Back to School Week with Salesforce.com

Salesforce.com kicked off the analyst season with the first analyst summit of the year, and aside from inciting back-to-school analogies from an overly-relaxed group of analysts, some clear wins and opportunities, and a few issues, emerged that will both set the bar for the competition and keep Salesforce execs from entertaining any notions of complacency.

The clearest win of all came in the form of the company’s IoT strategy, which was without a doubt the most practical – as in demonstrating a clear value to companies that want to be early adopters – that I have seen in the past several years. Rather than boiling the ocean into a gigantic data lake the way GE is proceeding (actually, I think they’re shooting to boil all seven seas at once), or defining an IoT value prop that requires customers to make heavy investments on their own, which is the way many vendors are trending, Salesforce.com has focused on enabling IoT as a direct offshoot of its customer focus.

In a nutshell, IoT at Salesforce.com means using sensor data to inform or trigger existing customer-centric processes, like service and support, that companies are already performing. The difference is in the ability of IoT to have a device signal that it needs service, leaving the human-generated signal out of the picture. This sounds simple, almost too simple, and that’s the beauty of it. A lot of IoT scenarios I’ve seen of late place an implicit burden on the company embracing IoT in its manufacturing or service lines of business to create new processes in order to optimize their IoT opportunity. And the customers of the newly IoT-enabled company themselves need to create net new processes and adopt new technology on their end. Not good.

Asking companies to create and manage entirely new processes, on top of wiring up new data sources and analytical tools, is a prescription for… in the short, term, not a whole lot. This is the problem with most IoT strategies: Not a whole lot is the expected outcome for IoT strategies that require too much change of too many stakeholders too soon, and that’s what most IoT-wannabes are up to.

Another win came in the signs that Salesforce.com is increasingly looking toward its partnership with Microsoft, particularly around Office 365, as a strategic linchpin in its plans – I must have heard O365 mentioned a half-dozen times in the day and a half I was in attendance. O365 is a clear winner for Microsoft, and while Microsoft’s Dynamics CRM Online is hunting avidly for Salesforce.com’s game, the fact that Salesforce is aligning with the next generation desktop productivity platform is a clear example of pragmatism and opportunity coalescing for the benefit of customers. For millions and millions of users, there’s no better place for CRM functionality than Outlook, and this partnership will do a lot for the Salesforce.com users who’ve been jonesing for superior Outlook integration. (The deal may help Salesforce do a better job at the low end of the SMB market, another important challenge I’ll address in a moment.)

This is a radically different relationship than the one that SAP had with Microsoft earlier this century, when the two companies jointly developed a product called Duet that claimed to bridge the world of Office and SAP ERP. The product never really attained much traction, in part due to the fact that neither company was really in the mood for a mutually beneficial relationship – at best the two tolerated each other’s perceived encroachment into their respective sacred domains, and the overall lackluster sales reflected the underlying snarl in the relationship.

Not so with Salesforce.com and Microsoft – Satya Nadella has made this kind of partnership a virtue at Microsoft. While it’s clear that this continuing embrace isn’t great for Dynamics CRM – which has been a making a virtue of having a more modern UX than Salesforce.com at a lower average cost – the value-add for customers is unassailable.

But life in the CRM fast lane is complicated, and Salesforce.com’s efforts to be a platform company, and compete as one for both customers and ecosystems partnerships, is a good example of where some refinement is needed. The crux of the issue is what kind of cloud platform does Salesforce.com want to be known for. The statement of co-founder Parker “Lightning Man” Harris that Salesforce aspires to be the number one CRM platform provider begs the question of what this designation means for customers that are evaluating new cloud products and services based on the merits and demerits of the cloud platform they are built for.

While it’s good to narrowcast platform aspirations as much as possible – the broadest-based platforms will quickly drive themselves into commodity pricing and razor thin margins, á la AWS – Salesforce and its partners need to worry about what a customer looking at partner products that offer next-gen ERP, supply chain, asset management, IoT or other functionality on the number one CRM platform will think. Should I as a customer be looking at a CRM-specific platform to run my cloud back office or shop floor functions? Or should I look at some other vendor’s cloud, one that is more apt to be optimized for something other than CRM?

The problem is one of marketing focus more than anything, but, for a company that has always placed a premium on marketing, the problem is real enough to be worrisome. And in a market where every vendor is a platform vendor, and each uses its respective platform as an important adjunct to its products and services go-to-market efforts, this is no small issue.

File under “interesting” another conversation I had, this time with Leyla Seka, who heads Desk.com, and her colleague Stephen Ehikian from SalesforceIQ. The two execs spoke with myself and a number of analysts about the SMB market, one that I would argue is not considered the sweet spot for Salesforce.com anymore. Salesforce.com’s SMB market aspirations need some work – in part because, as Leyla said, Salesforce.com, like any other software company, would love to be the vendor of choice for the future unicorns of the world. Who wouldn’t like to establish a relationship with the next Uber and be there as it grows from nothing to unicorn overnight?

But what about the mid-market manufacturer doing $50-$100 million a year? Or the startup that’s just getting started? Desk.com can help with the support side, but I think it’s pretty clear that Salesforce.com isn’t the go-to CRM vendor for early stage companies or established, slow growth SMBs. Though who that go-to vendor should be is up in the air: I just did a major eval of CRM for startups, and to be frank, I was amazed at how little there was out there targeted at the low-end of the market: Pretty much every established vendor I looked at has added so many bells and whistles that they’ve made it too complex to start at the basics of what an early stage company needs. And many are more expensive than any startup would like, requiring 5-10 seat minimums at $50 or $65/month for more seats and more functionality than is needed. In startup land when every penny counts, and needs are simple, this kind of pricing is a non-starter and makes Excel look like a pretty good alternative.

Why does Salesforce even want to be in this part of the market, I asked, with its attendant channel complexity, lower margins, and relative cost of sales? The best answer I heard was that it wants to be in SMB because that’s where the company started, and paranoia about losing the SMB market runs rampant in the company. I think there’s better ways to deal with market anxiety than trying to be all things to all markets: serving SMB and large enterprise takes different DNA, and assuming the different strands can be woven into a single corporate helix is a common industry mistake. Unless Salesforce.com wants to claw its way into a major channel operation and fight the good fight in SMB through a vibrant and carefully managed partner program, it should largely step out of the market.

Paranoia, of course, is an important part of the mix that fuels success in enterprise software, and Salesforce.com can’t afford to pretend it has nothing to be paranoid about. This was another key theme at the summit: what can Salesforce.com do to prevent its own disruption, now that it’s the market leader and a legacy vendor in many customers’ view.

Those of us who remember how relatively easy it was for Salesforce.com to usurp Seibel know that the first lesson of avoiding disruption is to avoid denial, and every legacy vendor should designate a swat team to go investigate any new trend or opportunity that one of its executives scoffs at the way Tom Seibel scoffed at the nascent SaaS market. Salesforce is clearly not in the business of denying its vulnerability, I heard that from its execs at the summit more than once, and it’s moving in so many directions at once that it’s hard to find a trend that Salesforce isn’t trying to get a piece of.

That said, there are vulnerabilities that Salesforce.com is working to overcome. First and foremost is its user experience, which is one of the main reasons there’s a whiff of legacy in the air. (Eau de Legacy is a scent that lingers around almost every enterprise software vendor, BTW). The company’s forthcoming Lightning UX is designed precisely to deal with that problem, and according to Salesforce.com a significant number of its customers have taken a look. The assumption is they will like the new UX – that’s usually a given. Will they like the process changes that inevitably emerge from a major UX change? Not a given..

The second are the limits of online CRM, which has been a great beachhead for Salesforce.com but is getting a little long in the tooth as a market/buying center/differentiator. Hence the acquisitions strategy, the platform strategy, the analytics strategy, the IoT strategy, etc. etc. There’s a lot of moving parts to Salesforce.com, and like many of its competitors, integrating and consolidating all those moving parts into a cohesive whole is always harder than it should be.

Finally, there’s the pressure that Salesforce.com is feeling from the likes of Azure and AWS, pressure strong enough that company execs acknowledged they are considering whether to embrace these two competitors or hunker down for a long battle. It’s a battle that Salesforce.com will be hard-pressed to engage directly: The basic physics of enterprise software dictate that as Azure and AWS commoditize the bottom end of the PaaS market they’ll move further up the value stack in search of uncommoditized margins. One of the them, Azure, already has both a very successful CRM product and a truly impressive new ERP offering, AX 7, that’s the first all-cloud ERP that’s also an on-premise ERP. And Dynamics CRM and AX 7 both leverage Azure and the rest of Microsoft’s services like Office 365, Skype, Exchange, and a range of analytics that span everything from BI to machine learning to event processing. Both Dynamics CRM and AX 7 can also leverage Azure’s new ALM tool, Lifecycle Services, another big plus on the platform side.

Suffice to say that, Office 365 partnership notwithstanding, Microsoft and Azure are in position to put a dent in Salesforce.com’s platform plans, or, at a minimum, push Salesforce.com into a closer relationship with Microsoft on the Azure side. It’s one or the other.

As for Amazon – I don’t think there’s a successful business model on the planet that Amazon isn’t considering disrupting. As in the enterprise, with AWS as a launch pad, the sky’s the limit (actually Amazon’s drones mean the sky’s not a limiting factor either 🙂 ) I think Jeff Bezos and Amazon would be the platform competitor I would worry about the most, and it may make sense at some point for Salesforce.com to look over its shoulder at AWS and start working to co-opt the Bezos juggernaut.

Finally, growth and competition are spurring the company to hire another 10,000 (!!!) employees this year, basically a 50% uptick over the current 20,000 headcount. This is a mighty two-edged sword: on the one hand, a company that feels the need to increase its headcount by 50% is in the enviable position of planning for some seriously impressive growth, made all the more impressive by the $6.6 billion Salesforce.com is already telling Wall Street it will rake in this year.

The other side of the sword is that finding and on-boarding that many people is a Herculean task (think Augean stables), one made all the more difficult by the continuous dearth of quality talent that every tech company is feeling these days. Looking at average time to hire data helps highlight the complexity of the task: it can take from a little more than a month to many months to bring a new employee on board, particularly in tech. Each step along the way imposes costs and drains cycles from the recruiting company, which means that hiring that many people, even across the span of a year, will itself be a major challenge for the company.

All said, Salesforce.com is doing a good job of positioning itself for an increasingly complex and competitive market, one in which its early, and relatively easy, successes in CRM will be harder and harder to replicate. Customer choice for core CRM and its adjacencies is increasing, as is the proliferation of platform options and the ensuring confusion about what choosing a platform means for customers today. Assuming the paranoia about disruption can be kept alive, and the many current and future acquisitions can be rationalized, Salesforce.com has the advantage of tackling its challenges from a position of strength.

Which usually, but not always (et tu, Tom), works out for the best.

 

 

Informatica Tackles the Data Side of Innovation, Digital Transformation, Big Data, and Whatever…

The nice thing about buzzwords like digital transformation, big data, and innovation is that they are infinitely malleable, imparting permission on vendors and users alike to discuss their specific challenges and opportunities in the context of something bigger than themselves. All a board needs to hear is that someone, somewhere in the company, is focused on one or more of these buzzwords, and a warm, fuzzy feeling of accomplishment replaces that hectic panic of imminent doom.

Within this context, there’s much talk about embracing new technologies, and less, unfortunately, about the human capital and buyer behavior changes that must accompany any significant transformation. Importantly, along with technology and people (more on this coming up), there’s a third leg to the transformation race that needs close attention as well: Whatever a company wants to call it, and wherever they want to take it, and no matter how much they want to accomplish, every company’s next move is going to need a dramatically different relationship to the data that underlie new and evolving business processes.

This isn’t just because the data are different, or because the use cases are different, though those are some of the important reasons why it’s not going to be business as usual on the data side. What’s more important is that the interplay between people, business, and data is changing in ways that truly make business as usual a dead end. The pending death of silos on the business process and people side, and the emergence of new business processes from the ashes of the old, tired process of yore, needs a concomitant annihilation of silos on the data management, governance, and usage side. A 20th century relationship to the data that drives the enterprise will simply grind down any attempt to move a wannabe transformational enterprise in the 21st century.

That’s the mentality that underlies Informatica’s latest announcement, and while the messaging from Informatica focuses more on the tech issues than the business issues, the company’s “Big Data Launch” earlier this month has all the earmarks of a roadmap for data in the era of digital transformation, big data, or innovation. Might as well throw IoT and mobile in there, while you’re at it. There’s something for every buzzword in Informatica’s announcement, and the conceptual thinking of business and IT around transformation will be all the more mature for paying attention to what Informatica is talking about.

Informatica’s hat trick release of updates to PowerCenter, Data Quality, and Data Integration Hub is the company’s attempt to cover the full panoply of data management, governance, quality, and usability requirements in the modern/modernizing enterprise. This something for everyone focus – if focus is indeed the word – recognizes that any given enterprise will be moving forward in multiple cadences and directions at once.

Many of the companies I’ve talked to in recent months have embarked on simultaneous consolidation and innovation projects: consolidating and rationalizing the back office while pushing innovation at the edges. This isn’t as bipolar as it sounds: innovating on top of a moribund platform is like trying to climb a mountain with a cast on your arm – it’s better to do a little healing first before attempting the next big challenge. This purging of the back office – which in most companies has some significant legacy functionality – is a necessary precondition to a massive, transformational innovation undertaking.

Meanwhile, to get the enterprise ready for transformation, IT and the line of business in many companies have joined up to pilot an innovation project – a dab of IoT, a new, hip user experience on the commercial side, some new selling tools, etc. The important factor is that these POCs are intended to set the stage for a bigger business process innovation effort that has to change IT as much as it has to change LOB processes and sensibilities.

This complex reality is matched by the complex heterogeneity and need for hybrid cloud/on premise solutions that characterize the modern enterprise today. And underlying all the complexity on the process side is an even greater complexity on the data side. Again, there’s a similar bipolar-like feel to what’s happening in the modernizing enterprise: fundamentally, there’s still a vast quantity of older transactional data that need better overall maintenance and governance. The consolidations and rationalizations in the traditional back office have huge data cleanup requirements. Let’s be honest, among the many sins of the data warehouse mess of the late 20th century was the creation of what I call the sanitary data landfill ­– a vast data garbage dump where the fill first, analyze later mentality meant that a lot of messy data and processes were tolerated on the assumption that technology would solve the inherent needle and haystack problem that stems from too much data and not enough data quality. And that was just wrong.

Meanwhile, there’s no shortage of new data heading towards the enterprise in the form of web-based customer interaction data, real time sensor data, data historians and other industrial control data, ad infinitum. Literally. The growth in the quantity of data is matched by the growth in data types and formats – and sources. Similarly, the growth in data sources is matched by the growth in destinations: smart device communications are often bi-directional, and every controller, intelligent industrial machine, smart phone or even aircraft engine is both generating terabytes of data as well as consuming the results of the analysis of those data in the form of operational changes in what the machine, phone, or aircraft engine needs to do next, often in real time and often with some serious consequences for failure.

So – getting data right today isn’t like getting data right a decade ago. The data fudging available to the non-interconnected, non-real time, non-customer centric, and largely transaction processing-focused enterprise of the past is simply not an option in the transformative enterprise. If the data aren’t right, to a level of tolerance unheard of even a decade ago, then the transformation will be for naught.

That’s why a peek under the hood at Informatica’s latest releases is a good start for any company thinking about what has to happen to data as the company moves through a transformation cycle. Using Hadoop? Informatica’s got you covered. Real-time? Check. Improved development lifecycles for rapid prototyping and agile development? Check that too. More data and business rules visualization? Yep. Support for more data sources, improved data quality, governance, compliance? Support for next-gen analytics, customer engagement, hybrid cloud? Got that covered too.

It’s a big list, and I’ll leave it to others to dissect the feature/functionality improvements and other cool new stuff in the announcement. But I will highlight one more thing that Informatica is doing that makes tremendous sense: upping the ante, and the support, for involving business analysts directly in the data side of the transformation process. This is a tall order, and much of what has to happen here is way outside Informatica’s purview: the transformation of the business analyst into someone with a much better understanding and appreciation of data. This is part of the “human capital” leg of the transformation race mentioned earlier.

Assuming that the enterprise, or some consulting firm, will help get this business analyst transformation underway, Informatica’s focus on making its tools more business analyst friendly are right on the money. Data quality is a big business analyst issue that Informatica is supporting in its new release, and anything that brings these analysts in from the cold on key issues like data governance is more than welcome. Same with data integration – while no one expects business analysts to become integration experts, allowing them to think critically and then act, or empower IT to act, on the data integration requirements of their line of business is a huge step on the road to business transformation. There is no business transformation without people transformation, and giving the business analysts tools to help them on their way is an absolutely necessary part of this process.

Informatica, with its focus on data, is in many ways on the same journey as its prospective customers: so much has changed since the early days of PowerCenter, when IT was all inside a single firewall. These latest releases show Informatica’s determination to stay ahead of a rapidly evolving curve. I think its new functionality, and the new speed it promises for the core processes it supports, are part of a recognition that, as I said before, business as usual is one-way ticket to nowhere. Getting the data side of the new business imperative right is a key part of opening up the possibilities that business transformation, big data, IoT, or any other buzzword-compliant challenge present. Business transformation without data transformation is no transformation at all.

 

 

Kinaxis, Digital Transformation, and the Supply Chain: Laughing all the Way to Market Success

You’ve got to love a company that brags at its user conference that its motto is Learn, Laugh, Share, Connect. Don’t hear that too often. What you also don’t see very often is the other characteristic that makes the company in question, Kinaxis, unique: it’s a highly profitable, cloud-only company. And when I say profitable, I mean profitable, as in a net profit margin of 16% of its $23.8 million in revenue last quarter.

For comparison, Netsuite’s net profit last quarter was -19% on $192 million in revenue, Workday reported a -24% profit on $282 million, and Salesforce.com pulled in a whopping -52% profit on $1.364 billion in revenue.

It’s no wonder that Kinaxis’ stock is up 230% since its IPO in June, 2014. By comparison, Salesforce.com, whose market cap has always defied logic, is up 50% during the same period, Oracle is at negative 5%, and SAP, Netsuite, and Workday are all just barely in positive territory over the same timeframe.

Of course, Kinaxis is by far the smaller of these companies, and it boasts a mere 100 customers, give or take a couple. But that’s actually even more impressive – it means a healthy average deal size and lots of upsell to existing customers. And, as Kinaxis implements the majority of its deals, that means it captures both the services and subscription sides of the business as well.

What’s the secret behind this rare, profitable cloud company? In part, at 30 years old Kinaxis is positively venerable when compared to the rest of the cloud keiretsu: Salesforce, Workday, and Netsuite. Its existence and success is also due to a perception gap that SAP – and competitors – have left in the market when it comes to supply chain planning. SAP’s supply chain planning offering, APO, is one of those products that customers use more because they have to than because they want to. And the fact that most prospective APO customers aren’t just SAP ERP customers has meant that using SAP’s APO, which is regarded in the market as an SAP-specific product, is seen, rightly or wrongly, as placing unacceptable limits on a company’s planning capabilities. As a result, the vast majority of Kinaxis customers have SAP ERP somewhere under the hood, but no APO.

Kinaxis’ Rapid Response, on the other hand, excels at playing Switzerland in the complex, almost Byzantine world of multiple ERPs and insanely complicated bills of materials, manufacturing, distribution, and delivery models that characterize the real world manufacturing company of today. And its user-friendliness is the stuff of legend among its customers. I met several users – as in the supply chain planners and business owners, not the IT folks — at Kinaxis’ recent Kinexions user conference who told me that their only fear was that the “SAP mafia”, in the words of one of them, would succeed in jettisoning Kinaxis Rapid Response in favor of APO.

Why? Because the internal SAP gang can, not because it’s necessarily the best choice for the company.

Speaking of Kinexions, these guys throw a helluva conference. Funny, witty, irreverent: it’s hard to resist Kinaxis’ regular habit of breaking the stodgy, tired user conference mold and actually making the relatively dry topic of supply chain genuinely entertaining. Year in and year out.

This is just one proof point among many that Kinaxis gets “people” in some very important ways. The company culture of Learn, Laugh, Share, Connect also allows Kinaxis to look at the coming “digital transformation” imperative from the one perspective that really matters: people. I’ve been tracking the clarion call for digital transformation in recent months, and the one thing that’s clear in my mind is that technology transformation is secondary to the need for people and process transformation.

This people and process transformation exists at all ends of the digital transformation continuum: customers and their buying habits need to transform as much as employees, partners, and their business processes need to transform. And the transformation of those processes has its own peculiar twist – transforming business processes doesn’t mean improving what’s already there as much as it means creating net new processes that bridge the silos of non-communication and the process roadblocks that are baked into the DNA of too many companies. If you’re being disrupted from the outside by an Amazon-like threat, tweaking the dial a couple of notches isn’t going to necessarily keep your company from losing its shirt.

What’s interesting about Kinaxis and the whole digital transformation imperative is that its decades of laboring in the salt mines of supply chain planning give it an important leg up when it comes to transforming companies. One of the classic rookie mistakes made by companies trying to grapple with transformation is to think of this as a customer-centric problem first and foremost. Too many companies think that if they only had the customer buying experience-equivalent of Amazon One-Click or the Uber app their transformation would be solved.

The reality is that One-Click or the Uber app would be a laughingstock if there hadn’t been an equally transformative change in the underlying supply chain: Amazon’s warehouse management and delivery models, and Uber’s creation of a completely new class of rolling stock for people transportation – the private car owner – were what really made their respective transformations possible.

So, while erstwhile Kinaxis competitors like Anaplan have begun to the crack the code on planning as an enterprise-wide, business user-oriented function – and they’ve done a helluva good job at it – the lack of a solid history at the core of a core business process like supply chain makes it harder to imagine how a win for Anaplan in, say, its new HR/talent management side of the business would translate quickly to upselling opportunities across the enterprise. Down the road there’s a good chance, but not until the beachhead is well-established.

By contrast, Kinaxis’ case for moving from supply chain planning to adjacencies like talent management or asset management, among many others, looks pretty solid. Judging from my conversations with Kinaxis’ customers, the customers are already well on their way in these adjacencies as well. Some have already been doing so, using Kinaxis for a wide variety of non-SCM functions.

This upsell capability is essential for Kinaxis — and having the vp of supply chain in your corner is no small advantage. Again, to give Anaplan credit, they launched their own supply chain capability earlier this year, in addition to human capital management. They’ll be able to count on having some of these heavyweight vps on their corner too – and it shouldn’t take decades either. But it’s clear that Kinaxis has a head start in this upsell opportunity around digital transformation.

Meanwhile, Anaplan has a plan to conquer enterprise-wide planning with an app store approach, something Kinaxis has been considering as well. Building an app store, along with positioning a company as a platform vendor, are two of the most cherished new recipes in the enterprise software success cookbook. And while I see the reasoning behind the latter strategy in many cases – a platform is really an open API approach that makes it easy for partners to add value, customize, and pursue niche opportunities in ways that wouldn’t be cost effective or possible for the platform vendor – I’m not so sure about the app store approach for relatively small vendors.

First of all, it’s expensive as hell to do it right: a vendor needs to build a huge portfolio of free apps so that its app store doesn’t look like a south Florida grocery store the day before a hurricane is going to clobber everything in sight. And the app store vendor has to provide huge incentives – as in direct payments to partners that want to build new apps, access to a massive customer base, and an evangelical approach to developer recruitment, or the app store shelves will continue to look like a barren wasteland. And, preferably, you need all three – just ask Windows Phone, which tried the recruitment incentive, even paying for top apps to be ported to Windows Phone, but with no customer base in the US to speak, their app store went hurricane and never recovered.

The app store vendor also has to certify the apps its partners make without creating a painful and costly barrier to market. And these aren’t necessarily the lightweight apps that the archetypical Apple Store sells for a couple of bucks each. Imagine, those of you who know something about the flaming hoops Apple makes its developers go through to be App Store certified, what it would be like building a mission critical app for the enterprise, instead of the next Candy Crush or mobile parking app, and then getting it properly certified: an enterprise app worth its salt is going to have to touch lots of sensitive systems and data, and there’s no better way to nuke your brand than to have some third party product wipe out a customer’s data or send it off to cyber-crime land for further processing. Getting into the Apple Store will be a piece of strudel by comparison.

And then there’s the commercial side of an app store: don’t underestimate how complex the backend of Apple’s App Store is. Now think of that complexity in an enterprise – payments, authentication, privacy, security, currencies, licenses, sale team compensation – it’s no small feat to pull all that together in a single, seamless, easy to use, One Click-like experience. Talk about digital transformation…..

Don’t get me wrong, there’s definitely a big partner play for these Kinaxis and Anaplan, and in fact the biggest partner play for both may come from smaller, boutique specialty firms than large, highly matrixed, global SIs. But what will be needed, at least when it comes to being on the leading edge of digital transformation, is more of a consultative approach that starts, not with the question “what do you want to transform today”, but more with the statement “let’s workshop the unique opportunities and challenges for your business and then create some new business processes around them.” It’s not as scalable as an app store, but it’s also more in line with the real problem of “unknown unknowns” that is stalking the enterprise landscape and for which digital transformation seems to be the best, if overly broad, way to focus execs and business users on building transformative solutions.

While it’s easy to applaud Kinaxis’ profitability, it’s a relatively small company, and the question of whether it can grow according to the imperatives of the publicly traded enterprise software market remains to be seen. The fact that is quoted on the Toronto stock exchange, far from the bubble mentality being fostered by the above-mentioned members of the cloud keiretsu, many of which are, according to the New York Times, starting to looking a little bubbly, may be its saving grace. But Toronto or not, Kinaxis now has a lot to prove to the next wave of shareholders who are looking for their 230% pop too.

The fact that people are seen as an explicit part of the process of enterprise success is a major reason why I think Kinaxis may have a chance at reaching that goal. Learn, Laugh, Share Connect –  and profits. Call me old school, but I’m not sure that it gets better than that.

The (Real) Death of Windows Phone, American-style (Part II)

Continued from my last post.

(When we last left our tragic hero, Windows Phone, there was no carrier support for the new Lumias that just hit the market, which means…)

The only other option for die-hard Windows Phone users in the US, an unlocked phone bought directly from Microsoft, may not work either. Verizon doesn’t really support unlocked phones, due to its use of CDMA technology, and I doubt they will do so with new Windows Phones – what would their incentive be? Meaning that you won’t be able to buy an unlocked Windows 10 phone and use it on the Verizon network unless it’s a Verizon Windows 10 phone running CDMA, which right now puts us back in the conundrum of having no flagship Windows Phone to choose from as a Verizon customer. (Riddle: which came first? The dead chicken or the rotten egg?)

Microsoft has been holding out hope that two factors could still redeem Windows Phone, and partially redeem the money and pride that have been lost in equal amounts over this fiasco. The first is the prospect for a business-focused market for Windows Phone, the second is a market outside of the US, particularly in emerging markets and other places where it’s possible to sell lots of relatively cheap phones to millions of net-new users who have yet to drink the iOS or Android koolaid.

The business market in the US would have been a good place to focus a few years ago in the run up to Windows 10, but that opportunity may have already come and gone, at least the opportunity to play market leader. Window 10 does present some great opportunities to create a new slew of devices for enterprise-heavy tasks – pick and pack for warehouse management, all sorts of monitoring devices for healthcare, field service support devices, etc. And I think that opportunity still exists, considering the current lack of a solid contender to replace the now venerable (as in outmoded) Windows CE, which dominates this slice of the enterprise market.

But it would have helped significantly if the Windows Phone team had deigned to keep its partners in the loop about a roadmap for replacing older, Windows CE devices. Instead, the glorious silence it was sharing with the market remains another example of the ham-fisted strategies that defined why the death of Windows Phone was largely the result of friendly fire.

And the friendly fire came from the most potent weapon in Microsoft’s friendly fire arsenal: the internal silo. Windows Phone for years was developed and taken to market by one of the most tightly controlled silos in a company famous for its silos.

Two examples – when Office 365 first came out, there was no native way to sync a Windows Phone (this was back in the Windows Phone 6.5 days, lord preserve us) to Outlook running on a desktop, at least that was the official word from the Office team. This lacuna was so pitiful that the Office folks recommended using Google to sync up a Windows Phone to Office, making it a three-way sync that was beyond belief.

Then one day I was getting a briefing from the team that developed the then-brand new Office 365 service. In the middle of the briefing they let slip that a $6/month subscription to O365 came with a fully functional online Exchange server. Which meant there was a simple way to sync a Windows Phone that also gave users a great reason to use O365, not use Google, and it cost, at least for year one, just a little more than the third party sync tool I had been considering buying. Did the O365 team know that Windows Phone had a problem they could solve? Did Windows Phone ever broadcast the fact that O365 came with a solution to the sync problem? If you answered no to both you win the Silo Award.

Second example, more to the point about Windows Phone and business users. Several months before the first Windows Phone 8 was slated to come out in 2012, I met with someone on the Microsoft Dynamics team who was in possession of a Windows Phone running the new OS in beta. After showing me the phone he turned it over and showed me the tag that phone people had placed on it as a means of tightly controlling who was allowed to use it. This was the only phone available for the Dynamics team to play with, and it was only available for a very short time before it had to be given back (or the tag would explode and blind the recalcitrant user, or something like that.) Did this mean that Dynamics was able to do lots of development on the new phone and its OS, thus setting up an important synergy between the phone side and the enterprise side? Did anyone at Windows Phone think there was anything wrong with this? No and no. More Silo Awards.

Moral of the story – Windows Phone blew some pretty important chances to build synergy with the two parts of Microsoft that were in direct touch with business users. I’d like to think that a little closer cooperation might have meant Windows Phone would have at least been positioned as a killer business phone at a time when Blackberry was foundering and it may still have been possible to make a dent in the iPhone and Android duopoly.

Windows Phone also missed an opportunity with business users to at least make a case of Windows 10 and the cross-device experience. Even as the Windows 10 promise was being widely touted, there was no attempt to lead by example and develop that killer business app that spanned desktop, tablet and phone. And don’t tell me Skype or Office fit the requirement – I’m talking about something new and cool, not something old and somewhat cooler-ish. As I wrote last spring, by the time the Build developers’ conference took place in April, despite the hullabaloo about the Windows 10 opportunity, a half-way sanguine look at the messaging and the sessions in the conference showed that Windows Phone was conspicuous largely by its absence.

So, while Apple and Google probably stopped even caring years ago, it’s a sad moment for all when good technology dies for want of good marketing and positioning. A sanguine look at the market from a consumer or business point of view would show that no one will be spending a lot of time in mourning. And maybe, as Microsoft asserts, Windows Phone will see its market share amount to something respectable in Asia and other high-growth markets. Though I doubt it: the diminution of the former Nokia’s phone sales volume will hinder Microsoft’s efforts at maintaining the low-cost supply chain needed to compete in the volume part of the market: rivals selling orders of magnitude more phones will be able to command pricing and delivery schedules orders of magnitude more favorable than those of a now crippled Lumia product line. Economies of scale will kill Lumia, if carrier neglect and a lack of apps doesn’t.

In the end, the fact that Satya Nadella has some plausible deniability in the aftermath of his regime’s first big, and I mean big, flop, offers scant comfort. There was a lot more than just a few billion dollars riding on Windows Phone, and while it’s definitely not dead – heck, Blackberry is still in the game somehow – the glorious prospects for Windows Phone are no more.

Luckily for Microsoft there’s still the HoloLens.  Now if that’s doesn’t induce tech market envy from Microsoft and Google then they’re not paying attention. It might even make up for the Windows Phone disaster. One day.

The (Real) Death of Windows Phone, American-style (Part I)

Despite the recent hullabaloo about Microsoft’s new hardware offerings, including some new high-end Lumia phones, it’s time to bid farewell to Windows Phone, at least in the US consumer market. While I hate to leave the market up to a duopoly run by Alphabet/Google and Apple, that’s how it’s going to be for the foreseeable future. Microsoft’s five-year Windows Phone freefall is living, or dying, proof that there are only so many second chances in tech, even for the kings of second chances, and it’s finally time to throw in the towel on another great phone OS that never lived up to its potential. (ah, Palm OS, we hardly knew ya too.)

What the end of Windows Phone means depends on who you are. It’s clear that Microsoft loses big, and not just because of the Nokia write-down. It’s possible to argue (more on that below) that businesses that were counting on a Windows 10 cross-device enterprise experience that includes smartphones might also bemoan the fate of Windows Phone. But the death throes of Windows Phone shouldn’t bother consumers in the least. They’re too busy enjoying the latest coolness from their Android and iOS phones while they take for granted an absolutely superior (to Windows Phone) user experience on apps and websites too numerous to count.

While the demise of Windows Phone has been pending for some time, I knew the die was cast when I met up last summer with a Microsoft employee, new iPhone in hand, who recounted how he had tried to replace a dying Windows Phone and found that his carrier only carried low-end, starter Windows Phones, but no “flagships.” He waved his new iPhone 6 at me and said the obvious – why would I want to downgrade to stay on Windows Phone?

Which was my experience three weeks ago. Verizon recently changed its pricing plan, and the new regime meant that I was paying $40 per month for a two-year old Windows Phone with a slowly dying battery. Time for an upgrade, and the two year contract time was up. My choices were pretty stark – basically I could downgrade to an inferior Windows Phone and pay a little less than $40, or pay $43 per month and get a iPhone 6S. Guess which way I went?

(I have to say that there are a few things on my Windows phone that I miss, including the overall UX and text to voice, but in general the move to iPhone was a huge upgrade in many important ways. Apps, apps, and more apps, a better Bluetooth experience, improved browsing on a lot of key websites, and so far Siri works better for me than Cortana.)

In case the new phone disincentive wasn’t disincenting enough, the chances that Verizon would be quick on the uptake in supporting Windows Phone 10 is basically nil, considering their pitiful response to the advent of Windows 8.1 and Cortana, which frankly was the move that made Windows Phone truly competitive from a UX standpoint. Considering, from Verizon’s standpoint, the prospects for a strong US market for Windows Phone has only gotten worse since last year’s painfully delayed release of Windows Phone 8.1 on the Verizon network, I basically expect Verizon will do nothing about putting Windows 10 on its existing Window Phones for as long as possible. Which made getting the 6s even more of a no-brainer.

My experience, and the experience of other Microsoft employees I have spoken to since last summer who also were forced to move to an iPhone, is part of a pattern of neglect on the part of US carriers that has been going on for some time. This neglect is what will finally kill Windows Phone for good, if it hasn’t already. A quick look at the top four (Verizon, ATT, T-mobile and Sprint) shows that the march to oblivion is not slated to change any time soon, even at AT&T, which boasts the largest contingent of Windows phones, most likely due to the fact that it owns the Microsoft corporate account.

The neglect of Windows Phone has been pretty much across the board in the US:

Verizon as of this writing offers three Windows Phones, as many as it does Blackberrys (along with six iPhones and 24 Android phones). Only one of these phones comes from Microsoft (Lumia 735). The rest are from HTC and LG, which I would imagine aren’t going to be pushing hard to develop leading edge Windows phones any time soon, what with the OS owner being a direct competitor and the aforementioned dead US market. (There’s always the rest-of-world market, a theoretical opportunity for Windows Phone which I will partially debunk shortly.)

AT&T, the chosen Microsoft carrier, has three Windows Phones, all from Microsoft, but the highest-end one, the Lumia 835, is only available as a refurbished phone (Certified Like-New!) Are they kidding? Where did they get even these rejects? How much more down market can a carrier go than to offer a refurbish as its flagship phone? Meanwhile, AT&T has two Blackberrys for those in love with another lost cause.  It has made some motions about carrying one of the new Lumia’s, but as of this writing no sign of it on their website.

Sprint has one Windows Phone, a Lumia 635, and T-mobile has one Blackberry, which is one more than the total of Windows Phones it offers. The rest of the market is all iPhones and Androids.

And even if anyone had the crazy idea to try to use the latest, albeit largely unavailable to US users, Lumia flagships, the fact is that the newest ones don’t even begin to blow-out the iPhone 6S. And, let’s be honest, there is simply no way that any reasonably sentient app developer would bother to develop for a moribund market like Windows Phone, which means the app gap will never ever improve. And, similarly, the humiliation of being invited to a conference and not being able to download the conference app, makes whatever Microsoft does with Lumia an on-going compromise for many business users. More humiliations: you can’t watch Amazon Prime movies on Windows Phone, nor can you watch anything on Southwest Airline’s inflight entertainment system, nor can you…. You get the point.

To Be Continued: Wherein I question the enterprise market and non-US market opportunities for Windows Phone……..

 

Racing to the Top: As PaaS and IaaS Commoditize, The Quest to Provide Business Value-add in the Cloud Intensifies

At a press/analyst meeting last spring, Salesforce.com CEO Marc Benioff was asked whether he had any plans to build out an Amazon AWS-like capability to complement the rest of his cloud strategy. His scoffing reply was right on the money. Competing with AWS and other commodity-level cloud services was “a race to the bottom,” Benioff replied. Case closed.

The cloud market has another race in the works, however, one that Salesforce, SAP, Microsoft, Infor, and others are all contending in with increasingly ambitious strategies, new services, and strategic acquisitions. It’s the race to the top of the cloud, up in the high-value business services layer where the unique capabilities of the cloud, aided and abetted by the commoditization of IaaS, PaaS, and other low-level services, can enable a set of increasingly high-value services and capabilities that render the cloud the place to be for business innovation.

This race to the top is taking two highly complementary forms. Form number one is the race to build out a business network strategy that promises to support the complex, matrixed networks of business interactions that have outstripped the inside-the-firewall, linear business processes – and software – of the 20th century. Form number two is the race to build out a set of componentized business services, cloud natives each and every one, that can be compiled into end to end services, or attached as services to the aforementioned business networks, or used to extend existing on-premise applications into the cloud. Both forms are hugely important in the quest to deliver genuine, and highly valuable, innovation in the cloud, and both are harbingers of a major inflection point in the value of the cloud in the enterprise.

SAP was the latest batter to take a swing at the race to the top. Implicit in its recent HANA Vora announcement (a name that sounds like the perfect nom-de-guerre for a beret and sequins resistance fighter for truth and justice, though I’m guessing it’s based on the latin root vorare¸ which is also the root of the word devour) was the ability of SAP to unleash a set of business services, developed in house and via partners, that will be used as building blocks for the next generation of cloud business apps. The four that SAP announced, marketing, commerce, and loyalty management services, all based on hybris, and a separate global/local tax calculation service, are meant to be the tip of an iceberg of easy to deploy and easy to consume cloud-based business services.

HANA Vora also ups the ante for developers, adding to the nerd’s dream full of dev tools that are piling up in HANA by adding native access to Hadoop and other tech wonders. This is a truly awesome milestone for HANA, don’t get my somewhat flippant attitude wrong. But tech is as tech does, and the real goal of the HANA Vora announcement is to use the HANA Cloud Platform to relaunch the composite apps market SAP tried to create back in the early days of the 20th century with NetWeaver and xApps, with hopefully much better results.

The xApps concept never took off, mostly because the complexity of supporting the necessary integration and orchestration on-premise was too onerous for the service-oriented architectures that were the basis of these efforts. Perhaps more importantly, xApps and composite apps also violated my first rule of enterprise software – the hardest thing to do in enterprise software is to ask someone to do something they’ve never done before. In this case the violation was primarily in regard to a developer community that had trouble imagining just what a set of killer composite apps would look like and do, and secondarily in regard to a user community that at the turn of the century never really understood the appeal of composite apps in the first place. IT got it, but the LOB wasn’t really on board.

Putting the composite apps concept in the cloud, by making these composite pieces universally accessible via a cloud-based set of APIs, brings composite apps back to the realm of not just possibility, but reality. At least in theory. The violation of my first rule of enterprise software still stands, as does the inherent violation of my second rule – the easiest application to sell is the sleeping pill that lets the user who’s losing sleep over a specific business problem get a good night’s rest. The problem with the second rule is that if the sleepless don’t know that there is already a sleeping pill, in this case composite apps, that will help them sleep, they can’t know to ask for them. So far, that cognitive connection has yet to be established in the market, and this makes establishing this connection, composite app as LOB sleeping pill, particularly among developers, SAP’s and its erstwhile competitors’ biggest challenge.

Of course, SAP isn’t the only vendor in this version of the race to the top. Microsoft is there as well, although it too suffers from the same sleeping pill problem. Microsoft has been pushing a broad set of componentized, cloud-based business services (albeit much too quietly and surreptitiously) via its Azure Data Market for some time. The 300-plus services in the Azure marketplace (things like HealthMethods Provider Metrics and Customer Churn Prediction) are testimony to the interest in the concept by the providers of these services, but it’s pretty clear that the developer community that in theory would be all hot and bothered by this collection is largely missing in action. At least so far.

Microsoft’s higher end cloud business services also include putting the broader Microsoft desktop and server portfolio – products like Office, SQL Server, Sharepoint, and Power BI, among others – into Azure for use as services accessible by cloud-based solutions. Dynamics’ AX enterprise software suite and its Lifecycle Services will also serve as building blocks or services destinations for new cloud-based “race to the top” applications and services. The fact that Microsoft will soon announce AX 7, which will run in Azure (as well as in private clouds and on-premise) adds some serious enterprise software cred to Microsoft’s odds.

So far Microsoft is contending only for the business services form of the race to the top. Microsoft’s plans to support complex business networks, assuming there’s some thinking going on, remain unannounced.

Infor is in the race to the top as well, squarely focused on the business network version. Its recent acquisition of GT Nexus is effectively a $675 million bet that, as CEO Charles Phillips told the analyst community when the deal was announced, “The future will belong to networked companies.”

The GT Nexus deal is an interesting one. GTN helps manage global logistics supply chains in the cloud, enabling companies to track and trace the movement of supplies from loading dock to shipping container to store shelf. They do a pretty good job of it, better than most, and are able to provide a degree of visibility, by tracking the different documents – bills of lading, customs documents, POs, etc. – that is hard to do even with a RFID tag stuck on every shipment.

More importantly, this visibility provides GTN, and now Infor, with a gold mine of data about the performance of the different players in global supply chain. Analyzing those data will allow Infor to continue GTN’s move into an important business network service that its rivals aren’t really doing as yet: trade finance. If a manufacturer can prove its bona fides as a top notch supplier trading through a highly efficient logistics network, it can demand, and receive, significantly better credit terms on the loans it needs to build and ship the products it is contracted to produce. This brings much needed capital at better rates to business network members, and should in many cases more than justify any investment in time and money that Infor customers make in signing on to the GTN story.

These kind of metadata analyses, which can only be done at scale in a business network, are a main reason why there’s so much interest in the network version of race to the top. Infor’s Phillips, whose ties to the banking and finance world are local (his New York office is a couple miles from Wall Street), knows that the current global trade financing crisis will drive a lot of net new business and net new partners to Infor and its fledgling business network.

GTN fits nicely into Infor’s Cloudsuite strategy, which is focused on providing over a dozen cloud-based suites of services geared to core industries, such as automotive, aerospace and defense, hospitality, fashion (which dovetails with the large number of fashion and retail customers using GTN), healthcare and others. The organization of cloud functionality into industry-specific offerings is a smart strategy for Infor, which needs to provide an upgrade and innovation path that is as short and sweet as possible so that the relatively few pioneers in its otherwise laggard-heavy customer base can quickly demonstrate the wisdom of moving off a legacy Baan or Lawson implementation into a sleek, innovative, rapid-time-to-value cloud solution. GTN will be a nice enticement for a broad swath of Infor’s customers that are going to have to make move, and do it soon.

While Infor is definitely contending in the business network side of the race, SAP is currently in the lead, with its Ariba Business Network strategy the most fully formed of the lot in terms of the number of companies in the network, 1.7 million, according to SAP (versus 25,000 in GTN, though GTN’s services are much more strategic than the indirect procurement that Ariba specializes in). Ariba helped pioneer the business network concept over a decade ago (around the time SAP was testing out composite apps for the first time) with its indirect procurement offering, and is now moving towards the more interesting, strategic, and complex direct materials market. When you add Fieldglass’ contingent labor procurement function, Concur’s travel and expense function, and elements of SAP’s other cloud properties – S/4 HANA, SuccessFactors, among others announced and as-yet unannounced – there’s certainly a lot of potential network functionality in the portfolio.

But making the whole of these properties greater than the sum is still very much a work in progress. They all need to migrate to the HANA Cloud Platform and then go through the even more complicated process of orchestrating what are today cloud silos of functionality. SAP has been diligently moving in this direction all year, and is definitely focusing on cross-pollinating its cloud offerings as much as possible. This always looks easier than it is, but the political will is definitely there to break down the silos at SAP, despite the somewhat confusing fact that Ariba, Fieldglass, and Concur live in one part of SAP’s cloud hierarchy, while SuccessFactors and other cloud properties live elsewhere.

Regardless, the business services side of the HANA Vora announcement can also play a role in extending SAP’s Business Network ambitions. If you’re building out a fully formed procurement network, you need things like tax calculation services, among many others. (You might also like some version of Postcode, for example, from Azure’s much more abundant service offerings. Maybe these two platforms should figure out how to interoperate and leverage each other. Just sayin’ a little coopetition might be a good idea….) The dev tools side of HANA Vora also help, and together they give SAP the means to extend its Business Networks by leveraging its considerable ecosystem, something every vendor will need to do – even if there are still some great properties like GTN to be acquired.

Ultimately, the vendor momentum is exciting and important, but the problem with both ends of this race to top is the problem of market maturity. The business services side desperately needs a horde of developers to start coding their butts off building new cloud services based on a composite model. With HANA Vora, Microsoft Azure, and the Amazon AWS services that underlie Infor’s Cloudsuite, the vendors are setting a pretty rich table for the developer community.

But what’s needed now are legions of composite app and business network savvy developers, and I’m not sure a critical mass of these developers exist today. I saw this lacuna at Microsoft’s Build developer’s event last April: there was no shortage of great programmers, but I came away from Build with the feeling that there was definitely some market maturity needed on the developer side. I’ve felt this in conversations with top notch NoSQL developers, who consider themselves, quite rightly, at the bleeding edge of today’s tech world but are all too often focused on coding new cloud services instead of looking for and using third party services. And I’ve seen it in the disconnect between every vendor’s IoT dreams and the ability of the developer side to imagine, much less build, the killer IoT apps that, by their very nature, must span multiple, cloud-based business services and appeal to industry-specific business networks and their industrial customers.

So it’s important to make sure the expectations for this race are well set: This isn’t like the early days of the mobile app market, when every Dick and Jane programmer was off building little mini-apps for iOS and wowing the masses with light-weight, one-trick-pony apps. The componentized services that race to the top developers should be building and using may be mini, but the apps that are expected to be built from them are decidedly maxi. And that takes a kind of developer that is in short supply today.

Nonetheless, the vendors have to start somewhere, and it’s safe to say that Microsoft, with Azure and its panoply of services, is the current leader in the services version of the race to the top. And SAP, as I stated previously, is leading on the business network side. But Infor is there too, a vendor that too many competitors chose to ignore, to their peril. And don’t forget Salesforce, which is playing hard for market share in the services side, though in my opinion there are too many core capabilities that have to come from the ecosystem – as opposed to organically within Salesforce – for their services play to compete well in the market.

Regardless, it’s hard to handicap a race when the competitors have just left the gate to run a race that’s never been run before. And, to torture the metaphor a little more, considering it’s a race with no discernable finish line, I wouldn’t honestly bet on any single vendor to win, place or show as yet.

There will be one solid set of winners, and that will be these vendors’ customers. The race to the bottom is lowering IT and infrastructure costs as it is simultaneously improving the interoperability in the cloud that is necessary to move from the current silos of cloud functionality to a world where business processes span cloud silos as easily as they span internal silos (it’s easier, actually, the internal silo problem is still a major problem.) This PaaS and IaaS race to bottom will make the business services in the race to top easier to consume, and more importantly, safer to consume, as the ability of vendors to lock in customers will diminish as their cloud platforms’ interoperability improves.

What’s most important is that the true value of the cloud is emerging, what I long ago called SaaS 2.0. The cloud’s true value exists in leveraging its potential as the place to deploy the applications and services that define the brave new world of interconnected, global businesses and networks, rather than just flipping on-premise apps into the cloud for easy deployment and out of a cap-ex financial model. The moves by these and other vendors to provide the development and deployment environments that can enable these net new processes and business networks are right on the money: the cloud will revolutionize global business in ways we’re only just beginning to imagine. And it’s all starting now.

Putting Salesforce.com up For Sale? How About a Private Equity Play?

The rumors keep coming, fueled by highly speculative analysis like this latest stab in the dark from Fortune, that Salesforce.com is for sale. I think the question of whether another publically traded company is going to buy Salesforce.com is settled: I agree with Oracle’s Safra, I agree with SAP’s Bill, as well as pundits far and wide: there’s basically no chance that one of the big public software companies will buy Salesforce.com. IBM could use the help, and maybe Mark could give Ginny (aka Ginny Who?, emphasis on the question mark) some tips on how to run up a stock without making big profits doing so, but the disruption that buying SFDC would cause any large company – not to mention the price – would make it a bigger pain in the butt than it would probably be worth.

But how about a private equity buy-out? Maybe even led by Benioff, a la Michael Dell and his eponymous company? How crazy is that?

In my opinion, much less crazy than Google, SAP, Microsoft, Oracle, IBM, or any of the other possible buyers that have been floated since Bloomberg wrote about the rumored sale months ago. It’s possible there’s no buyer, maybe there never was, but if I were Benioff (which, for so many reasons, I’m not) here’s why I would go private equity.

Get out while the going’s good, part 1. SFDC is selling at a nice price today, after another round of rumors have kept the stock up in the face of a weak report from IBM. But the closing price after the last earnings call wasn’t as high as the closing price after the Bloomberg article broke. Smart money likes M&A better than more of the same — good sales volumes, continued overspending on marketing and people, and no profits – or so it appears.

Get out while the going’s good, part 2. The forward price/earnings ratio has always been mind-boggling, and competitive pressures have never weighed more heavily on SFDC as they do today. Here’s the problem: the enterprise software world is in the process of a massive platform shift, and SFDC’s platform, Force.com, is fighting headwinds from some very powerful players. This is a vastly different world than the early days of SaaS CRM, when SFDC held both the first to market advantage as well as the first to no profits advantage, quickly understanding that the markets would tolerate an absence of profitability in the quest for market share. There’s no model for repeating the no profits side of SFDC’s success in the platform business – the sales cycles are too long and complicated – and the time for first mover advantage in the platform business is long over.

Get out while the going’s good, part 3. Right now the likes of Microsoft and SAP are in a quandary induced by the bipolar public markets in which they live. The bipolar mandate is this: grow like a cloud company, make profits like an on-premise company. This creates no shortage of quarterly insanity in both of these companies – like werewolves under a full moon, the execs in these on-prem companies transitioning to the cloud are driven mad by the need to meet these contradictory requirements every three months (Seriously, I’ve heard reports of actual howling as the quarter closes).

Just look at SAP’s latest quarter – actually pretty damn good, considering how hard it is to transition customers, partners, and field sales to a new cloud paradigm. And even in the face of good, solid numbers, and real profits, the street decided to beat up on SAP in the trading following the release of SAP’s numbers. Microsoft will report today, after I post this, and I expect to see more of the same: great numbers for a company successfully managing its transition to the cloud, no appreciation from the Street.

Get out while the going’s good, part 4. Workday finally got its comeuppance for continued losses in the face of okay, but not great, revenues. The end of the Street’s forbearance kicked the stock down 13 percent in the last quarter, and with that drop the blush may be off the rose. Sure, the company is on track to be a $1 billion company, which is without a doubt a helluva achievement. But its lackluster success in financials (a sector it’s trying to crack without much success: SAP has sold more of its new HANA-based Simple Finance in a matter of months than Workday has sold over five years) and lack of a strategically credible cloud platform strategy has made it clear Workday has a lot of work to do moving forward. It’s true that the Street still loves SFDC, but it also loved Workday too. Love is fleeting when money is on the table and fickle financial analysts are in control.
SFDC will soon have to face its own bipolar hell, in reverse: it’s going to have start showing profits in the cloud, while making a play for a bigger presence in the on-premise world. The trend towards hybrid cloud/on-premise deployments is undeniable, and will be huge, bigger than standalone SaaS, in my opinion. SFDC is going to have to create a credible hybrid play that captures more of the on-premise side of hybrid, and in doing so it’s going to have to come down from the cloud to do it.

In my opinion, PE is the best way to survive this disruption: Ask Charles Phillips over at Infor. As I wrote here, he’s sitting on 70,000 customers, only a handful of which have transitioned to Infor’s new tech stack and product line. But with a 90 percent renewal rate, and as a private equity company, there’s no bipolar market to deal with, no quarterly earnings madness driving the execs to howl at the moon.
There’s a lot of reasons why Infor has one of the more sane and well-grounded management teams in the business, and Charles is a big part of that, but the ability to focus on the big prize, and not the quarterly market’s cadence, is also a factor as well. This ability to take the long view is also much more customer-friendly than trying to keep up with the financial analysts’ view that only shareholder value is what counts. I’d like to think we live in a corner of the market where customer sat really matters – unlike sectors like banking, and telecoms, where the quest for shareholder value has put many of these companies into the perennial “least loved, most hated” category among their customers.

In the end, Benioff might be doing himself and SFDC a favor by going private equity. He’d have to give up his lavish, overstocked bench full of highly talented people, his over the top marketing costs, and obviously some control over the company’s destiny as the private equity guys show up, pop on the green eye shades, and start cutting the fat out of a bloated company. But he’ll be giving up less by going willingly than by waiting until he gets Workdayed by the Street and starts seeing the blood on the wall. If you haven’t read Michael Dell’s letter to the WSJ about the PE deal, you should. It’s instructive about when it’s time to be public and when it’s better not to be.

Michael did it, and hasn’t looked back. Et tu, Marc?

SAP and the Magic of Success – Laying the Groundwork for the Inevitable Future of Business

Sometimes covering SAP and its innovations reminds me of what it’s like being the parent of school-aged children. Good parents complain endlessly – typically commensurate with the cost of tuition or property taxes – about curricula, testing, homework, and the like. While all too often forgetting that the one true test of a good school is whether the kids wake up in the morning excited about school or dreading the ordeal of the coming day, and whether the parents sleep well at night knowing that they’ve at least covered the bases when it comes to their children’s future success.

SAP’s myriad innovation strategies can be nitpicked almost endlessly as well – commensurate with the cost of upgrading older systems, deploying innovation, and building roadmaps into uncharted territory – all the while forgetting that the one true test of an innovative vendor is whether there’s something in the mix that gets the line of business users up in the morning excited to go to work, while covering the bases on technology and functionality that allow the executive leadership to sleep well at night.

I would venture that SAP managed to put forth a message at its recent SAPPHIRE user conference that finessed that dichotomy – a measure of assurance that new functionality in S/4 HANA, the HANA platform strategy, SAP’s fledgling IoT strategy, its industries and service delivery strategies, the business network initiative, and other components of the multi-layered messages thrown at the assembled audiences at SAPPHIRE contained something to help users get up in the morning and something to help executives sleep well at night.

Is the message complete? The strategy fully-formed? The path forward clear and well-understood? Not yet: SAP is, like virtually everyone one of its peers in the enterprise software market, a work in progress. Come to think of it, most of the SAP customers I talk to or work with are themselves works in progress. Just like parents looking after their school-aged children, everyone is making investments for a future that is both hard to fathom and coming up faster than anyone would like. The trick is to find the right school, the right curriculum, the right teachers, the right social context – or the right tech partner, the right innovation strategy, the right service partner, the right industry or geographically-specific functionality – and then hope that, when it’s time for the magic of success to happen, the groundwork has been laid as carefully as possible.

Meanwhile, it’s legitimate to complain about the fine points of how things are progressing – at your kid’s school or in your company’s IT and business strategy – as long as fundamentally you’re sleeping well at night and most everyone gets up in the morning eager to start the day.

I think SAP did well on both accounts: The fundamentals, as I read them from my week at SAPPHIRE, all looked pretty good. S/4 HANA turns out to have a lot more functionality than I had thought – one of the original two product names under the S/4 HANA brand, Simple Logistics, turns out to have a whole lot more than just logistics under its rubric: there’s supply chain, sales, sourcing and procurement, manufacturing, asset management, and support for sustainability, engineering/R&D, marketing and commerce, HR, service delivery, and IT. Add Simple Finance to it, and there’s a decent start on meeting the needs of many SAP customers.

This should in part help folks feel reassured, and at the time excited, about what these new capabilities mean. There was plenty of eye-candy at SAPPHIRE – cool new analytics, demos of Ariba, Concur and Fieldglass all working in sync in an asset management scenario, and HANA advancing epidemiology and treatment options in the cancer world. There were lots of examples of the Fiori user experience, and lots of insights into new capabilities in IoT, including IoT deals with Siemens and Intel, and, of course, Steve Singh talking about business networks that promise new business processes and new added-value for existing and future tech expenditures.

And there was even some sleeping pills for the IT side of the house, courtesy of Hasso Plattner. In what had to be a best case scenario, Hasso gave a breakdown about how a 54 tbyte SAP system running on what SAP now calls “any DB”, which Hasso priced at $20 million in total hardware and systems cost, would be priced if it followed SAP’s migration path from “any DB” to HANA, and then to S/4 HANA. The HANA option reduced the total database size to 9.5 tybtes, with a hardware cost of $5 million. Going all the way to S/4 HANA turned the original 54 tbytes into 3 tbytes and a hardware cost of $550,000.

Okay, not every company will see this order of magnitude savings, but there’s a lot of wiggle room here for the real world savings to be pretty huge for anyone. (With one caveat – this math assumes a clean escape out from under the respective hardware and software licenses that are being sunsetted in many real-world user scenarios. Termination clauses might drive some of those numbers in a different direction. SAP needs to help customers figure this one out too. And it doesn’t include the S/4 HANA price as well.)

Of course, assuming there’s something there for most customers, and some economic value in migrating (Hasso also didn’t include the cost of migrating in his calculations, something else that needs to be considered) three big questions quickly follow: when will all this be available, can SAP make the case for migrating towards the S/4 HANA vision, and, most succinctly, will customers agree to move in sync with SAP’s aspirations?

The first is easy: The list of functionality above is GA now, if you want to run with S/4 HANA on-premise. If you’re looking for an all-cloud S/4 HANA, the first version, with the 12 functional areas, will be available this quarter, with more functionality rolling out at the end of the year and again next year. I think it’s safe to say that if planning were to have started the day after SAPPHIRE it’s likely many companies would get to the actual software implementation phase of the project by the time SAP had a critical mass of cloud-based S/4 HANA on the street.

There’s a good reason why the application implementation side of an S/4 HANA project would be down the road a bit no matter what: There’s a lot of moving parts to making a change of this magnitude, and much of the hard work lies in carefully preparing the data cleansing and migration tasks (a potentially fraught process in any migration or upgrade), consolidating systems and business processes to reflect new functionality in S/4 HANA and the need to move to the smallest number of instances possible, retiring and replacing hardware and database licenses, and otherwise doing the things that are needed when the goal is to eventually change database, platform, and applications, and make similarly significant changes to core business processes.

(I’ll stop and make the point that, despite the opinion of some critics who write books claiming that complexity is the sole purview of SAP, none of this is in any way unique to SAP – all enterprise software vendors, and even leading pure-play SaaS vendors, are asking their customers to make the shift to a new generation of business platform, and there’s no way to dumb down how hard it’s going to be to.)

The answer to the other two questions – will customers be ready and will SAP make a good enough case – are less straightforward. It’s clear that SAP’s customer base is by and large less ready than SAP would like, at least coming into SAPPHIRE. ASUG CEO Geoff Scott called it straight when he said that the sales pipeline might not move as fast as customers’ account execs would like. But don’t discount the solid endorsement for the overall S/4 HANA strategy that Geoff served up to his membership. That wasn’t done on a whim, nor was it done to curry favor with SAP (believe me, Geoff isn’t paid to suck up to SAP.) It was done simply because the ASUG board thinks moving over to S/4 HANA is fundamentally a good idea.

Which really leaves everything up to how SAP tells the story, and that’s not as easy as anyone – vendor, customer, partner – would like. It’s not just a product story, it’s also a story about service delivery, something SAP’s recent blending of its service and support arms into a single global entity was done in recognition of. As the tech and business worlds move towards the new models that SAP and others are defining, everything will change, including how technology is deployed, serviced, and supported. Even purchased and licensed: former SAP CMO and newly christened Chief Digital Officer Jonathan Becher showcased a new online storefront that will sell enterprise apps the way the Xbox store sells games, including in-process functional upgrades that “level up” the user the way in-game purchases level up the gamer. I’ll dig into the specifics of how SAP is articulating these stories in a follow-up post.

In the meantime, the fact remains that SAP’s customers, and every other worthy and unworthy competitor’s customers, need to make massive transitions in tech and business process in the coming years. When it comes to pretty much every highlighted announcement SAP made at SAPPHIRE, all the technological fundamentals behind the scenes of SAP’s announcements are not nice to have, but must haves. And the question is not if, but when.

New, faster database technology, cloud native applications, cloud-based integration, new user experiences, IoT, extended business processes, business networks, advanced, predictive analytics, a completely new relationship between customer, services, and support – none of these advances are optional in the long run. And every vendor is asking its customers to make these and many more shifts in platform and business strategy, and to get on with it already.

And while some patience is required, the clarion call from SAPPHIRE needs to be acted on now – these shifts take time, careful planning, and the usual blood, sweat and tears when it comes to migrations and upgrades. Meanwhile, the clock is ticking on new levels of business innovation that will define the competitive environments for SAP’s customers. The groundwork is being laid, a roadmap – the curriculum for the future of business – is now discoverable. It’s up to every company to start placing its bets, lining up its strategies, and then rolling up its sleeves and getting the work done. So far, what SAP is proposing looks like it will cover all the bases. The customers’ striving for the magic of success can now begin.

HoloLens as Metaphor: The Virtually Real Future of Microsoft

Test driving the HoloLens, Microsoft’s soon-to-be released augmented reality headset, it’s easy to forget the challenges facing Satya Nadella as his first year on the job starts to take shape. Who cares if Windows Phone is dying and the Nokia acquisition is rumored to be destined for a massive write-off? Does it really matter that Windows desktop is losing its monopoly? So what if Microsoft is betting on a massive upgrade to Windows 10 that will require millions of customers to leapfrog a Windows 8 OS that just didn’t seem to light world on fire? What does it matter that the market cap of competitors like Apple is stratospheric, while Microsoft’s cap is more sea-level-ish? Who cares about Google anyway?

Why the cavalier attitude? Simple: Microsoft has HoloLens. Everyone else can go suck an egg.

I don’t mean to imply that HoloLens solves all the above challenges, nor do I wish to imply that sucking eggs can serve as an appropriate competitive response. I don’t even like eggs. But what I do wish to imply emphatically is that HoloLens, and the augmented reality is it poised to deliver, should at least solve that market cap problem, if financial analysts can give Microsoft half the credit they give Apple for new product intros. And if not stratospheric, at least something in the upper troposphere would be fine. As the above-named Microsoft competitors have proven over and over, a strong stock price can paper over a nefarious lack of profitability (Salesforce.com), meh-category new product intros (Apple Watch, Google Glass), or excessive hype (all of the above) with room to spare.

Can HoloLens really do all that? Actually, no, at least not by itself. But, like massive innovations of the past, HoloLens has the potential to provide an anchor point for the new Microsoft – much like the iPod and then iPhone did for Apple, or search did for Google, or online CRM did for Salesforce.com – that will make the rest of its products and strategy all the more palatable to the fickle financial and consumer markets that have the foresight and forbearance of a three year-old when it comes to discerning the difference between fad and long-term value.

Before I continue my admittedly slavish, and potentially faddish, fascination with HoloLens, let me add that, above challenges notwithstanding, there was a lot happening at last week’s Microsoft Build developers conference that spoke to the long-term value potential of Microsoft. After all, Build was the conference where the Universal Applications Platform was rolled out to the assembled developers, finally fulfilling the promise of a single code base that runs across all Microsoft’s devices, as long as they are running Windows 8 or Windows 10 (which leaves Xbox out for now, as it’s not on the Windows 10 upgrade list, at least not yet. Considering the special console hardware and the Kinect motion detector that are part of Xbox, it sort of makes sense not to push developers to think about how to make a console or Kinect game portable to a phone or tablet.)

Build also saw a host of new Azure capabilities basically designed to make it more flexible, elastic, easy to develop and deploy on, and otherwise prove the point that Azure is a strong potential competitor for Amazon AWS and other cloud platform offerings. Microsoft also rolled out its Data Lake strategy, a key requirement for IoT and other applications requiring the aggregation and use of massive quantities of highly disparate date. Office continued its position as the third leg of the Microsoft stool, as both a driver of Azure utilization as well as an important nexus of business functionality.

And Edge, the replacement for that scourge of Web users and developers everywhere, Internet Explorer 11, was rolled out to an expectant and much-relieved developer community. Support for non-Microsoft tech was also in evidence – iOS and Android got their share of love too, reinforcing Microsoft’s new ecumenism when it comes to the tablet and phone market, which, considering Microsoft’s position in both markets, makes a ton of sense. (More on the phone market in a minute.)

What all this means is that Microsoft did an excellent job making a case, in front of an admittedly pro-Microsoft crowd, of the relevance of Microsoft as a provider and enabler of innovation. Its pas de deux as a purveyor of devices and services was also on display: not only with HoloLens but also with its new Surface tablets, Xbox, and third party devices like the weirdly-named but wonderfully designed HP Spectre, which was jointly developed with HP and handed out to every Build attendee (including myself, and I have to admit it’s a helluva showcase for why Windows 8.1 on a touch-screen, SSD device provides an amazing computing experience.)

In particular, the concept behind the Universal Applications Platform, which I have written about here, makes for an important inflection point in the race to capture the hearts and minds of developers. UAP is about as close to a write-once, deploy anywhere platform as exists in the market today: Microsoft has taken great pains to show that apps written using UAP can target virtually any modern mobile device, as long as it is running iOS or Android (oh, and Windows Phone as well.) This is a huge boon for developers who have been writing very different apps, with very different feature sets, for desktops, phones, and tablets. While Microsoft acknowledges that form factor and other device-specific characteristics may prevent true universal portability with UAP, the ability to deploy across multiple devices sure beats the hell out of the artificial distinction between tablet, phone and desktop that iOS and Android continue to perpetuate.

While we’re talking Windows Phone, let’s get the bad news over with. Conspicuous in its absence at Build was any sort of drumbeat about writing to Windows Phone. There were some dribs and drabs, mentions here and there, some news about being able to convert objective-C apps directly to Windows Phone (Candy Crush apparently did that with its Windows Phone version, which proves something, I guess) and an emulator that allows Android phone apps to run on Windows Phone, but I couldn’t find a Windows Phone session anywhere in the conference catalogue. The phones were in the demo booths, and clearly there were more Windows Phones per capita at Build than anywhere else this side of Redmond, but it was clear that Microsoft wasn’t going to invest any significant capital at its premier North American developer conference on Windows Phone.

It was almost fitting that ComputerWorld published an article that week, based on a thoughtful analysis of a recent financial filing, which suggested Microsoft would be taking a massive multi-billion dollar write-off for the acquisition of Nokia. Microsoft still thinks there room for its phones in emerging markets, and maybe those markets will provide some way for Microsoft to have a play in the phone market, but it’s pretty clear that Windows Phone’s future isn’t.

But who needs a phone when you can have a HoloLens? Of course, Microsoft needs to get some killer apps developed quickly in order to take advantage of the HoloLens hype before Google, Facebook or Apple get in the game (and, from what I hear from my sources, Facebook’s Oculus rift isn’t in the game, and, of course, Google Glass fouled out publically a while ago.) What was nice in my demo of HoloLens was the fact that existing Microsoft apps, like Skype, could be significantly enhanced using HoloLens out of the box. And just the idea of having the world be your virtual workspace gives HoloLens some instant usability – this is, after all, a Windows 10 device fully compatible with the UAP concept. Which means you put on your HoloLens, and interact with virtual versions of Office, Edge, and the rest running on your wall, your desk, your dinner table.

Sounds silly? Trust me, working or playing in augmented reality is going to take the world by storm. If Microsoft can leverage HoloLens quickly – it’s going to debut this summer, along with Windows 10, at a price that I expect will be like that of a high-end PC (which it is – a fully untethered, WiFi and probably cell-phone connected PC) — the world of work and play, and by extension Microsoft, will never be the same.

Even without HoloLens, or, better yet, in the run-up to the pending HoloLens era, Microsoft is clearly on a roll. It’s laid a few eggs – you lay a few, you suck a few, you hatch a few, that’s what successful tech companies do. The combination of Office, Windows 10, UAP, Azure, the enterprise apps in Dynamics, support for a full line of touch-enabled devices (honestly, you haven’t experienced the epitome of desktop computing if you haven’t used a touch-screen laptop), ecumenism with respect to iOS and Android, and what by all appearances is a very solid leader in Satya Nadella means that Microsoft’s comeback is in the works.

Will Microsoft dominate like it did in the past? No way. But tech is so much bigger, and so much more pervasive, that dominance isn’t really the goal anymore. Relevance as an innovator, one that can help customers refresh their technology and processes in ways that make sense, while allowing them to prosper as much as possible with what they already have, is one goal. Spanning the divide between our business and personal lives, work and play – that’s another goal. I think Microsoft can do both, as well or better than almost any company in the market today.

There’s more to tech leadership than a slick phone, much more. And Microsoft is about to show the market that, once again, re-invention and innovation can still have a made-in-Redmond feel.