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Sightings in SaaS
Life of a SaaS Consultant
AisleBuyer: At the Intersection of Consumer and Enterprise Technology
Where Many Goliaths Have Failed, A David Comes Forward
Thinking about it now, the David and Goliath metaphor may not work perfectly, but it does quickly focus this post. The enterprise world has spent untold billions of treasure on customer relationship management over the past two decades, and you have to ask to what avail? For the business to business organizations, one understands giving sales and channel partners a solution. But for retailers, the value of CRM has been difficult to ascertain. E-commerce might be slightly better because you have transaction record with an identity. But getting to really know your customers, to the point where you have something approaching a relationship, has been the proverbial mirage of retail, and CRM generally. We have the little keychain ID cards for the local grocery stores, but have not yet received a personalized alert that the groceries we tend to buy seasonally have gone on sale, or that this group of items is available at a discount. You would think that after three or four years they would know us better.
AisleBuyer is out to change all that. By offering consumers an easy to use tool to shop, research in store, review promotions, order and checkout and by offering retailers a rules based marketing platform integrated with their back office inventory and the other systems, AisleBuyer bridges the divide between the customer and the 'store'; it's real time CRM initiated by the customer for the customer's benefit. (There's a novel concept.)
Loaded onto thousands of servers the world over are massive CRM systems that try to make heads or tails of customer behavior after the fact, when the customer has long since checked out and driven home, maybe even moved to another city. But for all the data, the information is sparse. AisleBuyer not only lets you see real time what the individual shopper scans and buys, but what they scanned and did not buy. For example, if they scan a sweatshirt in medium but put it down, and inventory in large is unavailable in the store, AisleBuyer can alert you that other sizes are available and let you place the order right on your phone.
Shoppers can now research the products they are interested in while in the aisle and holding them, simply by using the AisleBuyer app and their smartphone's camera/scanner. And when a retailer's rules sense that you are interested in a clock radio, they can dial up a promo on the spot. When you make your selection, you add the item to your cart, literal and virtual, and move on. When you are done shopping, you checkout and pay online. No more put it in the cart, remove it from the cart and put it back in the cart. When you are done shopping, you checkout as you stroll to the door, where you show a store clerk your smartphone order.
Retailers, manufacturers and consumers all have their own good reasons to use a service like AisleBuyer: The ability to connect with your customer real time for the retailer; a data store for the manufacturer; and true convenience for the shopper.
The technology landscape is littered with the wreckage of large tech companies who tried a consumer offensive, as detailed in this NYT article, where consumer world is referred to bleakly as the "Afghanistan" of enterprise technology. So what makes AisleBuyer different. In a word it's simplicity. The user interface of the smartphone app is simple and straightforward. All the complexity is hidden behind the scenes where AisleBuyer's web APIs integrate volumes of data with retailer's back office systems and the their own marketing platform.
While large tech companies would do well to tread lightly in the consumer space, large retailers have some quick decision making at hand. The adoption of smart phones is changing the way we communicate, compute and live; and the rate of adoption has accelerated so fast recently that many retailers were caught off guard – they did not budget in 2011 for mobile shopping. At this point they can try to build it themselves or they can use a service like AisleBuyer – in either an on-demand version, or on premise if the retailer insists.
AisleBuyer does more than just mobilize the store and give retailers a strategy to compete with e-commerce, it also arms store personnel with an app that gives them the ability to be real value add to the customer. The clerk app offers a veritable knowledge base of information on products. Imagine a harried clerk being able to stop and answer your question right in the aisle without using the obnoxious store wide loudspeaker phone. Your shoppers might actually ask a question that leads to a sale.
System complexity is often the result of trying to mirror human behaviour and its off the charts idiosyncrasies. But what if you don't try mirror behavior but simply capture it as it happens. How does that change the enterprise CRM game? Instead of waiting for customers to line up and walk through our predefined corn maize, you let the customer behave and you simply respond as a fascinated, helpful third party.
We, or at least I, have long questioned whether our systems were off on a tangent, trying desperately to keep up with a marketplace that cares nothing for processes or transaction conformity. Sometime in this business, as in life, we don't actually answer the question, so much as the questions become moot and we move along to, inevitably, new questions. If you accept the premise that AisleBuyer is an enterprise CRM system, and I do, then the next step is to ask is does it provide a new question about how CRM is going to operate in the future: Customer driven, customer focused, process and transaction lite? Where does that leave the massive CRM systems we have struggled under these many years?
The other question you can't help but ask is how a service like AisleBuyer ramps up in the market. Large retailers might each bring it on-premise and then go through the typical heavy lifting of sourcing infrastructure, laying pipe, etc. Each install will be different because each retailer has a custom back end integration project; but the big boys have full wallets, or so I hear in the press. On the other end of the sprectrum small retail chains could swap out AisleBuyer for a majority of their POS terminals. And if AisleBuyer was already integrated with a SaaS back end, say NetSuite or Business By Design, all mutual customers could avail themselves of the magic without having separate integration projects. Just another huge benefit of the SaaS model.
Software Atomization
The first best of breed software that we helped to replace was Cullinet’s A/P system. It was 15 years ago, a number hard to believe even as I type it. The company was a Fortune 500 goliath with an enormous IT department. Their goal was to eliminate a slew of legacy applications in favor of the integrated Oracle Suite. So how did it go?
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.
Breaking Under the Weight of Complexity
Does information technology need to be so complex?
To answer the first question we must ask another: What drives complexity?
Vendors tell you that they respond to customers, and it’s true that many customers demand that software meets their highly idiosyncratic requirements, that’s true, and requirements drive complexity. But is it also true that vendors for many reasons welcome their customer’s desire for more complexity, even encourage it. But why?
Would the question be easier to answer if we replace ‘vendor’ with ‘employees working under the same flag’? You probably see where I am going with this. The way many employees think about their employment reminds me of the story about economist Milton Friedman who was taken to see a government construction project in a third world country. Why, Friedman wondered, are the men digging a canal with shovels instead of earth moving equipment? He was told that using shovels created more jobs, to which Friedman replied, “Then why not use spoons?”
Many employees who work under the same flag understand that adding complexity is in fact the equivalent of digging a canal with spoons. But, you might ask, management exists to make sure that employees don’t put their own needs before the customer’s, right? Well, management also understands that complexity helps to increase their software’s economy. As complexity grows, professionals and experts show up to help manage it. The more professionals and experts who show up the more cachet the software wins in the marketplace.
Complexity is also a prime driver of customer tie in. After you spend 10 times the license fee to implement SAP or Oracle applications, the probability of your changing applications in the mid-term, or even long term, future approaches zero. Or consider desktop office applications. You not only purchased the licenses but then you trained several hundred or several thousand users. The probability you are going to move to free OpenOffice applications much less on-demand versions of spreadsheet or word processing apps is nearly nil. By the way, have you seen anyone providing training for the free OpenOffice apps? Some probably exist, but you don’t see them around very often.
Recently Microsoft started offering its office apps online, calling it Office 365. I’m not sure how many users they will find for their service, but they have provided plenty of material for the blogosphere. So far, commentators who have tried the service, or tried signing up for it, have a single word to describe the experience – ‘complexity’.
The thing that stood out to me as I read the articles is that the business thinking that motivates so much of what Microsoft does sits in the middle of Office 365. They tied in as many of their applications as possible, for example. Outlook you can understand, but Silverlight? They are also offering a complex pricing plan that encourages users to sign up now for as much of the service as they can afford, since if you decide to change later you cannot migrate your documents.
With the complexity of the interface and the difficulty of installing and using it, it’s only a matter of time before there are training courses devoted to Office 365. You can see legions of corporate users marching into training centers eventually.
Meanwhile I have also caught up on reading some of my favorite online writers, and one of them, Brian Sommers wrote a great article about SAP and Workday; the old on premise ERP giant SAP vs the young SaaS Workday. The question Sommers asks is do legacy ERP vendors have what it takes to build applications for the future requirements of business? It’s one thing to address social, cloud and mobility; these are important notes Sommers. But perhaps even more important Sommers states:
The big changes that businesses are facing are centered around: extraordinarily rapid, curvilinear innovation and changes impacting regulation, competition, finance, etc. The speed of business is not just increasing; it is growing at a skyrocketing pace while the ability of ERP solutions to change is approaching an asymptotic path. The gap between the speed of business and the speed of ERP is expanding not contracting at many firms.
Our question here is do legacy ERP vendors have the ability to innovate in their core apps, or are they outmatched by the complexity they have built in over time. Go back to mobility for a moment. NetSuite order management module is fairly straightforward, and putting an app on a tablet or phone that allows for order entry is a challenge, but one that has already been met. Putting Oracle’s order management system on a phone and making it usable for a saleperson is an order of magnitude more difficult. It can be done, but it’s complex, and takes a lot of cash and time.
In another good read we came across Bob Warfield’s post on a new payment service for mobile called Square. They just raised 100 million in venture capital. This is where the economy is growing and going in many ways. How long will it take NetSuite to integrate Square? Will SAP or Oracle even bother?
We have heard more than once that SaaS software is not ready for the big leagues, that it cannot manage the complexity of real business. Our question is can complex legacy software meet the exigencies of their client’s marketplace today? Or is legacy code buried under a mass of complexity and tangled spaghetti that prevents the old on-premise ERP vendors from quickly adapting to the market’s requirements? The key to survival is not the rote hunting of the slowest mammals, but adaptation. Only those who are able to adapt to a changing environment are going to make it, and adaptation requires quickness, agility, flexibility – all attributes that are the antithesis of complexity.
Thank You, Henry Taub
We came across several news articles this week announcing the passing of Henry Taub. Mr Taub was the founder of ADP or Automatic Data Processing, one of the world’s largest information services companies. You might not have heard of Henry Taub, and likewise you might not comprehend his impact on the information services industry. He was no Larry Ellison or Bill Gates, but a far simpler, humbler man, who nevertheless continues to have a lasting impact in the realm of enterprise information and computing.
The articles discussing Mr Taub and his legacy are fascinating. When you think about the simplicity of his idea, performing timely payroll services, and how he made it into such an incredible company, it’s almost hard to believe.
But that’s not the end of it. This line from WSJ really caught my attention:
The firm promised reduced clerical errors and fewer late paychecks—union rules required that workers got paid overtime when checks were late—but many employers were initially reluctant.
“The notion of letting people see your private records was pretty foreign,” said Mr. Lautenberg, who went on to become CEO of Automatic Data Processing—as the firm was renamed in 1958—and then U.S. senator from New Jersey. ADP’s red-and-white vans became a familiar sight as they delivered checks.
You might think that Mr. Lautenberg was talking about software as a service; certainly, any NetSuite solution provider has heard the objection about a company’s private records many times. That your data could be held safely and securely in a remote location, and that your data and that of many of the 550,000 other businesses ADP services could all be in the same database are still ideas that a lot of people have issues with, yet ADP continues on as strong as ever.
In many respects you could say that Henry Taub was the father of software as a service, not that he would claim the title himself. But if you think about it, what he was doing was a precursor of the modern SaaS industry. Multiple clients, one mainframe, payroll as a service.
The other thing of note about his business was that it was really enabled in large part by the hardware produced at IBM. The software and information services industries have always had this necessary relationship with the hardware guys, but what I find interesting is that by being in the right place at the right time, Taub and ADP were able to take advantage of the mainframe. It’s not like they were waiting around for the mainframe to come on the scene and then they decided to launch a payroll service. They were actually doing payrolls on adding machines and delivering them by bus in the earliest days. But you make your own breaks in this life, so when the hardware appeared they had the tools and ideas to take advantage and build a business.
I owe a personal debt of gratitude to ADP. They hired me when I was a young smart aleck and let me cut my teeth not only on information services, but on Oracle Financials, which they used for billing. I also miss business people like Henry Taub. They quietly put in the hours and the effort, built great businesses and found time for family, friends and community without a lot of fanfare. We need more Henry Taubs in the information technology business today.
The Newly Born, The Buried and The Reincarnated
I just finished reading an interesting article by fellow EI Mike Krigsman in his IT Projects Failure blog. There is also an interesting video interview with NetSuite CEO Zach Nelson about the value of NetSuite, cloud computing and NetSuite implementation.
One thing came to mind for me as I listened to Zach and read Mike’s analysis; that is, the SME, small and medium enterprise, market is really substantially different from the large enterprise market in one very important aspect: Experience.
In the SME market there are the Newly Born. These are companies that have gotten started within the last 10 years and have grown substantially. They have managed to achieve this growth, in many cases, without the benefit of a well thought out IT plan. They probably have an off the shelf accounting package, email, possibly a small crm system and a lot of spreadsheets. Someone hosts their website. A service bureau does their payroll. Regardless, they have grown and now number 50 employees or so.
At the next level there are the buried. This is a company, sometimes of considerable size, that is now on the second or even third generation of ownership. They have systems, somewhere, and the systems are capable of reporting month end results. Again, they look to third parties for a lot of their needs, like payroll, website, etc. But for the most part, their systems and the costs associated with them are buried.
Finally, there are the reincarnated. These are organizations led by people who have done this several times. They have worked for large companies, and led new startups. They often have venture or angel capital and have as much business savvy as large organizations. They may begin with a limited set of applications, but over time they formulate an IT plan that enables their revenue growth and keeps costs in check. They understand the value of systems. They have been there before and they personally know the costs of on-premise software.
Now which of these three companies is a good candidate for NetSuite? Well, I can take a quick gander at our own client list and tell you that about 1/3 of our clients are the Newly Born looking to upgrade to something better and the other 2/3s are the Reincarnated. The Buried show up here and there, but very rarely. From time to time a new owner takes the reins of one of the Buried and they start down a new path, but by and large the Buried are a very difficult market to sell anything into. Even in the best of times it’s hard to make inroads in this market. Why is that?
Well, the largest cost of on-premise systems, by far, is the enormous distraction they create to what should be normal business operations. Yes, I agree with Nelson that there is huge value to one system, huge value to not having to ‘spin up a server’ and even huge value to cloud implementations over on-premise. In the end, however, it is avoiding the cost of distraction that provides, to me, the real value of NetSuite and other cloud computing applications. At the Buried, the distraction has now become the normal. People don’t even notice it anymore.
My wife and I saw this firsthand recently when we stopped by a local establishment for dinner and, while waiting for a table, had a drink at the bar. While standing there and placing our order, the system went down. The bartenders made a simple announcement to the rest of the staff and they all started to manually take orders. It became paper based in a matter of minutes. I remarked about it to our server and her reply was “Oh, we’re used to it, it happens all the time.”
This is what the Buried live with every day. They have simply acclimated themselves to the fact that their systems are what they are. It may take a week to produce an inventory report in Excel but once it’s created it’s only a couple of little tweaks every month to fix it up and off we go. Multiply that effort by 200 or 300 and there you are, an information system built on the desktop, ready to go! The Sales Manager(s) may spend hours approving written commission and expense reports, but they’ve worked it into the schedule, no worries. The costs of creating, running and maintaining this ‘system’ are buried, and will remain ever so. The auditors might grumble, but they tend to grumble a bit anyway.
The difficulty for NetSuite is telling a story that helps the listener understand how the world changes when you have a integrated system that relies on real, and real time, data. The key is “Who is the listener?” I’ll talk more about that tomorrow. Right now, I must honestly get back to work helping one of the Reincarnated implement NetSuite.
Enterprise Software in Harvest Mode
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.
Chicken Around the World
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?
Oracle Layoffs and On-premise Software Margins
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?”
Regularly Updated SaaS vs The Big Dig
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.
We’re Bigger than You, We’re Better than You, and We’re Special
I read this article yesterday about SAP’s recent update to prospects, analysts and press about their new SaaS offering and it took me a bit to digest. How is this possible that you can screw this up so monstrously when you are one of the largest software vendors in the world?
One reason is that SAP was always an application company and what they know really well are business processes, the backbone of business applications. Thousands of the world’s largest companies run on SAP and you cannot this away from them. But when you are creating a new SaaS service you have to not only think about the applications, but the database and the overall system architecture differently, and for a company that never ran a data center this was apparently a bridge too far.
But it’s not like SAP was the first into this market. Their were literally dozens of SaaS providers by the time that SAP stepped into the fray. But apparently none of them provided any guidance or wisdom to SAP when they made decisions about how to do a SaaS offering.
That they screwed it up royal is not a joke. It’s a sad truth. Nothing would give the SaaS model more credibility than an offering from SAP. NetSuite’s CEO Zach Nelson has often said that he knew a large competitor would announce a SaaS offering and then fail to deliver, validating the market and then not delivering all in the same graceful fall down the stairs. But, as I was kidding a friend the other day, it’s almost like they are doing it on purpose at this point. By not delivering and having as many issues as they have, are they causing the market to question the viability of SaaS?
Well, that’s madness, plain and simple, but what else can you say about a product launch this poor? It’s hard to compute. But I have learned never to underestimate the sheer arrogance of people, especially after having ridden a 20 year wave of success. Is it possible that we could be wrong? You stop asking this question at some point in the ride that SAP enjoyed.
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