I’ve been writing a forecast column every year at least since W was president. Nothing’s wrong with that, lots of people do. But I often find that my forecast is more of a wish list than a true prognostication so this time I’ll dispense with the fiction of analytical rigor and just say what I think needs to happen.
Platforms and leaders
First, the industry is consolidating. The big and successful companies are competing on a different plane than the smaller ones. The smaller guys are working harder than ever and some are realizing they need niches, that they’re not going to be able to cover the whole CRM landscape.
This is mostly a good thing because it clarifies the mission and lowers the costs of being in the market. I can also mean better and more verticalized software. But there are two basic kinds of these companies—those that have credible platforms and those that don’t. Among those that do I’d list several including Oracle, Salesforce and Zoho.
Oracle and Salesforce should not surprise but Zoho might. They’ve spent decades building a global solution and platform. There is only some overlap between the two with Salesforce attacking the really big enterprises and offering a huge ecosystem. But Zoho is a powerful solution for the small to mid-enterprise. It also has a good ecosystem. One of the big differentiators is how much ERP functionality you’re likely to need and where you plan to get it. Salesforce integrates well and has ERP partners like Financial Force. But Zoho offers good back office apps as a part of their service as well as having that ecosystem.
Another vendor in the mix is NetSuite which has been setting sales records since Oracle bought and significantly invested in them. NetSuite’s idea of CRM is eCommerce though, so customers will self-select.
So on the flip side, there are small-ish vendors still working on their own platforms and whose development teams are measured in the hundreds. The market leaders have thousands of developers in contrast, which is why it’s time for these vendors to find a niche and try to excel. With that comes a decision point about their platforms.
Next, we’ve had years of AI and social media, and even years of integration. I think it’s time for a year of integration on major pharmaceuticals. We need better networking and this needs to be led by the biggest names. A consortium including Microsoft, SAP and Adobe announced the Common Data Initiative (CDI) last year which I still think is not only too little, its major purpose is more aimed at slowing the advances of Oracle and Salesforce. Oracle’s autonomous database and enhanced security present a major challenge to other DB vendors. Salesforce is drafting behind the Oracle RDBMS on this one and has that advantage.
CDI focuses on building a common CRM data model and that sounds good, but it has too many moving parts as in potentially every vendor in the industry. Smarter people have said the better approach to making everything talk is to facilitate the communication at the API level. I agree. No surprise, some of the vendors conspicuously left off the Microsoft, SAP, Adobe invitation list, are pursuing the API approach, like Salesforce, and I think 2019 will be a banner year for more API centric networking.
We need that approach too, not just in CRM but throughout the tech world as we continue to build what will be a true information utility in the not too distant future.
Taking social seriously
Social media has deep roots in CRM—recall the year(s) of social CRM—and because it does, I think there’s subtle pressure in Silicon Valley for the likes of Facebook, Twitter, and all the rest, to clean up their acts and mature their business models and security plans.
Recent reporting shows that virtually every social network has either been compromised or willingly gave access to private information to entities that shouldn’t have had it. You can’t do CRM if customers get worried about how their data is being used. CRM is an unwilling victim of social shenanigans and they don’t want to be seen as willing partners, so the pressure is on.
Foolish social leaders will think they can wait out the federal government on regulation but that approach could backfire when the feds deliver a set of regulations that don’t work. Remember, many of the people who would pass this legislation are in their 70’s and have an archaic understanding of tech. Smart leaders will see this and volunteer to define what’s possible.
My two bits
I’m looking forward to 2019. I don’t think it will be a time of runaway growth and major innovation in CRM though I would be pleased to be proved wrong. In a consolidating world, there will be some losers too so be prepared.
I think the year ahead will impress by showing unprecedented innovation, of people and companies doing some unexpected things that make a lot of sense. I’m looking for the second or third tier of companies to be more aggressive in the mergers and acquisition arena in a bid to become more competitive. After a lot of years in this seat, I’m still having fun and I appreciate you letting me share my views.
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.
A couple of weeks ago Allison Arieff wrote a piece in the New York Times titled “Solving All the Wrong Problems” that gets to the heart of the technical times we live in and its focus is not what you might think. She includes a long list of things we can buy or subscribe to such as:
A service that sends someone to fill your car with gas.
A service that sends a valet on a scooter to you, wherever you are, to park your car.
An app that analyzes the quality of your French kissing.
A “smart” button and zipper that alerts you if your fly is down.
A sensor placed in your child’s diaper that sends you an alert when the diaper needs changing.
It goes on but you get the idea and you can always read the article here.
All of these things have in common the idea that just because we have the ability to make them doesn’t mean we should. Presumably the ones that got venture capital financing had someone asking, how does this make money and receiving an acceptable answer.
At about the same time this article ran, I needed a water heater so I went to a big box store and searched for—wait for it—someone to wait on me, to answer a few questions in other words. There were three models on display but in a perversion of good, better, best, there was standard, deluxe, and WiFi. The top of the line water heater could send information to my smartphone about, oh, I don’t know what really.
In my long life I’ve noticed that water heaters either work or they don’t. When they don’t work, I take a cold shower and summon a plumber to rectify the situation. The idea of having a water heater that I could interrogate through my smartphone seemed importantly like a moment in history when a new neurosis is proclaimed—hydrothermia gondii, perhaps.
But I have an explanation or actually two that seem to pacify my mind. The first harkens back to Linus Pauling, a two time Nobel Prize winner who once famously said that if you want to have good ideas, you need to have a lot of ideas. Translation, it’s a numbers game and most inventions don’t make the cut. Of the long list in the Times article, most if not all but the one that evaluates the quality your French kissing, are bound for history’s ash heap.
But Pauling’s point was that you never know what’s going to hit so you take the risk of ridicule and ruin for the chance of success and all that attends it. Still, some of these inventions up to an including the WiFi water heater strike me as over the top science fair faire.
The other reason in my mind might be closer to the truth. It’s that we’ve reached the end of the current paradigm. By paradigm, I mean the thing that frames our economic and social lives, the technology boom. According to the late Russian economist, Nicolai Kondratiev, a paradigm animates our economic lives and lasts between 50 and 60 years before another replaces it. Within a paradigm you can have trends and business cycles but the paradigm is ascendant.
You can know when the end is nigh because it gets really, really hard to innovate around the core tenets of the paradigm without bumping into something else that does pretty much the same thing. In other words, all of the niches are full. When that happens people try to invent niches which is why you get online water heaters and French kissing apps.
Eventually Kondratiev’s wheel turns again and we start anew with a different paradigm. But new paradigms are expensive; they result in what another economist, Joseph Schumpeter, called creative destruction in which some of the earlier and perfectly good established economic order is trashed. So, not surprisingly, the establishment will resist change which brings on a period of stasis.
You know you’re there when someone invents something equivalent to a sensor placed in your child’s diaper that sends you an alert when the diaper needs changing. Come to think of it, that’s a perfect metaphor for the times we live in. We’re waiting for change.
Well, how about them apples?
In a Reuters article out today, Microsoft said it wasn’t really pursuing Salesforce at this time citing the high cost—about $50 billion for the market cap and what must be calculated for a premium likely to be extracted from any would-be suitor.
As I have been saying, the time when Salesforce would have been a smart acquisition has long passed. When conditions were right for a purchase, the very shrewd people running software companies poo-pooed the whole idea of cloud computing and were not interested. Now, despite some credible efforts at building cloud infrastructures, these same companies have been disrupted.
The same Reuters article quotes Chief Executive Bill McDermott of SAP declining interest too, saying, “We have never bought something that was impaired and in decline.” Clearly implying that Salesforce’s cloud computing software was becoming commoditized—as if legacy on-premise software is still in its hay day.
What cheek. McDermott can only wish his company was as impaired and declining as rapidly as Salesforce. What exactly does impaired mean anyhow? Is it a new GAAP standard?
It takes prodigious amounts of moola to launch a company these days and that’s especially true when trying to insert a new idea into the collective consciousness. Salesforce spent well over $100 million to convince us that SaaS CRM was real, Zuora has raised nearly 2X that amount defining the subscription economy, and cloud ERP is following suit.
Today FinancialForce, a cloud ERP provider based on the Salesforce1 platform announced a financing round of $110 million from lead investor Technology Crossover Ventures (TCV) and Salesforce Ventures, Salesforce’s corporate investment group. This follows on the heels earlier this quarter of smaller investment announcements by CPQ providers Apttus, and Steel Brick. So what does it all mean?
I think you need to pay attention to the concentration of money and deals in a tight space of ERP and related back office apps. They’re all cloud companies and it strikes me that the investment community is making a decision about ERP granddaddy SAP in the process.
SAP has tried several times to bring forth a suite of front and back office solutions based on modern cloud technology and they’ve been only modestly successful. Microsoft has made greater strides in bringing its multiple ERP products closer to the cloud but progress has been measured. Time’s up and small ERP providers like FinancialForce, IntAcct, and not so small NetSuite have been gathering strength over many years. The economic conditions are right and the market is, I think, making a call that there’s no more runway for legacy ERP vendors to get to the cloud; it’s time to seek out the next generation of solutions.
The succession plan for replacing legacy ERP is well under way with a surround strategy that first positions cloud ERP as a helper application that can consolidate data, process it, and feed it up to the legacy system. This is a meta-stable state and will eventually result in the surrounding solutions supplanting the legacies, achieving over time what a much despised rip and replace would ordinarily accomplish without all the wailing and gnashing of teeth.
Much of this is still in the future but for now, FinancialForce has taken an important step in preparing for a larger role in what is likely to be a big fight. The objective of the fight will be to secure stable cash generating relationships for many years to come.
Finally, more than once Marc Benioff, CEO Salesforce.com, has said he had no interest in building ERP but it looks like ERP is coming to his company regardless via the powerful platform technology, Salesforce1, that his company provides. Apttus, FinancialForce, Steel Brick, and other financial apps all coexist with Salesforce1 and some, like FinancialForce, are completely rooted there. Their success is also great validation for the platform.
I’d really hate to be a legacy ERP provider today.