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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!
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.
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?”
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.
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