Sightings in SaaS

This came across the wire earlier today, pretty good news for NetSuite:

Nucleus polled NetSuite customers to gauge their success and satisfaction with their decision to entrust mission-critical business functionality to cloud computing. Ninety percent of the customers surveyed rated their satisfaction as four or five out of five — satisfied or very satisfied, and no company rated their satisfaction below three. When asked to elaborate on the reasons for their satisfaction, NetSuite’s ability to drive cost reduction was mentioned as a key driver. By offering tremendous scalability and breadth of functionality, with little to no IT expertise required to install and manage, NetSuite has earned long-term satisfaction and loyalty. “Because the application has been validated by users as an effective tool in cost reduction, deployment footprints at existing customers are more likely to increase rather than decrease,” wrote Nucleus in the report.

I’ve long said that running a system, or especially, many systems, has a huge hidden cost. Some might get away with it by putting the brother-in-law in IT, but believe me there is no way that the systems you maintain do not have a cost, I don’t care who runs them.  And there is also a cost to the systems that you do not run, mainly in the time and effort people expend manipulating data on spreadsheets.

6,600 customers, that’s pretty good, too!

I had to laugh out loud today as I caught up with an old business acquaintance, now CEO of a good sized firm, and heard the story of how the founder’s son is running the IT department. I have heard this story so many times that I asked, without really thinking about, “Why do so many business people end up with relatives running the IT department?” I’ve heard it all over the years and it’s not just small businesses that do this.

Back in my Oracle days I consulted with a Fortune 100 company and two of the CEO/Founder’s children were in the IT Department. Neither of them appeared to be especially talented in matters technical, but there they were, cutting their corporate teeth in 4 hour meetings on system size, redundancy, failover, backup and restore. I even had one instance, early in my career at SightLines, where a client tried to get his aged mother to do the implementation! And the son, supposedly, was knowledgeable about IT. So what’s going on?

I guess it’s not the worse place to learn about a business. There’s always a lot of discussion of key business processes and throughout a typical week/month/quarter you will meet most of the management team, directors and above. But it’s also not the best place to learn about the business. You will rarely meet a customer or vendor, outside of an IT vendor, there. You will never see a sale negotiated, or learn the why your products and services are priced as they are. You will also not see customer service issues managed.

But if your path in life is IT then with all haste take a place in your Uncle’s, Sister’s, Dad’s, Brother’s, IT department. Otherwise I would be a little suspect of how this will play out for you. You may be a trusted family member but hiding in IT will not prepare you for a larger business role, unless you ultimately want to work for an software or IT services firm. More likely than not, your relatives figure that you are trustworthy and since they need a body to handle the work in IT,  your it. It’s also quite difficult to find good IT people and they tend to move around a lot, especially when you ask them to work 60 hours a week, every week. So putting a thankful relative in IT adds some stability for not too much money I would suspect. And they can’t do too much harm there, right?

Well, I don’t really have a dog in this fight to be honest, so maybe I’ll let it lie. I have asked my daughter on several occasions about working for SightLines. I’ve gotten a lot of answers, but none have been “yes.”  Darn smart kid!

Over the weekend I met a fellow in a local hardware who was looking for some very unusual screws. We got to talking and I found out that he supplements his retirement pension by re-conditioning dental chairs, of all things. Evidently it’s a decent money maker for him and he enjoys the hobby.

The conversation started me thinking about the current states of software and how this might actually reflect the state of the economy overall, not just in this downturn but in long term fundamental changes in the economy.

Software is in harvest mode, just about everywhere you look. What is harvest mode? When products reach the end of the life cycle they are kept around because they still have some value and market cache. We don’t continue to invest in them because the investment will no longer pay off. So we simply harvest whatever revenues we can while keeping a very close eye on costs.

In the software world, there are actually companies that buy older products and continue to harvest maintenance fees for years, especially true in the software for busines verticals. A friend of mine who works in a local steel service center owns one of these. The company purchased the software 20 years ago to help them manage inventory, processing and scrap. Then about 8 years ago the company that wrote the software sold off to a harvester. They now have a single person who supports the code base, but the product is no longer actively sold. There are after all only so many steel service centers in the world.

But what we are seeing today is something completely different. We have non-vertical, on-premise ERP/CRM software that is being harvested by the company that orginally wrote it, in the case of SAP, or by the companies that purchased it, in the case of Oracle or Sage. One way or the other, it seems that all 3 companies have come to the conclusion that it is useless to invest money in their now graying software products.

SAP’s steady decline went by another hurdle this past weekend when the current CEO left unexpectedly and two guys were promoted into the top spot. You can read extensive apologies here. Oracle has almost 100 acquisitions under it’s belt, making it a software harvester extraordinaire. Sage also has a host of harvest products. In fact in the on-premise space if you aren’t being harvested, you are a harvester.

On the plus side, harvesting means that your on-premise system will continue to run and be supported, more or less, by someone for the foreseeable future. On the down side, this means that you will continue to pay a lot of maintenance fees for the foreseeable future with little if any new features/functions. You have software on life support, basically, and that is both costly and a sorry state of affairs.

Why this is happening is difficult to say because the reasons are nearly as numerous as the underlying products. Sage for example still has some products that are not real time, but instead rely on batch processing. You would think it makes sense for companies using something like this to look around for something new, more useful and modern. There must be two reasons that they are not interested in changing: The newer software does not offer enough value to pay for the investment and trouble to change; the company is no longer making the income it once did and therefore has little to spend and little faith in the future. There’s some truth in both of these, but taken together they really pack a punch.

Think about a company that wholesales/distributes dental supplies, a b2b business. There was a time when the population in their area was surging and dental offices popped up like flowers. They became a strong regional player with a one or a few competitors, and all of them did well. But over the past few years business has changed substantially. First there are fewer new practices opening in their region, and the ones that are there have begun finding better values online. They can deliver next day, but it actually costs them more to hire a driver, a cost that he must pass through to customers, than it costs an internet distributor to send next day air. Huge efficiencies have happened in their market, and all have squeezed their margins.

What does a company in this space do to compete? They could also sell online, but they don’t have the expertise in materials management nor the capital to bring to bear to run an enormous, national brand warehouse. So, like the software companies, they go into lockdown, or harvest mode. They continue to service their region, keeping a very close  eye on costs, but they are unable to afford huge new investments in the business. Including software. So they keep on with their old system and eventually they will run out of reasons to exist altogether. Meanwhile, dentists squeezed by better oral care buy used, re-conditioned chairs instead of new ones. These are also available on the Internet.

In short, the Internet has thrown a wrench into the works of many mainline companies and as a result they have turned off new investments in technology. When I go over my NetSuite client list I can see a lot of companies that we implemented the software service for but only 2 of the more than 90 companies are mainline wholesales/distributors . Interestingly, one of my first clients was an Arizona company called Lifestyle and Leisure Creations, a wholesaler of massage equipment and supplies who sold out to a larger competitor.

That’s probably a strategy that  a lot of businesses need to be looking at. Purchasing competitors, especially at current discounted prices, can be a useful way to expand your customer list and restore some pricing strength. But you still need to gain greater efficiencies and the best way to do that is to think about investing in better technology. If you have a growing company across a large geography, you need to see where you are everyday and at every location. It’s not good enough to just throw together results manually at the end of the month. This is how on-demand software as a service can really help. Your entire company can work off a single account of the software, giving you real time results from all branches, warehouses, etc. And you don’t have to add the very expensive computing infrastructure that used to be necessary.

Again, looking over our client list, I see a dozen brand owners. These are wholesale/distributors who have gone an extra step and now are also manufacturing the products they distribute, using third parties in most cases. Brand ownership is one way of averting the steady decline of growth death spiral.

If your margins are getting hit hard and you’re thinking growth through aquisition or  brand ownership is the only way to continue the company, then you have to consider on-demand software. Like you, it operates unbounded by geography. And while on-premise software continues to struggle, NetSuite’s SaaS ERP/CRM grows and takes their customers.

I have not had the opportunity to post in a while. Have been completely caught up in travel with several NetSuite go-lives this year. Things are finally calming down for a short period and I can catch up on taxes, baseball news and the blog.

Talking about baseball, my recent travels took me to St. Louis where my gracious hosts were so kind as to take me to the area know as The Hill, a predominantly Italian area of the city. We had a great meal at one of the many local eateries, but the highlight for me was the passing of a ball yard where former major leaguers Joe Garagiola and Yogi Berra once played. That was kind of cool. The whole neighborhood was very nice, even on a snowy winter night.

Good-bye to Curtis Granderson. The Tigers traded the best Tiger to the Yankees, which I am sure makes my friend and baseball nemisis Paul Greenberg happy. Best to Curtis, I for one always loved his defense.  New York Yankess, ugh. Don’t get me started. I always like the way that they pronounced ‘Yahnkeeees’ in “Last of the Mohicans.”

I also actually saw it rain in California. I have probably spent a whole year of my life, a week or weeks at a time, in CA, and cannot remember it raining. This trip in rained everyday and hard. Fremont was flooded, and the storms only added to the overall picture of a California under deep stress. The cab drivers, the waiters, the client and the folks at the hotel all talked about the local and national economy. For once I did not hear any snarky remarks when I mentioned that I was from Michigan. That was in itself a revelation.

But don’t get me wrong, I am not celebrating the hurt the West Coast is currently undergoing, or anyone else’s for that matter, including our own here in the Upper Hand. To the contrary, I am a little nervous because so goes California so goes the country. It is such a big part of our economic engine that when I hear about the commercial real estate vacancy rate I have to wonder how long before we’ll see a real and regular pick-up in activity. In my darker moments I wonder if we are not heading into the 2nd dip of this recession. We will eventually pull out of this, but will we be any smarter? Does the political class, all of them, realize that we have now run out of other people’s money? I’m not sure.

At any rate, we have been fortunate to continue our NetSuite consultancy into the New Year with several new clients. Helping these companies start to use NetSuite made me wonder how companies operate across wide geographies without a tool like NetSuite. How do you keep far flung sales people, warehouses, support staff on message, working with purpose, productive, connected? We have so many different modes of communication now that we often take for granted how difficult it is to create an effective team and get everyone moving in the same direction. It takes more than IM or cell phones, or smart phones. If you are operating virtually, meaning that you have employees that do not come into a central office everyday, then you really should think about an online place where the company can meet, where everyone can add their efforts to the team and understand their contribution. You need to connect everyone to headquarters. How?

Well, I hear the IRS calling my name, telling me that I need to get everything over to the accountant. Best to all of you in this New Year, and I hope we all pull out of this in one piece.

Every once in a while I write a post that’s crazier than most. These normally happen late at night when my internal defenses have given way to a glass of wine. This post is along those lines. The basic question that I’ll try to answer is “Will the Cloud and SaaS save the current roster of Enterprise Software from the Dinosaur like extinction of its forebears?”

I’ll start by asking what  can you expect if you travel around the world looking for a tasty chicken dinner?

In Vietnam you can buy a live chicken, rest is up to you.
In China you can buy a chicken that’s been killed, you pluck and eviscerate and cook.
In Paris your chicken has been plucked, you eviscerate and cook.
In Des Moines the chicken has been plucked and eviscerated, you cook.
In New York the chicken arrives on your table plated, garnished and sauced

Now it may not seem like the world of software and the world of chickens have a lot in common, dear reader, but don’t give up yet. There is a point that I want to make here. A recent conversation with the Enterprise Irregulars around the difficulty of moving ERP systems forward with the business brought some interesting ideas to the fore. It all got started with an article by the now famous, in these parts, Thomas Wailgum in CIO about a study partly commissioned by CIO and Enterprise analyst IDC concerning this very question. Wailgum’s title says it all “ERP’s Paralysis Problem and the Repercussions for Businesses Everywhere.” The repercussions, as you might have guessed, are not good.

First,the premise, more exactly, is that ERP systems can prevent companies from seizing business opportunities because the systems are lumbering giants not given to flexibility, agility, growth and change. This leads us to conclude that the deeper the functionality of the ERP system the greater the difficulty of meeting business opportunity challenges. ERP in other words suffers from the New York Chicken problem: Once it’s served there is no turning back. You can’t change the recipe or cooking method at that point.

It’s an interesting thought. I am not sure that it is 100% on the mark, but having worked with Oracle ERP software for nine years I can attest from personal experience that there is more than a grain of truth here. Brain Sommer has a good post about some of the real sticking points in ERP systems that make changes and additions so difficult. This one stuck out:

5) Code block insanity – Just because your accounting modules can support a 30 segment code block doesn’t mean most companies should use this. Moreover, what views a company will want in its code block will change over time. Unfortunately, most financial software products (and all the feeder systems that supply accounting transactions to them) make changes to the code block akin to a complete re-install of the software. Nothing brings rigidity to ERP like the code block.

I’ll take the thought one step further – why do we have a code block, this huge accounting nightmare that attempts to pump all possible corporate knowledge about what the company sold and purchased into the general ledger from the subledgers where the transactions take place? When they began to create software for financial transactions they had only a general ledger, so to see as much data as they possibly could they tagged all the transactions in ht GL. Business software became accounting centric, and remains so even after real time relational systems came on board with multiple subledgers that can report out vast quantities of detailed information. Why do you have to update the GL with sales data when it exists in such fabulous detail in your CRM/Order Management system?

So what does a large enterprise do? They run Oracle, SAP, or something similar. Does the enterprise just forgoe new opportunities? I can’t imagine that , especially since the people who run large enterprises normally come out of sales and sales is where most of the new opportunities get their start. These folks are not going to be patient for long. Eventually the line of business, lob, will go ahead and start to do whatever they have to to tackle new business, even, in many cases, if that means writing custom software.

Now, developing custom software may not seem like such an odd pursuit to you and you would be correct – if it was the 1980s or earlier. But when so many large enterprises went to systems like SAP and Oracle they lost their development teams. That was the cost justification of the new ERPs. In the bad old days all large companies employed large teams of developers who built their custom business apps from the ground up on what came to be know derisively as legacy platforms, from IBM, Burroughs, etc. Coding custom software is like the chicken in Vietnam or China. Well, at least now you have more refined tools and platforms, so we will say it is more like China.

Well, apparently the wheel has turned again. Large Enterprises are again back to the custom software job enthusiastically and doing it with the aid of all the modern IT tools, platforms and business models – outsourcing, offshoring, onshoring, LAMP stack, Cloud, Free Open Source Software, you name it. They are coding software at a pretty good clip evidently, again in an effort to meet business opportunities.

Being on the cloud and developed in the SaaS, software as a service, model may help some of the newer entrants to the Enterprise software market avoid the New York chicken problem because the cloud can give a company greater access to partner software add-ons. But that is not a given. They must still walk a tightrope between offering a robust application that includes most basic needs while giving the Enterprise with more complex requirements a path to customize those requirements using the applications itself. Every NetSuite implementation, to be perfectly honest about it, requires a fair amount of explanation of what is not possible. You can run a lot of business processes in the system with no further customization and coding should be rare, but to have a system that truly represents your business today and your meets future opportunities, you will need to customize a quite a bit and code a little. It’s not an easy tightrope to walk obviously, and the balance struck is a subjective proposition.

However, I would also submit that every buyer contemplating the decision to move to one of these new enterprise systems should have a hard discussion about how much they want to customize and code, and how to do it in a way that prevents them from falling into the New York chicken problem themselves. For my part, I suggest that clients hold off on any customization except the most absolutely vital, and wait to add code completely, until you are live for six months. You will be surprised by how much your requirements will change once you know and understand the system.

The myth, not sure if it is still current, that SaaS prevented customization, has largely been itself eviscerated by Netsuite’s Business Operating System and Salesforce.com’s Force.com development platforms. These systems are not only open and customizable, they also encourage customers to make the applications meet business opportunity challenges.

Only time will tell if SaaS Enterprise vendors avoid the same fate as their older brothers like SAP and Oracle, but it is a good time to ask the question. Who would have thought 10 years ago that ERP would end up costing you money?

There, done. It had to be said and now it has been said. I no more liked saying it than you liked hearing it, but the truth will out, and now it’s done. Take a deep breath.

By not only having a financial software company write a new version of their software on the force.com platform but by then entering into a joint venture with said company to market the newly combined CRM and Financial software product, Salesforce.com validates what we have been writing and saying these five years: To wit, it does not make sense for Small and Medium Enterprises, SMEs, to try themselves to patch together various applications when there are integrated products already on the market. Integrated apps, as in a suite, are an enormously beneficial idea for any company but especially for the SME who does not have the time, manpower or cash to build bridges from one app to another.

In our long experience it is only the largest enterprises that have the necessary resources to pull off the interfaces between applications, and even then it is usually not done well. And to be perfectly frank, integrated suites are not perfect either; I make no argument to the contrary. However, when you are making the decisions for your SME you do not have the luxury of considering a best-of-breed-applications-stitched-together-and-maintained-by-professional-IT-staff approach to your business. It is simply not in the cards. Even if it were you will have a hard time explaining to yourself, and any one else who might be listening, why so many organizations across the world and across so many industries have abandoned the best of breed approach for their core applications and gone to an integrated suite (Oracle, SAP, etc.).

When we talk to SMEs who currently have several key applications from various vendors running core functions in their company they normally run them in complete silos, using spreadsheets to paper over the disconnects. They have either abandoned their interfaces (we still have not met a company that uses the SF to QB interface successfully) or never even bothered with them. That’s reality.

Salesforce has evidently seen the light themselves. I will hazard the following prediction: Over time SF will sell their standalone CRM to very large companies who have large, direct sales forces, and they will sell an integrated suite to the SMEs of the world. They really have no other choice. They are being surrounded in the SME market by a ton of CRM competitors who have matched their functionality. Add to this NetSuite and SAP’s redesigned Business by Design due out any year now and SF really needs to both differentiate its products from the Zohos of the world and confront the integrated suites as they take market share in a world newly interested in cloud computing.

So bravo to Salesforce.com and the newly minted FinancialForce. It will be a presence in the market, I have no illusions about that. It also validates NetSuite’s long maintained position that an integrated suite is the key to running a better information system and finally a better enterprise.

Before I pull up stakes here for the holiday I would like to say thank you for the many people, companies, events and innovations that have made  my life and world better over the past 12 months.

First my wife Mary deserves a special thank you. What a great friend to have in good times and bad, and in-between times. My daughter Haley also causes me to say thanks. On to the University of Michigan and doing well there this year. Thanks to you both for making my family life so wonderful.

Thank you to our clients, all 90 of you. We have discussed, debated and at times even argued about the best way forward. All I can do is bring my experience and best practices to your IT needs and work until we have a solution we can both be proud of and we can both live with.

I thank finally the always disruptive US economy that allows and enables new ideas, and with them new companies and clients, to enter the marketplace. It never ceases to amaze me how the next phone call, discussing the next company and its products, services and business model, is always as interesting as the last. We have something here that few have been able to emulate; let’s keep the spirit of innovation and entrepreneurship alive.

Finally, a special thank you to the technology innovators. Reading through the blogosphere you can see a million opinions on the start-ups and innovators in our business. All opinions are welcome but at the end of the day we should never forget that innovation is tricky and difficult. Salesforce.com, a competitor, released a new idea last week called, of all things, ‘Chatter’, which is going to be a part of their development platform, adding social computing to CRM business processes. I realize that there is a lot of talk from every direction about it, but let’s also be thankful that there are still people willing to risk their future, their treasure and their reputation on something brand new. I say bravo to you SF.com. I frankly have no idea whether you are on the right track. But I applaud your courage.

Happy Thanksgiving everyone!

Thomas Wailgum writes some good articles and is frankly one of the few writers on the subject of ERP and enterprise software who appears to have some real knowledge of this market. His most recent piece on The Future of ERP is a sound reporting of the happenings of the last year since the world’s asset bubbles burst. A few of the ideas in this article really standout.

First, we have been as guilty as anyone of taking a Bridge to Far in our ERP thinking. Simply put, we believed strongly, and still have intense moments of remorse since we changed, in the idea of a single instance. A single database and application instance into which all corporate data could flow. We spent many years putting systems like these together for large corporate clients. We could recite in our sleep the benefits of an integrated single instance that would not require an army of personnel to manage the data links between varied and disparate systems. We were true believers in other words. Until recently.

NetSuite itself seemed like a godsend when we first started to work with it. Access from anywhere at any time. Pretty cool. The suite covers a lot of the business, but in some cases, we must reluctantly admit, it makes more sense to have several systems. We have seen many of our clients make links from NetSuite to another system, using of all things a Software as a Service integration tool – Boomi. NetSuite itself has also started to make some inroads into the small divisions and business units of very large enterprises for the simple reason that trying to install SAP or Oracle in these smaller, or small, units is not cost or time effective and in most cases does not work. Yes, we will even admit that the integrations required for the business units to communicate with corporate are much simpler today than they have ever been. We can use tools to map out the integration process and make point and click changes as needed. Not the bad old days of hand to hand integration, exactly.

In the background we also hear some other long resting ideas begin to stir. If we can accomplish integration less painfully, more efficiently, and have a more stable outcome then why not best of breed? Pick the best of every category and cobble them together. Our first inclination is to ask “Why bother?” If you have the opportunity to work within a single integrated system then why wouldn’t you? We’ll stick by this. In a lot of cases it just does not make sense to create an integration where it would be better to use a suite. But let’s face it, the snowballs in hell will be frozen solid before any of the well known SaaS vendors, NetSuite included, go to the trouble of building a strong HR module in their suites. It just does not make sense. The result is that small and medium enterprises need to integrate a best of breed product, which many of them are already doing. In many cases they use a SaaS HR offering.

So let’s be clear: We still believe in the integrated suite, especially when it comes to running the transactional revenue and cost processes of a business. But there are a lot of areas of business, depending on business size, model, complexity, etc., where the suite cannot by itself run the entire company. In these cases it only makes sense to reach out to other solutions, and with public API and web services the reaching out is not nearly as painful as it once was.

OK, we are all going for beer now.

It is being reported online that Oracle has started a significant RIF (reduction in force) process in their consulting division. ZDnet’s Irregular Enterprise  has a post about it today that brings up some good points. As a former Oracle consultant I wanted to weigh in as I think this is a worthwile subject to understand for folks thinking about on-premise software.

I went through several RIFs while employed with Oracle Consulting. The key thing to understand is that Consulting was told, in no uncertain terms, that it had to meet the same operating margins as software and maintenance, ~40%. Consulting charges $200 – $400 and hour for resources to work on implementation, yet it had a hard time meeting these margin goals.  That gives you some indication of how profitable on premise software and its annual maintenance fees are when a consulting division at these prices cannot keep pace!

Also, fewer and fewer are the organizations willing to spend top dollar for consulting help. In some cases you could hire two consultants for the price of one Oracle consultant and muddle through fine.  This makes it more and more difficult for Oracle to maintain the margins in consulting that it earns in software and support.  But customers have a point here. It’s not like the early days of ERP/CRM suites anymore. There are plenty of resources around now who understand these systems and who have done multiple implementations. Our NetSuite implementations for example average less than 100% of the price of first year licenses.

It’s important to understand, before heading into an on-premise software/implementation/support contract that the inmates have taken over the on-premise asylum and put the visitors, er customers, to work for them.

Salesforce.com on for example, and other SaaS firms, operate at much lower margins, under 10% in salesforce’s case and for NetSuite the operating margin is still negative.  Businesses of all types should expect good operating margins, but does it really make sense to have operating margins approach 40%?  This is a sign that the market is no longer competitive, that in fact a lot of on-premise software companies have locked in their customers and they can extract a pound of flesh as they wish. Not a good position to be in, if you are a customer.

How have they achieved lock in? Customers have spent so dearly to buy, implement and support the software over the years that all the players in the market know that to even suggest changing is waste of time. No one wants to have to bury the investment they have made in Oracle, SAP, Sage, Microsoft, etc.

Meanwhile small and medium enterprises are taking full advantage of less expensive software/implementation/support from a wide variety of SaaS vendors. It’s a real weakspot in the operations of many companies that they continue to escalate their commitments to on-premise software vendors that have done nothing but hustle them year after year.  Oracle’s operating profits may be great news to the buyers and sellers on the stock market, but eventually the customers have to take notice and ask “Why are contributing to our own mugging?”

Last week we talked about the idea of the SaaS to SaaS integration and how this network phenomenon could not be duplicated by on-premise software vendors where the same integration has to be built over and over again.  Today, we turn our attention to application upgrades and updates, bug fixes, additional new functions, both large and small. Is there an inherent difference between on-premise and SaaS in this area? What is it?

I chose The Big Dig in the title, referring of course to the massive construction project in Downtown Boston, because I think that there are interesting political and social questions that impact the discussion of how to improve software applications. Let me explain.

We now have so many touches of technology everyday that we can quickly forget how important it is to our lives – we can take it for granted. Until it doesn’t work, and then we notice immediately how much we lean on technology for our daily lives. In our greater experience, we have come to expect technology to work and we little patience when it does not. We also expect technology to improve, and we yearn for the next thing. The overall effect is to give more and more choice and power to individual consumers.

This power comes as a cost to those who currently hold power. There is not a lot you can do to manage the message when you have a population walking around with i-Phones or one if its competitors. In this environment what’s the best way to move forward? With massive projects that require highly concentrated bureaucracies? Or with smaller projects each of which offers slightly different choices.

Looking at it in this light, forced on-premise software upgrades look big, complex, incomprehensible and, finally, coercive, whether it comes from SAP, Oracle or Sage. As a counterpoint, look at the upgrade process of SaaS software. Most fixes and upgrades happen incrementally, the average user does not know how the software was improved last night while they slept. On a scheduled basis more important functionality rolls out, but in smaller customer batches, including several beta groups, over a period of time. The whole point is to make the roll out as non-intrusive as possible. The point of the on-premise roll out is to force customers onto the latest release so that the vendor doesn’t have to support more than a few releases at a time.

But why do on-premise customers balk at the upgrade process? Because it is very intrusive. It takes up a ton of time and effort, from the actual software updates to testing and testing and more testing. Remember, on-premise customers do all the work for an upgrade and they receive no benefit from the testing of other users.

No only is traditional, on-premise software intrusive to upgrade, but its upgrade process puts it behind the curve of the latest functionality. For example, take, as Anshu Sharma does, the example of Microsoft, just now releasing Windows 7. I am typing this blog on a notebook running XP, I skipped the Vista experience. That means that I have the functionality that Microsoft released 8 years ago. If I want a few new functions I could buy Windows 7, but then it will also be outdated a year from now. Of course, MS will not release improvements until they have enough of them that they can sell me another version of their operating system a few years hence. 

More and more the big, coercive on-premise software upgrade process looks like the massive, messy projects run by big bureaucracies. But in a world of the I-phone, Twitter and the blogosphere, coercion looks very antiquated.