its qualitative distinction.
It’s possible that in future years we might see marketing fragmenting into two arenas for qualitative and quantitative output. We have a somewhat similar division today between corporate and product marketing but the segmentation I see coming would be between quantitative practice and creative output and the current division includes some of each in each part so there’s some refactoring to be considered. But enough, that’s a subject for another piece. Dreamforce.
So, marketing is top of mind therefore I don’t look for Salesforce to make it the centerpiece of their show. You have to remember that Salesforce made a big deal of the Marketing Cloud last year, after all, so don’t depend on them doing it again. They seem to take a perverse organizational pleasure in throwing down the glove each year so that other vendors can do their fast follower things. It’s like Lucy and Charlie Brown and the football—it doesn’t get old.
So if not marketing, then what? Platform. Around the middle of this year there were a couple of announcements that provide insight. Both Oracle and Workday made joint announcements with Salesforce that their platforms would interoperate and I conclude from this that platform will be the main attraction.
It makes good sense to me because I think platform-level integration is rapidly replacing application level integration. When integration meant two apps sharing some data, integration at that level of granularity made perfect sense. But today integration means constructing end-to-end business process support often using multiple apps that share more than basic data. In fact what’s basic data for one pair of apps might only be process metadata for another pair of apps further down the line.
This need for process integration puts a great deal of pressure on integration schemes. Increasingly vendors are building apps on top of over-arching platforms that bake a great deal of process support that is native to them into the apps. For Salesforce and its Force.com platform, this means workflow, collaboration, social media support, marketing and analytics, and mobility support that enables developers to specify an app once and target generate a runtime for multiple devices. As I say all this gets baked in simply by building on the Force.com platform and apps built to the platform standards are pre-integrated adding a powerful business incentive.
Here are some impressive stats to back up my opinion. There are now more than 2,000 ISV developed apps in the AppExchange, most are built on top of Force.com and are pre-integrated by virtue of their adherence to Force.com standards. There are also more than 100,000 companies using Force.com to build apps and, according to a recent Forrester Wave Report, about 10,000 of them are major enterprises. Finally, there are three million apps already developed and in use on the Force.com platform.
Here’s a hypothetical example of what all this platform integration could mean in the real world. A subscription company using Salesforce SFA and Apttus CPQ (configure, price, quote) can complete a deal, send the order configuration back through Salesforce to process the order in Kenandy ERP, and it might bill for the subscription through Zuora’s subscription billing, payments, and finance product. If the company also sells products in the conventional manner, Zuora can also provide financial support for a subscription sub-ledger for a conventional ERP system.
That’s a simple example too; it goes on and on. It makes no mention of the myriad support options—ServiceMax for field service automation for instance—and market and sentiment analysis tools available on the platform also.
So I think platform will be a (the) major theme of Dreamforce. I could be wrong of course but the platform has come a long way in just a few years. Once the home of a thousand widgets, Force.com is now the redoubt of many robust apps that can run with or without the core CRM. To continue propelling Salesforce’s growth I think a very easy approach runs through getting more partners and ISVs involved in selling the service that undergirds their solutions. In a couple of weeks we’ll see what my two cents is really worth.
