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Well, we were able to replace A/P, G/L and the whole Human Resource Management System, including Payroll. However, when it came to the Order Management, Billing and A/R systems Oracle fell on its face, frankly. And when it came to running the parent’s many overseas subsidiaries it was a ‘one and never again’ proposition. After the Netherlands office of 25 users went live after almost a year of effort, the parent pulled back, and with good reason.
Just to put the whole experience into some perspective, about half way through the project, Oracle released the first klugy version of the 10.7 three tier architecture in which the application rendered in a sort of browser window. This eliminated the need for patches to be installed at the client and the server. We thought it was cool. But Oracle’s main marketing strategy at that time was the integrated suite on the universal database. The goal was to run a global company on a single database with a single instance of the integrated applications. Your entire business management software from a single company. Not many people thought it was possible. Fewer thought it was wise.
So now here we are in 2011 and the software landscape has changed tremendously. SAP and Oracle are now the legacy apps. Most of the on-premise application vendors have been consolidated under a few large corporate flags because consolidation is what happens when growth come to a screeching halt. The real growth is in software as a service, SaaS. We hear a lot about the cloud, social and mobile as well.
Yet, there are still a lot of voices talking about the integrated suite. That this is still a topic of discussion is interesting. You would have thought that the point had been settled a while ago. Who wants to manage several different applications and try to marry them together into a coherent picture of the company. Well, apparently a lot of people do, because there are a lot of new SaaS vendors in the world and many of them offer applications for a very narrow market.
As an example, there are a couple of companies that offer subscription billing services to companies that sell a monthly service. NetSuite offers it’s own subscription billing module, but the fact that there are two major, and several minor, players in this market tells us that best of breed is not going away any time soon. In fact, BoB seems to be making a resurgence. But why?
There are a lot of reasons for this. One important one is that business models are diverse and are probably becoming more so in today’s marketplace. Companies look everywhere for competitive advantage, and they only find the depth of functionality they need to manage their advantages in best of breed.
Another important reason is that SaaS has opened up the software market in amazing new ways. Developing in the cloud means that there are recognized standards that developers follow, like web services for integration, and there are also now web native software integration services.
But perhaps the most important development in software is that companies are starting to realize that they need to be more agile and more flexible in their business models than ever, and their mission critical software also needs to reflect the same values. When, not if, you combine social and mobile with your agile business model in selling, procuring, marketing and operations, you have to have applications that reach further than the accounting centric applications of today. You have to be able to add new functionality quickly. You can’t wait for mobile selling, or mobile warehouse management, or mobile A/P.
In a recent post on www.softwareadvice.com, several voices reiterated their support for the integrated suite. We continue to take their point. There is value in the suite, undoubtedly. Michael Fauscette opines that best of breed might yet have a life:
“The things that are next to your customer, that are integral to your business model or that bring you closer to partners, those applications should be best of breed,” says Michael Fauscette, Group Vice President at IDC. “I think those are types of applications that companies are willing to invest in more.”
We also take this point. Like the subscription billing systems we mentioned above, there are some applications where you must have a depth of functionality that only a best of breed offers. But the question then becomes where can you afford to have generic functionality? A/P is often mentioned as one of those systems where you don’t need a lot of specialized functionality. However, there are a number of SaaS offerings for all manner of A/P, from simple employee and contractor expenses to more complex procure to pay systems. Evidently, there are companies out there that need very specialized functionality.
Even NetSuite, for all of their allegiance to the integrated suite in both word and deed, has validated the best of breed approach in some of their moves. They purchased best of breed professional services management software from OpenAir and hooked it with their financials; they also offer an integration with salesforce.com.
When Oracle was making the case for the integrated apps one of its main arguments was that you could not manage by real metrics if the company’s data was spread across a wide range of applications. Who can argue with that? But the question today is not whether managers have all the data they need to make decisions but whether they have the time to sit back and reflect on the past in order to take the next step forward. Is this a luxury that today’s company can afford?
Microsoft is a company that manages growth quite well. Revenue, earnings are pretty predictable, and boring. MS has fallen off the scales when it comes to innovation. Apple on the other hand creates growth and moves forward by leaps and bounds. I’m sure that Apple has plenty of data metrics, too. But innovation in any market means moving into unknown territory where there are no metrics. This is what all true growth companies must do, and you have to wonder how much value an integrated view of the company really offers them.
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 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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