Net Neutrality – Confusion, Content, and the Meaning of Free

There is perhaps no contemporary issue at the intersection of technology and public policy that is more contentious and conflicted than net neutrality. The issue itself has probably accounted for its own increase in Internet traffic over the last couple of years as opinions, jeremiads, official proclamations, and even HBO’s John Oliver, have weighed in on the issue.

One of the interesting parts of this complex and confusing issue is that content plays a central role in the debate. Even more interesting, however, is that unfettered access to content – a right I firmly believe in, alongside an equally vigorous right to the privacy and security of personal data – is conflated with the right of Internet service providers to charge different rates for different access speeds. I believe these are two separate issues, and by separating them (and understanding what free really means) it’s possible to see where a more reasoned compromise may actually be constructed.

To condense way too much of the polemic into a couple of paragraphs, the basic issue is that a wide range of stakeholders – from Internet activists to 1st Amendment liberals to some of the wealthiest and most influential technology companies on the planet, like Netflix, Google, and Amazon, among many others – believe that doing away with net neutrality will stifle freedom of expression, entrepreneurship, and a host of other evils too numerous to count.

On the other side are the major service providers – companies like AT&T, Verizon, and Comcast – who believe it is their capitalist economy-given right to make as much money as possible by selling their Internet pipes at different rates depending on who’s using what.

At least one of these companies – Comcast, one of the least popular corporations in the US – have definitely been caught by regulators impeding Internet traffic from “content providers”, and that impedance has set the stage for what I believe is a poorly constructed argument that goes like this: the ability of service providers to charge differential access rates threatens the free flow of content. Therefore, in the spirit of protecting content, there can be no differential pricing for access to the Internet.

In other words, without a level playing field for Internet traffic, the sanctity of content is in question. And that’s where I start scratching my head.

Let’s start with the content providers. Right now they do pay for differential access. Netflix, for example, agreed last year, most unwillingly, to pay Comcast, Verizon, and other service providers for fast lane service. Netflix’s CEO is on record as saying these fees are unfair. The service providers say that if Netflix wants a big Internet pipe, it should pay for it. And, they add, if Netflix doesn’t pay more, the cost of supporting the Internet infrastructure (and the profitability of the service providers) will be borne by the rest of the user community.

While it is true that Comcast was caught in 2007, and later sanctioned, for deliberately impeding Internet traffic, mostly to stop peer to peer networks such as BitTorrent from sucking up too much bandwidth without appropriately compensating Comcast, I don’t believe we have to have price neutrality in order to ensure access and keep a service provider from misbehaving.

The United States Code of Federal Regulations is replete with regulations that are intended to prevent predatory pricing, monopolistic control, and restraint of trade without the simultaneous requirement that all players in a given market provide an identical level of service at an identical cost.

Pharmaceutical manufacturing regulations are perhaps the simplest example. The same rules for safety – safe drugs is to pharma users what unfettered access is to Internet users – apply whether a manufacturer makes aspirin at fractions of a penny per dose or a new treatment for hepatitis that costs over $80,000. Playing fair – in this case making sure drugs work and consumers aren’t poisoned – is separate from what price the producer is allowed to charge.

Similarly, we should consider an option for the net neutrality issue that allows the movement of content to be priced differently, as long as that movement is not impeded or otherwise blocked. In this way Netflix would pay a proportionately large fee to stream millions of movies to millions of customers, while enterprises and consumers that move relatively smaller quantities would pay commensurate with their usage requirements, and not be asked to effectively pay for Netflix’s disproportionate use of Internet resources.

(I should add that the argument that this kind of price regime would stifle competition is largely disingenuous: Netflix’s stock price did take a dive in in the quarter following reports of its deal with Comcast, but that stock shortfall was attributed to increased competition and an ill-considered price hike by Netflix, not the supposedly onerous and competition-stifling cost of paying a premium to the likes of Comcast. The cost of having Amazon, Google, HBO and other competitors enter the streaming video market is a much bigger deal than paying off Comcast.)

If we strip content access away from the net neutrality debate, and just focus on differential pricing, what we end up with is a powerful set of companies on one side – content providers – and another powerful set of companies – the broadband suppliers – on the other side arguing what is really a business problem: how much does it cost for the former to use the latters’ services?

These issues are resolved all the time without resorting to government-sanctioned price controls: logistics providers, manufacturers, distributors, and retailers sort out similar business questions without crying foul or stirring the pot. While some would argue that access to the Internet is not a privilege, but a right that must be protected at all costs, I would believe, in the case of the food business, ensuring public access to the food supply is arguably a much more fundamental need on Maslow’s hierarchy than watching Game of Thrones in HD. There are ways around this without giving some very big corporations a government-mandated price break I’m not sure they deserve or even need.

There is one final argument for price neutrality, which is the potential negative impact that unregulated pricing will have on start-ups, that I’d like to address. First, startups dream big but always start small. Even if I was stupid enough to start a company to compete directly with Netflix (John Oliver refers jokingly to a company he wants to start called Nutflix, which I hope will be the final incentive you need to watch his brilliant analysis of the topic, even if we do disagree), it would take me years to approach the usage levels of Netflix, or HBO, or any of the other competitors in the market.

And if my startup ever did get to the big leagues, there would be other, more fundamental issues I would have to deal with (like the bone-headed idea that I would ever want to compete with these companies in the first place) than what my startup was paying for Internet access.

Secondly, and this is really basic: entrepreneurs don’t let anything stop them if the idea is good enough. We here in California are routinely treated to diatribes about how our taxes, housing costs, and wages are stifling competition, and yet, as all three continue to climb year in and year out, California-based start-ups are blossoming and VCs are spending more than ever.

So, as the debate swirls around net neutrality, let’s keep some perspective on the content side of the issue. Content isn’t all the same, its uses aren’t all the same, and the quantity and quality of content needed for a given purpose varies significantly from use case to use case. There is really no technical or business case for treating all content identically: if I’m archiving last year’s invoices, I need a very different speed and quality of service than if I’m tracking a major retailer’s e-commerce transactions in real time in order to detect fraud – or streaming Orange is the New Black, for that matter.

In fact, the threat of limiting access to content isn’t half as serious as the threat to unlimited access to content. Just whisper the words Snowden and hacking Chancellor Merkel’s cellphone around European IT executives and government regulators and you’ll see what I mean. What’s really needed is highly differentiated, nuanced, and carefully regulated access to the flow of content, which hardly lends itself to the one size fits all mentality of many net neutrality advocates.

Indeed, building Internet infrastructure to support providing identical services – and prices – for all possible content use cases would either result in too much or too little bandwidth for one or the other. The size of the water pipe going into a single family home is vastly different than the one going into an apartment building or a pulp mill, and each user class pays a different price in accordance with its water use. But all users get safe, drinkable water, at the risk of regulatory sanction. Similarly, we could come up with a regime that prevents the “poisoning” of content access without requiring it to be the same no matter the use case.

Finally, for the benefit my mono-lingual English readers, one of the biggest problems with the whole issue boils down to the word “free.” English may be the only language in the Indo-European family (and that’s includes pretty much half of the world’s population) that has a single word that denotes “no cost” and “unrestricted”. All too many arguments across both sides of the net neutrality divide have failed to carefully distinguish between these two very distinct meanings, and the polemic around the issue has been all the poorer for it.

I say we need to make sure that data moves as freely as it legally can, and keep that notion separate from what a company can charge for moving those data from one place to another. Information and content, contrary to the old saw, don’t want to be free, whatever that means, they just want to move where they are the most useful. So let them do so thoughtfully, carefully, and with appropriate speed and accessibility, and keep the issue of who pays what on a completely separate track.

 

 

Women of the Supply Chain: Responsibility, Collaboration and Bathroom Lines

Hanging out with Kinaxis, the relatively small and always interesting supply chain vendor from Ottawa, Canada, never fails to be an eye-opening experience. It’s not just that I get to meet with a vendor and a loyal cadre of customers who are collectively pushing the envelope on all things supply chain, it’s that sometimes they’re pushing an envelope I hadn’t seen before in my peregrinations in the supply chain world.

This year’s Kinexions user conference was no different. What I heard from Kinaxis about taking Rapid Response, its in-memory supply chain planning product, further into the realm of collaboration by pushing users to self-identify their areas of responsibility represented an excellent strategic direction on the part of Kinaxis.

I also learned something from observing the lines forming outside of the bathrooms, which, if you’ll bear with me, I promise will actually reveal one of the reasons I like where Kinaxis is heading with Rapid Response.

I feel obliged to state unequivocally that I don’t usually pay much attention to plumbing and people, except when it comes to pure self-interest. But I couldn’t help noticing that the queue for the women’s room at Kinexions was one of the longest I had ever seen at a tech conference, other than my recent visit to Workday ‘s user conference.

Of course, what I’m really talking about is the proportion of women in attendance at Kinexions relative to both the number of men at Kinexions and the gender ratios found at most tech conferences. And while the lines outside the women’s room at the recent Workday conference that I attended were even longer, there’s an important difference between the disproportionate presence of women at a supply chain conference and the even greater disproportionality at a HRMS conference.

HRMS has always been, to be blunt, a comfortable domain for women in an otherwise all-male corporate world – comfortable perhaps more for the men than the women. This phenomenon is identical to the way minorities studying in the era of affirmative action were often shunted toward the social services – in order to serve their “people” – instead of being directed towards more challenging and intellectually rewarding careers in pure research, medicine, or, God forbid, the humanities. Similarly, HR was the woman’s track in business schools back when the women of my generation were getting their MBAs. This bias towards HR as a women’s field has continued, with a Forbes article from 2011 noting that 70 percent of HR jobs were held by women at that time. Judging by the lines at Workday’s conference, that ratio looks like it still holds.

When I started looking for data to back up bathroom line observation at Kinexions, I was surprised at how much women are represented in SCM, considering that the bias towards women in the HRMS world was never at play in SCM. One data point, from the National Center of Women in Technology (NCWIT), pegged the percent of women in operations research – the nerdy upper echelon of the supply chain world – at 55 percent in 2012, the highest percentage of the eight tech professions cited (#2 was database administrators, a profession where 37 percent of the positions are held by women.) This is a lot better than the percent of CIOs that are women – 24 percent – or the overall percent of women in high-tech – 26 percent – also according to the NCWIT.

So why are there so many women in supply chain roles? Maybe there is a natural bias, though one that speaks to women’s genuine strengths and not men’s discomfort. One interesting article in SCM World cited a survey of global supply chain companies in which 74% of men and 96% women surveyed believe women possess the special skills – labeled in the article as emotional intelligence, empathy and self-awareness – that are useful in managing supply chains. (This same article also claimed that only 10 percent of the senior leadership roles in the Fortune 500 were women – which means there may be a glass ceiling for the NCWIT 55 percenters who want to move up to executive positions.)

So it’s interesting to note that the number of women at Kinexions came in at 23 percent, according to the company, a number more in line with overall tech industry averages, but still higher than the percent of women who work at Google, for example (17 percent, according to IEEE Spectrum), and higher than what appears, anecdotally, to be the average at most tech conferences.

I asked Trevor Miles, Kinaxis’ resident deep-thinker, why there were more women at supply chain conferences like Kinexions, and his response dovetails nicely with those special skills I noted above. According to Trevor, women appear to be better at cooperation and collaboration and to be more open to alternative points of view, all skills that are valued in the supply chain world.

I know I’m riding a fine line between stereotyping and arm-chair sociology, but I don’t think the notion that women on average possess these characteristics in greater percentages than men is too far-fetched. What is certainly true is that supply chain planning and management don’t lend themselves to absolute truths and command and control hierarchical management. In the world of supply chain planning there are relatively few irrefutable numbers and an over-abundance of options and alternatives that need to be weighed carefully in order for an optimal decision to be made.

This means that trade-offs, compromise, collaboration, and a whole host of people skills tend to matter a lot in getting the job done. It takes teamwork, and not just individual initiative, to consider multiple and even opposing or non-obvious alternatives in order to run a supply chain. And that teamwork doesn’t just include fellow employees: Myriad stakeholders, sometimes working across multiple companies simultaneously, must be marshalled in the service of supply chain excellence.

The fact that there is rarely, if ever, a “one true number” or single, irrefutable way to solve a supply chain problem dovetails nicely with the value of tool like Rapid Response, which makes modeling and sharing different scenarios particularly easy and efficient . Indeed, the fact that Kinaxis’ Rapid Response enables a high degree of collaborative decision-making – its use practically demands collaboration, the consideration of alternatives, teamwork, and consensus-building – makes it less surprising that Kinaxis, like the supply chain world in which it lives, can draw a disproportionate number of women to its conferences.

Which leads me to Kinaxis’ plans for Rapid Response. The company has been putting a lot more emphasis on a feature that allows stakeholders to identify – in a social collaboration-lite function inside Rapid Response – the areas that they are individually responsible for and, therefore, willing to help with when a problem in supply chain planning and management arises. What this means is that when a constraint appears, or an order suddenly changes, Rapid Response is able to connect the different stakeholders who share responsibility for a particular product, supply, region, customer, partner, or what have you, and get them working collaborative on a resolution. It’s a way to take the natural collaborative tendencies of supply chain planners and managers – regardless of their gender stereotypes – and enhance those tendencies with a collaboration tool.

The other reason I like this approach is that it serves as a justification for my position on why general-purpose collaboration tools haven’t really set the world on fire, despite the incessant hype around these tools. What Kinaxis is offering is the opposite of a general-purpose tool: the company has picked an essential and well-known business process and injected a new, relatively simple, and highly valuable form of collaboration. Of course you could do this with a general-purpose collaboration tool, but it makes much more sense to have the collaborative process function in the context of the business process and its tool, in this case Rapid Response.

This responsibility function will have a lot of applicability to other areas where Kinaxis wants to take what is fundamentally a superlative planning tool. Areas like capital equipment planning, asset management, project management, and the like are ripe for the things that Rapid Response does best: to go where planning is hard and help manage the path to compromise.

Whether Kinaxis will simultaneously drive an even greater participation for women outside the supply chain world remains to be seen. But it’s important to note, considering the current sturm und drang about diversity in high-tech, particularly gender diversity, that there are domains like supply chain and tools like Rapid Response that seem to attract more than the usual number of women, for all the right reasons.

In an industry that liberally festoons itself with the trappings of hipness, the de facto status of women as a minority borders on the absurd, as do the excuses, even in companies with female CEOs, for the lack of women in decision-making positions. I doubt Kinaxis set out to upend traditional gender norms and favor women and their unique skills when it developed Rapid Response, but it’s nice to note that moving the needle in the supply chain world can also move the needle in the larger society in which we live. For the better.

 

 

Microsoft Hones Its Enterprise Position

There’s always a lot to say about Microsoft, and, like any big company, it’s usually a mix of good or bad. Having spent two days last week at the Microsoft Dynamics analyst event, I think that when it comes to the enterprise, most of what there is to say about Microsoft isn’t just good: Microsoft’s enterprise story just gets better and better, and while there are holes and issues abounding, the old maxim that Microsoft eventually gets it right was very much in evidence last week (with one notable, and important exception).

Perhaps the best sign that Microsoft is focused on getting it right for the enterprise was the presence of CEO Satya Nadella on day two of the analyst event. Satya once ran Dynamics, but he wasn’t there for old time’s sake. Satya was there to clearly articulate the role of Dynamics as one of the three key pillars in Microsoft’s strategy: Azure provides the necessary cloud services and infrastructure, Office 365 provides the productivity apps, and Dynamics provides the business processes that light up the other two.

There are many many more parts of Microsoft than just those three – Windows 10 is coming, SQL Server and Power BI are taking their place in the world of big data and big analytics, Sharepoint is starting to recover from the file and sync crowd’s attempts at usurping it. (And then there’s Windows Phone, still screwing things up for Microsoft as a whole. I’ll save the details for a separate post.) But the fact that Satya did something his predecessor never did – take a seat at a Dynamics analyst event as CEO to talk about the enterprise – highlighted the commitment he has for the success of Dynamics and its role in the overall success of Microsoft.

And as anyone who has studied organizational dynamics in companies the size and scope of Microsoft will tell you, CEO-level commitment is what makes – or breaks – any individual business unit. With Satya’s support, Dynamics is positioned better than it ever has been inside Microsoft from both a political and technical sense.

It was that technical sense that was the other key theme from the analyst event. I’ll take my favorite among many important new offerings, Lifecycle Services. LCS, as Dynamics calls it, is a cloud-based set of tools and services that are designed to provide support for customers as they implement and run their cloud-based and on-premise apps.

LCS runs in Azure, of course, but just living in the cloud is only the beginning. Running Dynamics AX or CRM in Azure means being able to also run test and dev environments in the cloud – a huge advantage from a deployment standpoint – regardless of whether the customer is ultimately running on premise or in the cloud. (Are you listening SAP? Wouldn’t it be nice if Solution Manager could do this?)

LCS takes this functionality a step further by allowing a customer to stand up a test environment that can be used to debug a functional or technical problem, and then, once the fix has been found, to install that fix directly from the test environment into a cloud or on-premise system. This effectively creates a simulation environment that leverages Azure to do a whole lot more than just provide elastic cloud services á la Amazon’s AWS.

This capability is one of the reasons Satya called out the intersection of Dynamics and cloud services in his remarks to the analysts. Doing this kind of lifecycle support in someone else’s rented cloud – which is pretty much what SAP, Infor, and other competitors are doing – is hard and/or impossible, and making it possible would entail a closer embrace than these vendors might be willing to engage in.

Doing this with Azure is also hard, though definitely not impossible, and the expected results clearly give Dynamics a leg up in the crucial, though poorly appreciated, issue of managing the full lifecycle of an enterprise system. LCS has other advantages, including project management, business process modeling, customization and upgrade analysis, diagnostics, and other desirable features of a life-cycle management tool that are made all the more desirable because of Azure.

The Office 365 connection was also front and center at the analyst event. The use of O365 as the user experience for Dynamics CRM and AX is a key asset for Microsoft as its competitors – particularly SAP and Infor – scramble to provide new user experiences to run on top of tired, old legacy software. While all three companies have been part of a de rigeur revamping of the user experiences that they inherited from their respective on-premise systems, the ubiquity of Office 365 and Outlook gives Dynamics an instant advantage by virtue of the familiarity that O365 provides.

These advantages and successes don’t just look good in a roadmap slide. The contributions of Dynamics to Microsoft’s recent quarter, which generally exceeded financial analyst expectations, could be seen in the numbers Dynamics’ head Kirill Tatarinov shared with the analysts. Dynamics overall grew 13 percent in the last quarter, with AX growing 21 percent and CRM registering major growth and customer wins. Dynamics now counts 375,000 customers and 6 million users, not too shabby at all.

Also looming in the background of Dynamics and its role in the greater Microsoft – though it was hardly mentioned at the analyst event – is the pending availability of Windows 10. This is the cross-platform version of Windows that will, at least in theory, offer a single development environment for apps that can span the full range of devices Microsoft supports, from wearables to the cloud, with all points in between.

The promise is nothing less than stunning from the enterprise software developer’s standpoint: a single code base that can be used to build an app that not only spans all possible devices required to support a given business process, but also has device or platform-specific functionality built-in. This is Microsoft’s answer to the artificial distinction that Steve Jobs made between consumption (the iPad) and creation (Mac) – mostly as a way to justify selling more hardware – which has succeeded in making business process innovation a matter of living in two or more device worlds simultaneously.

In Windows 10 land, this distinction will be gone, which will go a long way towards shoring up Microsoft’s strategy of making the industry’s only multi-platform touch experience available to creators – and office workers – as well as casual content consumers. As a user of a Windows 8.1 touchscreen laptop, the superiority of touch in a traditional productivity environment is not to be denied.

There are, however, three problems with this strategy that Microsoft has to overcome. The first is a built-in bias on the part of the Windows team against the enterprise as personified by Dynamics. The Windows 10 announcement wasn’t billed or promoted as an enterprise apps event, and the people who were in the room listening to Satya talk about the role of Dynamics in Microsoft’s enterprise strategy last week weren’t invited to the Windows 10 launch party. Does Microsoft think the desktop crowd is going to be able to articulate the value of Windows 10 in the enterprise, and then go out and build those apps? Really?

This is all the more short-sighted because of the next problem, which is that, even among the Dynamics crowd, the definition of a killer Windows 10 enterprise app was AWOL at the analyst event. I have a few ideas about what that killer app could look like, but it’s clearly going to take a village: Leading the market, and Microsoft, with a clear vision of what Windows 10 will do for the enterprise – if for no other reason than to help justify the leapfrogging from Windows 7 to Windows 10 that Microsoft will be pushing its enterprise customers to do – is going to have to be up to Dynamics, its partners, and their developers (and we enterprise software analysts J). No other set of stakeholders in the Microsoft family will get that enterprise, cross platform vision right.

Certainly not the Windows Phone gang, who deserve being singled out as the spoilers in this grand scheme. I’ll go through all the gory details in my next post, but suffice to say that Windows Phone is so primed for failure that even a fan like myself – and I own one of these misbegotten phones – can’t see how Microsoft gets out of this one.

That pending failure of Windows Phone, at least in the U.S. market, puts the unified development platform strategy behind Windows 10 in question. There is no doubt that enterprise software development is in full mobile first mode across the entire industry. It’s a mantra you hear from every vendor, Microsoft included. But if the main mobile platform for Windows can’t be relied upon to have not just critical market share (which it clearly doesn’t have, having scraped up a little over 3 percent market share recently, putting it in a statistical dead heat with Blackberry, all puns intended) but also a critical mass of carriers (#1 U.S. carrier Verizon is clearly exiting the Windows Phone market, having removed several Windows phones from its online store and having decided not to offer Windows 8.1 upgrades to existing customers) who will actively support the operating system and its users, then I have to wonder what the fate of Windows 10 will actually be?

That collateral damage that Windows Phone will inflict on Windows 10 isn’t Dynamics’ responsibility, though in the spirit of the One Microsoft strategy that Satya inherited from Steve Ballmer and has willingly embraced, Dynamics will feel some of that collateral damage as well. This is far from a fatal error, though Microsoft will spend a lot of time scrapping the egg of its face if this proves to be true. It’s going to hard to push Microsoft as a devices and services company if one its main devices gets left behind.

From an enterprise standpoint, Windows Phone aside, there’s still enough strategic assets on the table to make the next few years important ones for Dynamics. As I wrote before, there’s a lot of opportunity in the market for what Dynamics has to offer. Grabbing a chunk of the 70,000 Infor laggards would be a nice prize, as would sopping up the Salesforce.com users who are tired of a tired old UX and a lot of hidden costs. SAP and Oracle are also vulnerable, particularly as Dynamics continues to court the global SIs who have helped over the last 20 years to create the market for the enterprise software product categories now being offered by Dynamics.

The bottom line is that Dynamics continues to grow, and in particular grow into the cloud, in a number of important ways that sets it apart from its competitors. Just having the same code base for both cloud and on-premise is pretty impressive. Doing so with a superior UX and a market-leading cloud platform is even more impressive. And being more and more focused on a solutions sales, like the newly announced Sales Productivity solution, which bundles Dynamics CRM, O365, and Power BI in a single product set for $65 per user per month – is all the more impressive.

And while there’s no shortage of obstacles for Dynamics, in the end the enterprise software market isn’t a zero sum game. While the large enterprise space is still more of an Oracle or SAP opportunity, at least today, the rest of the market is prime territory for Dynamics. If you’re a vendor and Dynamics isn’t on your radar, you’re making a mistake. And if you’re a prospective customer and Dynamics isn’t on your short list, you may also be making a mistake. Dynamics may not be for every enterprise software customer, but the exception list grows shorter every day.

 

 

Dreamforced: Can Salesforce.com Deliver the Complex Business Processes it Aspires To?

It’s hard to slog through mega-conferences like Dreamforce, and not just because 135,000 people are way too much for San Francisco and its Moscone Center to handle. The sheer girth of Salesforce.com is also a factor: the company has become an immensely complicated and multifaceted company, maybe too much so for a single conference. Regardless, Dreamforce reminds me of why I don’t see my favorite bands in a coliseum setting: The volume needed to fill a coliseum washes out the undertones and overtones that make music a rich and complex listening experience, instead leaving the listener to sort through a lot of random, washed out noise.

And so it seemed with this year’s Dreamforce, and yet there were a number of powerful undertones and overtones worth trying to pay attention to, despite the distracting chatter generated by the likes of Tony Robbins, Eckhart Tolle, Hillary Clinton, Wil.i.am, Al Gore, and others non-techies adding to the cacophony at Dreamforce. (Even if I try, with the utmost equanimity my cynical analyst’s brain can muster, my mind still reels at the quantity of lucre, clean, filthy, or otherwise, that went into paying the speaker fees that a set of bold-faced names like that commands. Wow.)

Perhaps the most powerful undertone playing in the background – in particular as seen through the lens of the enterprise and its requirements, and Salesforce.com’s relative market position as a provider of solutions for those requirements — came ringing through in a number of presentations I attended and discussions I had with customers and partners. And as I listened carefully, and filtered out the waves of white noise, a cluster of functionality, technology, and aspirations came into view that together will define the future of Salesforce.com in its battle against the likes of Microsoft, SAP, Infor, and Oracle.

The battleground that best defines the future for Salesforce.com, and its competitors, as I have alluded to previously, lies in the requirement to support complex business processes that span the silos of functionality (CRM, ERP, SCM, HRMS, etc.) and the deployment options (public cloud, private cloud, hybrid and on-premise) that make up the present and future of the modern enterprise. While Salesforce.com’s continued growth in CRM, marketing automation, and the like are of course interesting, particularly for the short-sighted investors who have bought into Salesforce.com’s hyperbolic forward P/E ratio of 70+, the company has some important mountains to scale if that ratio is ever going to remotely come true.

Those mountains have less to do with the company’s core customer and marketing automation messages and much more to do with a future defined by Salesforce.com’s ability to be the go-to vendor for supplying the infrastructure, connectivity, and business context that can support the complex business processes that define enterprise innovation today. Salesforce has more than just aspirations in this regard – it is moving to provide as many of the pieces of the solution as possible: that undertone rang in my ears load and clear. And, like every other vendor in this race, Salesforce has some obvious strengths and a few major lacunae to overcome before those undertones are going to become a major motif.

A good example of this complex business process opportunity lies in next generation enterprise asset management. EAM is poised for a revolution that will take the best of the industrial internet, and combine it with the latest in talent management, operations analysis, direct materials procurement, and customer service management, and by orchestrating these elements, deliver an integrated, complex business process that will be, compared to the fragmented state of the art today, a thing of beauty.

In this future that is about to happen, the maintenance process for a jet engine or wind turbine or subterranean drilling platform will take an alert generated by a sensor and turn that into a customer service event: maintenance will be scheduled so as not to interfere with core operations, the right repair people will be identified and positioned to effect the maintenance request, the right parts will be ordered from the ERP system and tracked through logistics to ensure they are on site at the time scheduled, and of course, the customer will be kept in the loop as the service request moves from alert to scheduled to complete. This is just an archetype: the examples of complex business processes that span horizontal technologies and vertical industries stretch on and on into perpetuity.

It’s a given that delivering this kind of complex process will change the world of enterprise software and business in fundamental ways, just as it’s a given that no single vendor’s applications will be able to orchestrate this kind of complex process by themselves. It’s also a given that the business opportunities for new and unheard of levels of service will entice the stakeholders in this complex process dance to find out a way to do this by cobbling, kludging, or otherwise stitching the different software assets together – internally and across business partner networks – that are needed to make this new opportunity hum. No one has to time or inclination to wait for a single suite or a single data model to deliver this vision.

The big prize on the table for every vendor that aspires to the simultaneous platform and application superiority – both of which that seem to be the twin focal points of all the top enterprise software vendors today – is to be the go-to supplier for as much of this complex process vision as possible. At a minimum, success will require credibility in infrastructure, applications, and vertical industry knowledge, plus some serious analytical prowess to support the monitoring and predictive analytics upon which this near-term vision is based.

And while Salesforce.com has one of the core applications for my archetypical EAM complex process (and many others) in the Service Cloud, the beginnings of the analytical component in its recently announced Wave Analytics Cloud, and a modicum of orchestration components in its Platform Cloud, there’s a fair amount of territory to cover before Salesforce.com can challenge competitors like SAP, Oracle, Microsoft, and Infor in filling out the rest of the requirements. No talent management, no ERP, a very nascent vertical focus – the gaps in Salesforce.com’s ability to tackle complex business processes are telling. Salesforce.com has one other key element that it could bring to the table – a focus on communities that, when they are one day synchronized with the company’s forthcoming vertical offerings, could form an important nexus for vertical industry processes. One day.

But wait, there’s more. One of the problems for pure cloud companies tackling this complex process opportunity is the ability to support a hybrid environment that includes not just on-premise applications, but legacy, way-behind in the upgrade process, on-premise applications. This is a non-trivial exercise for the vendors who own these legacy apps, it’s even more complicated for a pure cloud company like Salesforce.com (and Workday, while we’re casting aspersions) to make a credible play in this corner of the market.

It’s important to stop and acknowledge that no single vendor has a lock on delivering on the promise of these complex processes. Every hybrid vendor has major challenges to overcome, much of which center around the complexities of orchestrating the broad set of on-premise and cloud apps these vendors own or are accumulating. Microsoft may be the furthest along in blending its on-premise and cloud offerings, but its dependency on partners for its vertical and geographically-specific offerings, plus the need for Microsoft to continually orchestrate with non-Microsoft products that are often running headquarter operations, continues to present challenges in terms of scale and support for the global customers that are most likely to lead the charge in rolling out these complex business processes.

I believe Salesforce.com is aspiring to this complex business process opportunity, though those aspirations were hard to hear over the noise at Dreamforce. I saw glimpses in the Wave demos – where the SAP logo was prominently on display as one of the data sources that Wave Analytics can target – but that too was largely aspirational. While Salesforce.com partner Informatica stands poised to deliver the connectivity Wave will need to hook up to SAP, it’s clear from my conversations with Salesforce.com’s analytics execs that the real goal today is analytics for Salesforce.com data, with third party data integration coming later.

The fact that complex process messaging wasn’t front and center isn’t the problem. Like Successfactor’s conference earlier this year, there wasn’t necessarily the right audience in place for this conversation – the focus on CRM and marketing is what draws that massive crowd to San Francisco, and, frankly, it’s what Salesforce.com’s core business is really about anyway.

But it’s clear that Salesforce.com has to move in the direction of supporting a more complex business process world than it supports today, and I don’t believe relying on partners from Force.com will cut it. There may be partners like Kenandy trying to pitch in to help, but Sandy Kurtzig 2.0 has a long way to go before it can match up to the functionality that Sandy Kurtzig 1.0 – a.k.a ASK – could offer. Salesforce.com – like Workday – will one day have to acquire its way into being able to offer a critical mass of functionality beyond its core product line, relying on partners or organic growth won’t be enough.

I think it’s clear that Salesforce.com is a contender in the complex process market, and it has the money, market clout, and people to make its dreams more than just aspirational. But instead of having Tony Robbins exhorting the crowd on Day One to do something – was it walking on hot coals, or has that gimmick finally run its course? – that has nothing to do with enterprise greatness, Salesforce.com should start focusing more of its consider market voice on moving its customers forward to where they need to be – building and running the complex business processes that will define the enterprise of tomorrow – instead of making them feel good about where they are today as users of the CRM market leader’s current product line.

It’s fun to party at the Moscone Center, but, I think those 135,000 people also need to know how to stay relevant in a world that is heading their way, and for which neither they, nor Salesforce.com, are probably ready for. Maybe that’s a separate conference – slightly smaller, no walking on coals, less music – that discusses how Salesforce.com will stay competitive, and help its customers stay competitive, as supporting the sales force, the marketing team, and the customer becomes increasingly less important than supporting the entire enterprise and its partner and industry-specific ecosystem, of which sales, marketing and customer are only a few of many key components.

It’s a harder message to sell, it’s definitely a harder path for Salesforce.com to take, and it might not lend itself to the party-hardy atmosphere that permeates Dreamforce. But it’s as necessary for Salesforce.com to begin the discussion in earnest as it is necessary for its customers to begin thinking this way. The party doesn’t have to stop completely, but maybe it needs to get a little more serious. There are some important business challenges on the horizon, and it’s time to tone down the noise, put away the party hats, and get a little more serious.

HP’s Breakup is Oracle’s Future

The news that Meg Whitman is finally pulling the plug on the Sisyphian task of trying to resurrect HP has profound implications for the future of Oracle, and not just because the mess that Whitman was unable to unravel was an HP made functionally unmanageable by a previous HP CEO: Mark Hurd, now co-CEO of Oracle. I think Oracle has been on the leadership skids for a while, but Hurd’s track record at HP, the end-game of which is now being played out in the breakup of the once-vaunted tech leader, provides a good roadmap for how Oracle ends up on the chopping block like HP.

The news also provides some vindication for the brief reign of Léo Apotheker at the helm of HP. Léo had been tasked with the task Meg has largely failed at – finding and developing a synergistic, One HP sales, marketing and product development strategy. Ironically, considering this week’s news, when Léo tried to execute the first steps of a breakup of HP, he was summarily and rather rudely jettisoned by a board that included Ms. Whitman herself. The fact that Meg has now acknowledged failure in what Leo was hired to do and is now executing a version of what Léo was fired for trying to do shows how far expectations have fallen for HP and how little true leadership the HP board was able to provide.

The fact that the stock market is so far responding favorably to the breakup adds a double-irony to the news. If the past is truly prologue, then breakup is what’s next for Oracle too. The stage is set in a similar fashion: the current leadership team – Mark Hurd and Safra Catz – are numbers people, not techies. Neither has a track record for visionary leadership, product development, or any of the attributes that Oracle will need to get back in an innovation game it has been losing of late — mostly because the main innovations Oracle has been pushing in the market are the engineered systems that Larry bought from Sun and handed over to Hurd. And, as we know from the numbers – Oracle has been sticking to this strategy despite a consistent failure to provide for growth and profitability.

Hurd is by far the most dangerous of the two for Oracle. He’s a hardware guy, a numbers guy, infamous during his time at HP for cutting costs and disabling any mechanism for synergy between HP’s PC, printers, servers, and services divisions. His track record at HP looked good in the quarterly lens with which Wall Street tends to view all public companies, but it was clear from the analysis that took place when Apotheker came on board (and which I was part of) that there was simply no mechanism in place to do anything synergistically: no ability to jointly develop products, no sales force that could sell across the whole HP product line, a services division that hardly considered itself part of HP, a board and senior executive team at odds with itself, and on and on, ad nauseum.

All that mattered, and what Hurd bequeathed to Apotheker and Whitman, was that each group dutifully reported in every quarter with the numbers that Hurd and the Street were looking for. Perhaps the biggest irony in the fate of HP is that it became clear during the breakup discussion that started when Apotheker was in charge, and continued into the Whitman era, was that the main reason not to break up HP was the cost-effectiveness of its supply chain. How pitiful is that – the only point of true cross-HP synergy was in direct materials procurement?

It’s a sad day when one of the biggest strategic values of a formerly innovative tech company comes from its ability to squeeze costs out of its suppliers and logistics chain. Sounds like what you’d expect from a pizza chain – indeed, Tom Monahan, the founder of Domino’s Pizza, used to say that his epiphany came when he realized he wasn’t in the pizza business, he was in the delivery business. Great tasting pizza, who the hell wants that?

What’s the bottom line here with HP? I think the law of the land – literally – dictates that we look no further than the company’s board of directors. Much has been written about how dysfunctional the HP board was, and I think when the annals of Silicon Valley history are written, the HP board will be looked at as one of the worst. Remember the pretexting scandal of 2006? The acquisition of EDS in 2008 – which ended in an $8 billion write-off? The Palm acquisition in 2010 – which resulted in a $2.1 billion write-off. The “oops, we forgot to interview the CEO candidate” screw-up that end with the hiring of Apotheker? The completely and shamefully bungled attempt to announce the intent to spin-off the PC unit, which was instantly retracted and for which Apotheker was made the scapegoat?. And of course Autonomy – the $8.8 billion write-off that keeps on giving, as long as you’re a lawyer.)

This serial mismanagement and negligence at the board level that is nothing short of an egregious abuse of power. That many mistakes, so close in time to one another – why haven’t the shareholders risen up in arms? The answer to that question is left for another time and place. Suffice to say, the board set the stage for the break up by approving disastrous merger after disastrous merger, and letting Hurd divide and conquer, instead of nurturing the culture of innovation and value-add that was HP’s birthright. And so here we are, closing in on the end of 2014, watching HP spin off a division no one would buy (PCs and printers) and a division not enough customers want to buy from (which includes EDS, which no one would buy either.)

I don’t think Oracle’s board has done anything similar – for the most part, the big acquisitions have been accretive, at least to the understanding of most financial analysts. But the Sun acquisition is starting to carry the stench of failure into the rest of the business, and elevating Hurd to the co-CEO spot means it’s virtually impossible that, at least under his watch, Oracle will ditch its hardware business.

Unless the Oracle board – which is currently very much stacked in Hurd’s favor – changes its focus away from hardware back to creating a leadership position in software and services, I predict we’ll eventually see a spinoff of hardware and software that will echo the HP breakup. Mark Hurd will be allowed to ride his hardware herd into the sunset, literally and figuratively, while, hopefully Thomas Kurian, one of the brightest minds in enterprise software today, will be finally given the CEO job he deserves and most certainly covets. If he hasn’t left in disgust by then.

So good luck Oracle, with HP showing the way, you’ve got only one way to go. In fact, maybe giving the hardware division to Hurd sooner rather than later would be a great idea. Continuing the hardware focus, which Hurd will certainly do, isn’t going to end well. The big iron ship sailed a long time ago. It sank Sun, it’s sinking HP and IBM, and if Oracle’s board stays the course, it will sink Oracle too.

Catching Fire in the Cloud: Infor Takes on Customer Stasis, Workday, and Salesforce.com

It’s year four in the Charles Phillips era at Infor, and the more things change the more they remain the same. The changes are impressive – new functionality across a wide swath of its legacy product lines, a new release of Infor XI, its next generation suite, a focus on industry-specific clouds that is such a good idea that I expect it will attract copycats from all over the market, a dedicated data science consulting team, new capabilities for defining and delivering best practices in implementations – it’s a long list, and it all looks good.

But the part that remains the same is the fundamental dilemma that has bedeviled Infor since Phillips rescued the company from the ignominy of being a roll-up of orphaned brands and customers milked for their maintenance dollars: How does Infor get the core of its customer base – companies that almost made a virtue out of lagging behind the market and accepting their roles as cash cows for a maintenance revenue play – to move forward in a timely fashion and make good on the vision Phillips and his team have laid out?

There’s definitely hope, as evidenced by a show of hands during a panel I participated in at the Executive Forum held during the company’s Inforum user conference in New Orleans last week. When asked how many of the audience’s companies were already in the cloud, pretty much every hand went up, much to my surprise and that of my fellow panelists. And yet, when that old, tired question about “how secure is my data in the cloud” was asked later in the day, it was clear that hope had a long way to go before it became truly fungible. (The answer, BTW, is that three of the bigger hacks in a long list of recent security breaches – Chase, Target, and Home Depot – were all against on premise systems. On-premise is, most of us agree, much more vulnerable than the cloud.)

Infor by the numbers reflects the essence of this dilemma: the company is 73,000 customers strong, many of them denizens of a collection of forgotten brands that seem to make up the bulk of the ERP Graveyard website. It’s a prospect list that the entire enterprise software market is drooling for, but only Infor has the majority of them on speed dial.

But do they answer with upgrade orders when Infor calls? Not enough to date. Infor’s first shot at a next generation suite, Infor X, only has 2600 customers today, or about 3.5 percent of the customer base, two years into the vision. ION, the company’s well-designed, loosely-coupled middleware solution (the polar opposite of Oracle’s messy, expensive, and overly complex Fusion Middleware) has 2000 customers. Its context-aware collaboration offering, Infor Ming.le, has 400 customers. The overall cloud vision, however stellar, has 40 applications in the cloud but only 2600 customers (it’s tempting to say the numbers average to 65 customers per application, but I’m assuming that a simple mean isn’t the right way to look at it – most customers probably run several cloud apps from Info.)

But to say this is the story of market failure is to misunderstand the dynamic at play. The 70,000 customers that haven’t upgraded frankly can no longer continue that path with impunity. They have a job to do, and they need to do it soon: the Infor customer base simply has to sign on for a whole slew of upgrades in the very near future, and, unless they’re missing a few brain cells, they’ll be doing the lion’s share of those upgrades in the cloud. This decision isn’t optional: there’s just too many market and business dynamics at play to make it possible for these companies to continue to use 20th century technology and business processes in the 21st century. And if you’re bothering to upgrade, you’re going to go where the innovation is, and that’s the cloud.

Infor’s trick is to play the game as patiently as possible, all the while laying the groundwork for being the very best of a large contingent of suitors waiting to take these 70,000 customers to the ball. This is where Infor has a distinct advantages as a privately-held company. The kind of patience Infor needs is not one of the virtues that characterize Wall Street – au contraire. If Infor had to show results on the quarterly cadence that the Street demands, it would be in trouble, big time. Not because it’s not generating revenue ($745 million in the fiscal year ending last July, up 6% from last year) but because its maintenance revenue isn’t bubbly enough for an investor community that is smoking cloud crack like it’s, well, real crack.

Ironically, Infor would also be a helluva a good buy if the tunnel-vision of the Street were to drive the stock price into the basement, because I’m pretty bullish about Infor’s chances of landing a large chunk of the upgrades its customer base will need sooner rather than later. The Industry Cloud vision is the latest of a number of strategic moves that make Infor look like a good choice: the company has laid out a vision of 13 verticals – ironically, these are the super-verticals that Infor tends to dismiss in favor of supporting a multiplicity of micro-verticals – that will have their own cloud and their own portfolio of cloud capabilities specific to their industry. It’s a pretty obvious list, gleaned from the dozens of customer bases the company inherited over the years: automotive, healthcare, aerospace and defense, HCM, public sector, industrial, distribution, food and beverage, hospitality, fashion, equipment dealers and service, and as well as two more generic offerings, corporate and business.

The plan is that each of these vertical clouds would have the foundational functionality that most if not all companies in the vertical would want, micro-vertical capabilities notwithstanding. Thus, the healthcare vertical cloud is be based on a cloud version of Lawson and offer capabilities from HCM, PLM, asset management, performance management, a supplier exchange, project planning, and others. Likewise the aerospace and defense vertical cloud, based on LM, includes PLM, configuration management, budget planning, partner collaboration, SCM, planning, and a half-dozen more capabilities.

What I love about this vision – seven of these Cloud Suites are currently available, six more to come – is that it acknowledges the reality of a cloud-based future without putting a customer base, one that has already proven not to be the greatest consumers of new technology, into the position of stitching all this functionality together, on premise or in the cloud.

The worst thing a company looking to leapfrog out of a legacy technology base straight from ERP Graveyard could do is buy the dozen or so capabilities in Infor’s vertical clouds as individual cloud apps. I call this death-by-cloud-silo, and it’s a movie playing in all-cloud backoffices across the country. It’s guaranteed that a company that embarks on a cloud silo strategy – even a company that has regular upgrades in its DNA – will fall behind on maintaining the matrix of interfaces and middleware that would be needed to keep this mess on track. Especially in a cloud market where upgrades are delivered automatically at a rapid cadence: imagine keeping track of a dozen cloud apps as they upgrade several times a year at completely different times and cadences. Actually, don’t imagine it, it would make the old 20th century silo problem look like a piece of cake.

Another reason I like this vision is it gives Infor a strong story to tell in competition with pure cloud competitors like Workday, and Salesforce.com – the latter being a former partner with which Infor parted ways over the complexity of integrating a broad set of functions from Infor’s ERP apps to Salesforce.com.

Infor starts strong in taking on Workday and SAP by focusing on the completeness of its new HCM cloud suite: with core HR, talent management, training and education, payroll, health and benefits, retirement, and other capabilities, Infor provides a vision for a suite that integrates a large number of components that otherwise would have to be synched in the cloud á la the death-by-cloud-silo scenario outlined above.

But the icing on the cake – and very much in line with my thinking that beating Workday is all about defining and delivering HCM and talent management as part of a vision of complex, integrated business processes — is Infor’s vertical cloud strategy. As noted above, HCM and talent should be part of a comprehensive, cloud-based offering that slots the HCM and talent into a more complex vision of business process. This is something Workday can’t deliver without trying to kludge non-Workday apps into the process flow and starting its customers down the cloud silo path. Ditto Salesforce.com: it’s going to hard to compete with a pre-integrated vertical cloud like the ones that Infor is bringing to market.

It’s this kind of thinking that is one of the reasons why I think Infor has a chance. Another is cultural – Phillips and his leadership team, as well the rest of the execs I’ve met over the years – clearly have the respect of the customers and partners, and they clearly understand that they can’t force their way into their customers’ wallets by the kind of strong-arm tactics that companies like Oracle deploy (here I’d like to mention that, as far as I can tell, Oracle, by suing the State of Oregon over its failed ACA implementation last month, became the first enterprise software vendor to pre-emptively sue a client for an implementation failure. That’s a first I would definitely think twice about if I were looking across the table at an Oracle rep.)

It’s safe to say that one of the reasons the core of Infor’s customer base hasn’t upgraded or migrated is that many companies in this collection of orphans and cast-offs have seen the ownership of their enterprise software systems change hands multiple times, eventually ending up the wards of a company — Infor’s predecessor — that favored sucking maintenance dollars over delivering innovation. I had a customer put it to me exactly this way at the Executive Forum – when I go to the cloud I want to make sure I won’t be orphaned again, he told. There are no guarantees, I replied, but there’s a strong likelihood that Infor’s going to be around until well after his retirement.

What’s of course problematic for those making decisions today is that a lot of what makes Infor look like a keeper is still a work in progress. But that too may play well for Infor – as long as the vision is both well-designed and credible, the laggards can continue to lag, knowing that they have an easy choice once they’re ready to make it. Heck, they waited this long, what’s a year or two difference going to make? Considering that there’s a big assessment that has to take place before the upgrade – a business blueprint for the post-legacy era – maybe it’s already time for these laggards to get started. By the time the assessment is over, chances are Infor will be fully baked. And then it’s off the races. The enterprise software market will be all the richer for Infor’s success.

 

Even without Larry, Oracle’s Problems Will Continue

The fundamental problems plaguing Oracle won’t go away with Larry moving into an executive chairman role, this is more lipstick on a pig than a serious attempt to get the company back on course. The problem is that shuffling the deck chairs does nothing for dealing with the company’s three fundamental problems. Until these are addressed, I think it’s safe to assume there will be no turnaround any time soon.

Problem #1: Oracle needs to do something about its hardware business — jettison is the verb that comes to mind, or at least it needs to stop putting its iron foot forward (or in its mouth) and start talking about higher margin lines of business and more strategic offerings than more heavy iron. It’s the era of the cloud, and pushing a 12-cylinder gas-guzzler when everyone is moving to electric cars shows the atavistic mindset of a company that desperately needs to respond to market as it exists today, not the market that Oracle wishes existed.

That’s going to be impossible considering who is left in charge: Mark Hurd. Here’s why: The hardware business acquisition came as the result of an agreement between Mark Hurd when he was at HP and Larry to keep IBM from buying Sun and getting the Java brand. The original deal was that Larry would buy Sun, and then immediately spin off the hardware division to HP. This looked like a great deal for all (except IBM), and then Mark had a little problem and had to leave HP. Larry hired him pretty much immediately and gave him the hardware assets they had just bought from Sun as his new bailiwick. And the stage was set for an overemphasis on a moribund hardware market and a de-emphasis on enterprise software and cloud leadership. The numbers speak for themselves.

Problem #2: Oracle needs to do something about its software business. The RDBMS market is dying, and Oracle is much too dependent on this market for its own good. Some financial analysts are waiting for a new release of the flagship DBMS as though that will blunt the challenge from an evolving market more interested in the requirements that are driving a surge in no-SQL, in-memory, and unstructured databases than the traditional transactional world that Oracle still lives and breathes. Meanwhile, Oracle is simply not seen as an enterprise software innovator – Larry sucked the juice out of his software side in order to over-emphasize the hardware side. Both of these problems mean stasis or worse for Oracle in a market that simply won’t tolerate any vendor standing still.

Problem #3: Oracle has to fix its overemphasis on lawyering and under-emphasis on customer satisfaction. Exhibit one is the fact that Oracle pre-emptively sued the State of Oregon for the failure of Oracle Consulting to successfully implement Oregon’s ACA website. This is a first – I can’t find a single case where the vendor, who in this case was also the prime contractor (at its own insistence), went after the client in court before the client got there . Sure, there are always countersuits, but if anyone reading this can think of a time when a vendor drew their legal weapons first, please let me know.

Failure is an orphan – always my favorite JFK quote – but that’s almost never the case in a failed implementation. It takes two parties to screw things up as badly as what happened in Oregon. But one of the parties has the knowledge, the methodology, the experience, and the responsibility to pave the way for success, and that’s the prime contractor. Granted, SIs fail in that requirement all the time. But the hubris of blaming the victim – implicit in a pre-emptive lawsuit – is egregious beyond measure.

Oracle has always made customer-hostile selling and contracting part of its business model, as many customers who came into the Oracle fold due to an acquisition found out when their maintenance contracts were unilaterally changed in Oracle’s favor. This culture won’t change with Larry as executive chairman and Safra and Mark in charge. It’s just going to be business as usual.

So, Larry, thanks for the lipstick. But I’m not impressed. This might fool some investors, but judging by the stock’s performance on the day following the announcement, they’re not buying it either. What’s your next big idea? Cause you’re going to need it soon.

 

 

 

SuccessFactors, Workday, and SAP – Answers and More

SuccessFactors’ user conference, SuccessConnect, has come and gone, and the four questions I posed in my previous post about the challenges facing SuccessFactors and SAP were largely answered. But, as in any good dialectic, one good answer is just the starting point for another good question….. I’ll start with the Workday question/answer in this post, and continue with answers to my other three questions in a subsequent post.

Workday isn’t just SAP’s problem, the cloud maverick is an equal-opportunity problem for a number of big and small vendors in the market. Combating the triple threat of pure cloud, the Dave Duffield effect, and Workday’s position in the heart of Silicon Valley’s cloud keiretsu is hard for everyone. I believe Workday is vulnerable, and SAP/SuccessFactors and other competitors have a good position from which to respond to this triple threat, the question is how to do it well and do it quickly.

It’s important to note, before I opine on what I think SAP can do, that SuccessFactors doesn’t do too badly against Workday, at least according to SAP HR head Mike Ettling. The win/loss record is between 1:1 (win one, lose one) in North America and 2:1 (two wins for every loss) in Europe. Win/loss numbers are tricky – you have to get invited to the dance first before you either get lucky or get rejected – but if we assume Ettling’s numbers are pretty good, the question of why SAP is so worked up about Workday needs to be addressed.

The answer is found deep in the core of SAP’s strategy to be the “Cloud Company Powered by HANA.” SAP CEO Bill McDermott is playing to win in the cloud – Lord knows SAP has spent enough on cloud acquisitions recently – and to McDermott that means ceding nothing to Workday. Or at least trying to cede as little as possible. The goal is to turn the tide on Workday, and become the number one thing that keeps Workday’s execs up at a night, and not vice versa. So, win/loss ratios notwithstanding, there’s no way McDermott isn’t going to try to grind away at Workday until he gets whatever win rate he wants.

Back to what SAP can do about Workday – and others like SAP that have a combination of industry-focused ERP and cloud offerings. The real trick is for SAP to sell a vision that slots SuccessFactors HR and talent management (and contingent labor and training and LMS and everything else in Ettling’s bailiwick) into a set of complex processes that span multiple functional domains, like manufacturing, supply chain, CRM, service delivery, retail, and on and on. That complex process view ties well into SAP’s core strengths as a broad-based vendor of business processes, and provides a somewhat easy way to have a conversation with a prospect that Workday has trouble having outside of its HRMS and finance domains.

That complex process delivery conversation, which is centered around a single vendor providing the processes and the means to integrate and orchestrate them, is one that definitely plays to SAP’s strengths. But it would be misleading, and execs like Ettling know this, to intimate that all the complex processes SAP can enable are well-integrated and orchestrated. One of the key announcements that Ettling and others hammered home at SuccessConnect is that SAP is committed to productizing as many of the SAP to SAP integrations as possible. And, knowing what’s at stake, I’m pretty sure they’re going to push that productization as hard as humanly possible.

But there’s another thing that has to be pushed, and that’s really the hardest nut to crack for SAP and others like. The trick for SAP with respect to Workday, and Salesforce.com as well, is to sell that integrated, complex business process story to the right audience, and therein lies the rub. The right audience, from Ettling’s point of view, involves a sit-down with the chief talent officer or head of HR and the CIO: when SAP presents to both constituencies, the message goes over well.

But that’s easier said than done. Siloed cloud apps like Workday and Salesforce.com have thrived precisely because they are selling to a single process owner who typically has no interest in looking at the integrated, complex process opportunity across their enterprise. These vendors effectively get to the LOB first, and relegate the CIO to trying to make sure the growing cloud back office doesn’t grow out of control (which it all too often does: it’s not uncommon to have dozens of cloud apps in the back office, all running their own code base and all not well-integrated.)

I think SAP is talking about the right conversation, for now, but it needs to broaden its messaging and extend the conversation even further if it’s going blunt the perceived Workday juggernaut (700 customers after nine years in business and not a profit in sight, no particular success in branching out into finance or international markets – believe me, perception is huge part of the game).

The problem is that the complex, integrated process message that SAP needs to articulate was conspicuous at SuccessConnect largely by its absence – it wasn’t totally absent, but it wasn’t exactly front and center either. It was clear that SAP was deliberately tailoring its messaging towards the core processes of HR and talent, without trying to stretch the SuccessConnect audience too much about the complex, integrated process issue. When asked why, the general consensus was that this audience wouldn’t necessarily want to hear the message or even understand it if they could.

That’s where I think SAP has it wrong. The HR/talent LOB could and should be leveled up to talk about this more complex opportunity, and not just because it will help SAP beat Workday. While there are many new and worthy domains in the HR LOB that are more immediate in the minds of those who focus exclusively on HR and talent, the more strategic future of this LOB very much lies in extending its reach into non-LOB domains.

The discussion at SuccessConnect about Fieldglass’ integration with Ariba Procurement is a decent place to start this conversation, and the topic was broached at SuccessConnect in the keynotes and elsewhere. A good start, but SAP needs to keep going. Contingent labor isn’t just an HR issue, it’s a big deal in the supply chain, in warehouse management, in retail, health care and hospitality. Heck, a big part of the rationale for buy Fieldglass is that contingent labor is taking over the entire job market – which means strategic planning and operations across a huge swath of the enterprise will need some integration with what Fieldglass has to offer.

Again, while SAP has a long way to go in productizing all the integrations it needs between the HR side and the rest of the product portfolio, if it can entice the “run of the mill” SuccessConnect attendee – and their counterparts across the industry – to think bigger and more strategically, there will come a time when the CIO doesn’t have to be in the room for SAP to successfully pitch against Workday. The excellent presentation by Edward Cone, the technology practice head at Oxford Economics, of a major study commissioned by SAP had some interesting data on the limited role that HR has at the overall enterprise strategy table. (I think their numbers are actually a little aspirational, representing a somewhat rosier picture than what is really happening, but I’m just one cynical enterprise software guy and Cone works for an organization that has Oxford in its name.)

Regardless, if SAP and any other vendor (like Infor and Microsoft) that can offer a complex, integrated process vision would arm their HR sales and marketing efforts with a bigger strategic picture focusing on the increasingly strategic role of this LOB, I think Cone’s next survey would begin to show a much greater strategic role for HR overall.

I hope this both articulates a littler better why I think Workday is vulnerable, as well as what I think SAP and others in the same boat can do about them. I’m sure there are reasons why SAP or Workday is the better choice in a feature/function bake-off, but continuing to have that discussion with the market is to play the competitive game on Workday’s field, using its rules and referees, and that’s not what any competitor who has more to offer should be striving for.

Talking about complex, integrated processes is something Workday can also do, but only by evoking a cloud middleware strategy that would be hard to manage: integrating a heterogeneous cloud back office alone is a major pain, adding a lot of on-premise  integration is an even bigger pain. Having as much of that integration come from the vendor that owns the biggest piece of an integrated process is a story that we know is music to a CIO’s ear. It needs to be music to the HR LOB’s ears as well.

 

SuccessFactor’s Success Factors: Questions in Search of Answers

I’m heading to the SuccessFactors user conference, SuccessConnect, in Las Vegas this week and, as a prelude to the conference, here’s some of the questions I’m looking to have answered during the course of the conference.

  1. What are you going to do to blunt the market impact of Workday and start earning the revenues and market share gains that SAP is counting on? Workday – a.ka. the second coming of Dave Duffield – is being way too effective in the SAP customer base, particularly with an HRMS audience that loved Duffield at PeopleSoft and are ready to love him all the more at Workday. Oracle is giving both companies a good push by continuing its policy of making the move from PeopleSoft to Fusion expensive, complex, and onerous, but it seems that Workday is the main beneficiary, not SAP. I’m sure the board of SAP was hoping that spending $3.4 billion in 2011 for SuccessFactors would have given it more market share and mindshare against Workday by now. Is it time to shift strategy a little?
  2. How are you going to better define the hybrid cloud opportunity for SAP customers and, in particular, make a sane and reasoned case for HANA to the HRMS/ talent management crowd? We all know that all hands are on deck at SAP trying to push the HANA strategy to the masses, and, like your product line, HANA needs to be a little more successful than it has been to date. It’s a safe bet that you’re going to talk about HANA, I’m looking for those great use cases that help customers get off the fence about HANA.
  3. How well are you really integrated with the rest of SAP? I still see successfactors.com email addresses, and I know from my many SAP briefings that not everyone at SAP knows what SuccessFactors is up to and vice versa. If you go back to the Business Objects acquisition, one that was characterized by a high degree of autonomy being granted to the acquired company (and raising ironic speculation about who had acquired whom), it wasn’t until BobJ was fully integrated into SAP that SAP began to grab consistent top billing in the BI/analytics space. Is this the roadmap for HRMS/talent management and SuccessFactors too?
  4. How well are you going to articulate training and education as a differentiator, and how are you going to make that differentiation stick? I’m a big proponent of this capability as a major component of enterprise success across the board, and the fact the SuccessFactors has been finally coming together with the rest of SAP and its well-designed Learning Hub training and education offering is good, so far. But what’s next in education and training from SuccessFactors is key, and I’m looking forward to see if this could be a way to blunt the WorkDay effect.

There’s lots more questions to ask, this is just a start. The bottom line is that SuccessFactors needs to look and feel more successful, inside SAP and outside, and the time to start is now. I think Workday is vulnerable, and I think SAP and SuccessFactors could do better exploiting those vulnerabilities. I look forward to seeing this week how far they think they can go.

 

Acumatica — Living the Channel Challenge in the Midmarket

I’ve followed the enterprise software market for decades now, and the sad/ironic/bitter truth is that, when it comes to the large enterprise, all the great technology and marketing prowess goes to the field to die. It’s the same story in the midmarket: the best strategy, technology, and products don’t mean a thing if the channel can’t tell a story that connects prospective customers to the software vendor.

This is the essence of the challenge facing Acumatica, a pure cloud, mid-market ERP vendor based in Seattle. (Well, not really pure cloud –there’s an on-premise version as well, more on that issue soon.) I spent two days at Acumatica’s partner conference this week, and the channel problem was in full evidence at every turn. To be fair, building, priming, and maintaining a midmarket channel is a challenge for everyone in the industry: every time I meet with Microsoft Dynamics, Infor, SAP, and the many other vendors servicing this market, the most important story is actually how they’ve tweaked the channel yet again to optimize their sales opportunities and minimize channel conflict, technology and functionality notwithstanding.

Acumatica’s channel problem is actually a two-fer: as a (kind of) pure play, all channel cloud ERP vendor, Acumatica needs mid-market partners who understand not just cloud ERP, but the host of ancillary technologies and next-gen business practices that come with a move to the cloud: the horizontal shifts in e-commerce, mobile, and collaboration, and the more vertical shifts in areas such as advanced supply chain, distribution, manufacturing, and warehouse management. At the same time, those partners need to find mid-market customers who get these shifts in technology and business process and are ready to take the plunge.

This, again, is the innovator’s dilemma across the totality of the vendor community. But, for Acumatica, there’s the added twist of pushing a pure-play cloud imperative. SAP, Microsoft, Infor, and the rest of the on-premise vendors who have moved to the cloud talk a more hybrid story that offers fence-sitters the opportunity to start with good-old on-premise ERP today and move, with varying degrees of ease, to the cloud.

Acumatica has chosen not to emphasize that opportunity for its partners and their customers, eschewing a hybrid approach in favor of pushing a pure-cloud focus and promising never to go direct to a customer like everyone else in the mid-market – adding a pure channel approach to the pure-cloud message. To be sure, the different private and public cloud offerings that Acumatica can provide should be enough to assuage the misgivings of any customer who hasn’t bought into the pure-cloud story. But should be isn’t a strategy – cloud ERP, unlike CRM, time and expense, payroll, marketing, and other well-established cloud domains, is still a relatively hard sell, Netsuite’s relative success notwithstanding.

But moving from should be to must have may not be as hard as it seems for Acumatica and its partners, despite the impression that the manufacturing and distribution mid-market is still wallowing in 20th century sensibilities when it comes to the new technologies and business practices that come with moving to the cloud. In an analyst Q&A panel at the Acumatica partner conference this week, my friend and colleague Brian Sommer asked the audience, with a show of hands, how many had smart phones, cloud storage, and a social account like LinkedIn. Each of the three categories elicited a near unanimous response: The very vast majority of partners in the room raised their hands.

Brian then asked the number one money question of the conference: why, if mobile, social, and cloud are good for you, can’t they be good for your prospects and customers too? Light bulbs went on all over the room.

What my two days with Acumatica brought home to me was that the battleground for cloud ERP, and all that comes with it, is more cultural than technological in nature. In fact, the irony of the painful choice that everyone assumes customers must face when they decide between on-premise and cloud ERP is that, for most mid-market ERP customers, is that it’s not really that painful at all. The phase of the overall implementation process in which an SMB ERP instance is set up and switched on – whether as an on-premise or cloud deployment – is relatively small compared to the rest of the implementation. What’s hard is figuring out the business blueprint and process re-engineering priorities, working on data cleansing and migration strategy, defining the new user experiences and always much-needed e-commerce upgrade, setting testing and training regimes for the new functionality, and on and on. All of these tasks take many more cycles for a typical SMB – and put more risk – than the effort needed to stand up a relatively simple on-premise or cloud ERP instance.

In fact, my conversations with Acumatica partners and customers confirmed what I’ve seen elsewhere in the SMB market: by the time an SMB company has decided to make the move to an Acumatica, its business practices and processes have been stagnant for long enough that a whole pile of problems need to be solved first and foremost. Of which, “do we deploy in the cloud or on-premise?” turns out to be a relatively easy problem to solve.

I don’t want to trivialize the cloud vs. on-prem decision, except to emphasize that it’s really not an if but a when and a what question. But, to put some color into Brian’s point, for partners and customers to agonize over the deployment issues when there are bigger, much bigger, fish to fry is to miss the real opportunity. The mid-market has to change, dramatically so, and that means adopting new ways to do business first, and then diving into the broad technology shift taking place across the entire business landscape that will enable these new practices to see the light of day.

I firmly believe that putting ERP in the cloud is a sound foundation for this shift, and I recommend it to any mid-market company looking to get in the game and stay ahead. But – and I say this to all vendors, resellers, VARs, and SIs serving the midmarket – just being in the cloud isn’t enough, because the SMB market needs more than just a new deployment model. (Note to Netsuite: I said when you started that you’d need another hook for your marketing, because the day when cloud ERP would be a commodity will soon be upon us – and from my perspective that day is here now.)

And with that in mind, maybe the way around the simultaneous need for companies like Acumatica to find partners and customers who understand the cloud is to stop talking about the cloud as a deployment model and talk about it as a business change agent. Acumatica CEO Jon Roskill gets that, and joked from the stage that he had heard of one customer who called a partner and asked “for some of that cloud stuff.” The line got the laugh that it deserved. But the fact is that asking for some of that cloud stuff is a punchline is exactly why it matters less than getting customers to ask for the business change that can be enabled by using modern technology to overhaul a stagnating mid-market company.

In the end, I can’t decide whether Acumatica is more archetype or petri dish for cloud ERP, more bellwether or test bed. But it’s important to remember that going to the cloud isn’t just a matter of what and when, it’s also a matter of how. How companies like Acumatica fare in the dual quest for tech and cloud savvy partners and innovation-hungry customers is worth watching: it’s a battle that’s going to be fought by every mid-market vendor for years to come.