Sightings in SaaS

Archive for the ‘Technology for the Small to Medium Enterprise’ Category

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!

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.

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?”

Brian Sommer at Software and Services Safari has an excellent article today which I have summed up in the title. My takeaway is simply that as cloud based software services open integrations to other clouds and manage those integrations, they multiply the power of their individual clouds and create a computing environment that the on-premise companies cannot match.

With the multi-tenant capability of SaaS, the vendor manages the upgrade process. Therefore, the client base is always on the latest release. Integrations between SaaS applications are therefore easier. But more than that, as SaaS vendors themselves roll out the integrations, they also manage the integrations. Take the example of NetSuite and OpenAir, or NetSuite and SalesForce.com. These integrations are generated and managed by the vendor itself. Were these three vendors offering on-premise applications, creating and managing the integration of the apps would reside with each individual customer. 

Just think of it. Each customer hiring an employess or using an outside consultant to create the integration. But with SaaS applications, the integration must only be created once and then all customers, all running the same version of the SaaS, can use it. It’s a remarkably efficient way to perform integrations. And don’t even talk about maintenance. With home-grown integrations the authors were often employed full time to maintain the code. That is now off of the customer’s plate and back where it belongs – with the vendor. The customer is therefore the recipient of value based solely on the fact that are part of a larger network of SaaS applications. The vendors benefit from the same network effect. 

As SaaS applications move upstream in the marketplace I look forward to the amplification of this SaaS network value. Larger companies for example will require HR Talent Management applications, applicant tracking and benefit management. As these SaaS offerings are integrated with Accounting and Service Resource Planning SaaS, like OpenAir, they also will benefit from this network effect.

NetSuite’s strategy in purchasing but not swallowing OpenAir whole, as some have worried, is now more obvious: NetSuite is stronger with OpenAir as an integrated SaaS than they would be if they simply incorporated OpenAir’s functionality into their own and moved on with a bigger, but less networked, Suite.

Recently one of our NetSuite clients called with a big problem. They are continuing operations in the UK, but the US operations are being put on hold as they wait out this ugly recession. The US ops run on NetSuite and they needed to trim costs as much as possible while keeping a financial history of the business, which 2 years ago was brisk with a bright future.

NetSuite offers of lower cost version for small companies, NetSuite Limited License Edition, but the limits are normally 5 – 10 users and my client wanted only one user. Does not seem like a big deal, and it wasn’t. NetSuite issued a renewal and the client now has the least expensive option until the market turns around and they can return to active operations.

I really did not think twice about the whole thing until I read the following today:

SAP (like Oracle) has so far refused steadfastly to accept partial maintenance cancellations. While this is (from the vendor’s point of view) quite understandable, it can lead to very unpleasant situations that are not without legal issues.

Case in point: a recent insolvency in Germany. A mid-sized company filed for insolvency and failed to revive the troubled enterprise. There are still orders that must be served but in a few months the lights will be out.

Most of the 350 users of their SAP system are gone. Only about 50 are left and, of course, the HR-system is required to pay the residual staff. Closer to year end, a few legal updates will have to be fitted to the SAP-HR-installation.

The administrator, in an attempt to make sure that staff can be paid, asked SAP to accept a partial maintenance cancellation for 300 seats – very appropriate especially in light of the upcoming increase for standard support.

SAP refused to accept the partial cancellation. Either you cancel in full or you pay in full.

Ouch – that’s being damned miserable to a company that is experiencing possible end of life issues.

I know for certain that when our client moves back to full operations in the US they will have some loyalty to NetSuite, who cut them some slack when they really needed it. Why do companies not expect the same from the big on-premise vendors? I can’t say for certain what the psychology is that keeps so many taking it from these vendors for so long. But at some point there will be alternatives and I cannot imagine that some companies don’t finally say enough is enough.

Several articles in the press and blogosphere recently have caused me to stop and think about the future of SaaS, software as a service, and NetSuite as well, one the earliest SaaS adoptors.

First, let me say that SaaS metamorphosed over the past few years from a novel, even radical, idea and market disruptor to a mainstream technology component, one of many that companies of all sizes must consider. When we first started to blog many years ago we considered ourselves SaaS evangelists out on the frontier. Now we are just mainstream preachers and the flock is also more mainstream. Things change.

Witness this article by fellow Enterprise Irregular Phil Wainwright. Phil makes the point that NetSuite has now started to market its integrated suite differently:

Perhaps more SaaS vendors should take a leaf out of NetSuite’s book. Instead of going on about the lower cost and faster time-to-live of their solutions compared to conventional software, they should just point out that operating in the cloud is how business is done these days, and anyone whose business systems operate anywhere else is going to get left behind. It’s as simple as that.

There’s some truth here but it still seems hard to believe that we have now passed the tipping point for SaaS over on-premise software. But one wonders how this will flesh out over time. I don’t think that a lot of the large organizations that run Oracle, SAP, Peoplesoft, etc. are racing to rip and replace. The implementations of these products are not even finished in many cases and that is after years of effort.  As I have written in the past, many of these systems are mere shadows of what they could be but management has seen so many budget and timeline overruns that they are very tentative to continue. On the other hand they have no appetite for declaring defeat either, especially to the board and the market. So they continue to pay the big bucks in annual maintenance and keep a low profile.

NetSuite has taken an interesting tack here, and perhaps it was born of necessity, but going after the small divisions of large enterprises running SAP and offering discount prices (= SAP Maintenance $) is good marketing and will eventually create a situation where NetSuite can surround SAP  and convince management through use and adoption while at the same time continuing to mature as a software offering. NetSuite has made no secret of making SAP in hte mid-market their target.

Apart from this SAP strategy NetSuite is also taking aim at the services market, with the goal of creating a Service Resource Planning suite, SRP, to rival in the services market what SAP did in the products market. NetSuite has already made two acquisitions on the on-demand Professional Services Automation, PSA, market: Open Air and QuickArrow. The best of both of these companys’ offerings will play a role in the final product, I’m betting. CEO Zach Nelson drops a hint here. The bottom line is that NetSuite looks to move upmarket. After starting as NetLedger they have now a strategy in place that will over time move them into some very large enterprises.

Taking all of this in you start to see a market disruption, SaaS, coming together as a series of well planned strategies to build up into the market, each small step leading to the next. This is happening not only in the ERP/CRM space but also across the SaaS space  – HR, CRM, E2.0 social enterprise tools, etc. This is very different from the strategy that Oracle and SAP used to go to market in the original ERP invasion of the 90’s. Supposedly SAP worked on their software for 20 years before bringing it to the market, and they went directly at the largest enterprises. They seem to have a similar approach with their SaaS offering which they’ve been tuning now for three years, running the risk of running out of people’s patience.

Oracle also started out aiming at the largest enterprises. I have to laugh when I think of my nine year career with Oracle. The software that we really needed on my first implementation in 1997 was finally ready 9 years later on my last implementation – a single time entry system that could feed payroll for employee wages and projects for billing and costing. I was the first to implement it for multiple modules.

NetSuite and other SaaS vendors are starting with less functionality and smaller enterprises and then rolling out more functionality as they move up in the market space. NetSuite’s stated goal is to become the SAP of the midmarket, and it is well on its way. SuccessFactors, another SaaS vendor,  just sold a huge deal to Seimens AG in the HR space. 

The point here is that SaaS vendors have necessarily rolled out sounder software, more methodically, than their predecessors. But the march of more and better functionality has become relentless. This is how they will finally beat a lot of the on-premise software vendors.  The tipping point will go by quite unnoticed, unless of course we keep someone at the front who calls out ‘tipping point’ every fifteen minutes or so.  It will be a fairly quiet revolution. Conventional software will go out not with a bang but a whimper.