Call to Steve Jobs: Please reshape the enterprise software market

As I was marveling at the velocity in the iPhone ecosystem a couple of weeks ago I was looking at a client's list of aging software contracts. Most of the vendors want "uplift" fees for the older releases, not lowered ones reflecting software which hardly gets any enhancement and for which the client support calls have been minimal. It was quite a stark contrast.

Then I have a conversation with Dennis Howlett about SAP's Business ByDesign. He is excited about how the mid-market has never before seen such an integrated enterprise piece of software. And I shrug my shoulders and go SAP delivered that integration 25 years ago in R/2. For me, reading BusinessSolutions magazine, the excitement in the mid-market is around RFID, Wi-Fi, scanners,VoIP not another piece of enterprise software.

Then I see Oracle try its "makeup" at E2.0 and ask - why is Oracle just talking about light applications when it has charged its customers billions to deliver the next-gen, Fusion enterprise class applications. Why is there still not much news about that years after they were announced?

Then I see my EI colleagues and others argue about multi-tenancy in SaaS. Ok, important architectural discussion but does the person in the warehouse, field, trading, hospital or plant floor really give two hoots? Where is SaaS functionality for those workers?

Then I see Sam Lawrence's elegant post about the "enterprise octopus" and why the next generation of social, collaborative applications will be better. And I drool over his graphics, but ask the same question as above. How does it make the life of folks in the warehouse, field, trading, hospital or plant floor better?

And the answer, unfortunately is, sensors, and scanners and mobile devices have been helping them a lot more than in recent years than enterprise software has. While enterprise software continues to increase its part of the IT budget faster than other tech categories.

Steve Jobs: know you are busy, but in your remaining waking hours, can you please come in and shake up the enterprise software industry?

Comments

[Bob Warfield]

Vinnie, it's a good post, but I think you've sold SaaS too short. Despite whatever discussions may be going on about multi-tenancy, that world has already done more in the short time it has been in existence than the Old School has accomplished in the 25 years you chide them about.

There is actually some pretty deep penetration of the kind you're
wondering about already happening. The vertical SaaS world is seldom talked about (just like any vertical, it matters most to those in the vertical), but it is quite interesting.

There are already multiple large (for SaaS) vertical SaaS companies out there. Athena Health, mentioned in my post, is just one. Out of 17 public SaaS companies I track, 6 are verticals. We're already ahead of the Client-Server trajectory. We're also enabling businesses to do things with less that they never dreamed of. The latter is a powerful economic force that ensures faster adoption.

Lastly, the client server gang had the luxury of not one, but two tigers by the tail. First they got the gift of Y2K to accelerate adoption. Then they got the dot com bubble to ensure they kept going. The SaaS world has largely been built on the ashes of that and there have been no natural growth accelerators to facilitate. Yet they've still made huge progress.

Is there a lot of activity around core? Sure. It's easy to just get some folks that used to do whatever and have them do the SaaS version. Most SaaS companies came about that way. But we're near the end of that phase. There aren't many core enterprise categories left that have no SaaS entrants (EI folks care to name some?). For most categories, from here on out, new SaaS companies have to innovate over and above what's already been seen. That's a very exciting opportunity and it's why I took the job I did. It'll be fun to see whether the SaaS "2.0" (yuck, not another 2.0!) crowd can gain ground on the "basic old school + SaaS" crowd.

More on my blog:

http://smoothspan.wordpress.com/2008/06/22/keep-the-faith-vinnie-the-enterprise-is-changing-slowly/

[vinnie mirchandani]

Bob, thanks...I am impatient as you c all ti...SaaS to me is taking way too long to penetrate vertical and other niches.

To me it is taking the same long trajectory client server apps did in early 90s.

I would argue SaaS has 3 tigers driving it ...

a) opportunity from the amazingly high TCO of incumbents...even on the
mainframe the incumbents in early 1990s (McCormack and Dodge, CA, MSA
etc) were nothing compared to today's enterprise apps TCO - if they
cannot sell against that they should pack up and leave
b) the ERP vendors mostly failed in penetrating non-mfg industries
(healthcare, utilities, retail etc) and those have been wide open for
a decade
c) sizable new global markets which were for the most part
unattractive economic markets in 1990s

[Bob Warfield]

Vinnie, you’re right. The world will not wait! Software has slowed down more than it should, and you’re right to point that out.

I hope these 3 tigers drive SaaS quickly forward. It's time the world saw some new things.

Cheers,

BW

[Dennis Howlett]

Awww - Vinnie - you don't upset me. On what I have seen SAP is doing good stuff for end users with ByDesign which is WAAAAY beyond R/2. If you want to see what I mean then I'm happy to show you the results of Brian and my analysis.

[Jason Corsello]

Vin- Just because we still have a few bad apples doesn't mean great things are happening in enterprise software. Look at what Sam's company, Jive Software, is doing. Look at HCM vendors like SuccessFactors and Cornerstone OnDemand.

Frankly, Vin, I think the problem today are not the sellers (vendors) but the the buyers. Bureaucracy is pervasive. Risk does not exist with today's buyer. Decision-makers are buying software designed for their generation, not the next one, creating a huge gap in the enterprise and among user expectations.

[vinnie mirchandani]

@ Jason C. Of course buyers are part of the problem. But show them a
good thing and the resistance is lower. Do you know how short the
Cisco telepresence sales cycle is? It is a good looking product, the
ROI in cutting travel is a no-brainer, ergo short sales cycle even
with curmudgeon CIOs

Buyers make up only 15% of IT spend. if the 85% in the vendor
community does not significantly move ball forward buyers cannot be
swayed too much forward. Too much in sw goes in sales and marketing,
not creating compelling solutions

As far as Jive - good stuff, but what part of the non-HQ enterprise
you think they can replace stuff in?

@ Dennis. With SAP I feel a little like its version of "weapons of
mass destruction". For years they have denied it can be done cheaper,
and now they claim they can deliver at /10 the on-premise cost? And
yet they are whispering to their larger customers SaaS is insecure,
not scalable etc. In good faith I would have a hard time recommending
them to a mid market CIO because they are still in denial mode.

[Dennis Howlett]

Vinnie - you're way over reaching in your conclusions in this. It is NOT meant for the mid-market as you define it.

[vinnie mirchandani]

Dennis, go back to my reference point about velocity ...the global BBD
rollout will take 3 to 5 years given SAP's own recent slow down. It
has already taken them 3 years to bring it out.. And I do not trust
SAP to be serious about the economics of $ 149 per user per month - I
certainly don't expect its partners - to deliver that for most of its
customer base. Finally, paving old cow paths has never been high ROI.
If I was a hospital 3 way matching using RFID tags, patient and nurse
bar codes and automated drug dispensing is far higher payback than a
shiny new SaaS financial module. Automating something which is
previously manual is far better ROI than re-automating what was
already automated but in an older technology.So, sorry but the
quotient of BBD noise to actual impact seems very high to me.

[Luca]

Vinnie, I agree with you. I visited two decent-sized warehouses not too long ago. One was running SAP, but with poor device integration. The other was running a 20-year old Cobol app on a HP3000, but with very well integrated handheld wireless scanners. You won't be surprised to hear that the latter was way more efficient and trouble-free than the first.

Most of the people working on multi-tenancy or AJAX interfaces have never spent substantial time in a warehouse or submitted oodles of orders in the field. The people that do are not your typical reader.

[Andy Scherer]

ok, ok - no question that the Big Boys are not exactly agile in adapting to the changing landscape. What casues me to shudder is invoking the Mighty Jobs...if Apple were to get into Enterprise things would be even more monolithic and proprietary. Elegant? To be sure. More usable? For many. Plays well with others? Ummmmm....

[Dennis Howlett]

"Automating something which is
previously manual is far better ROI than re-automating what was
already automated but in an older technology" - that's exactly what early customers are doing. And getting results.

[vinnie mirchandani]

Andy, good point, and we may get AT&T in tow :)

[CY Lam]

Agree. BBD or other SaaS software are just old wine in new bottle. Software vendors generally aim at maximize their profit and revenue, rather than brining the right technology and right solution to the customers.

[Mark]

I don't get it.

Why should SAAS make a difference. Forgetting the fact that most web based apps respond more slowly and inefficiently than a true windows app with very few exceptions, I've learned, being in mid-market ERP for 20 years, that very few companies will throw away perfectly good systems because the next one has better "technology."

SAAS is just a natural progression of software companies who discovered the concept of annual maintenance in the early 90's being better than charging one upgrade at a time. now they get a constant predictable stream of revenue, great for their market valuations, although, over the long run, much more expensive for their customers.

Multi-tenancy usually means very limited customizability vs. a few user definable fields and some screen changes.

I've found that the vast majority of companies in true ERP "pain" is because their business has many unique requirements that either require a vertical application, or where a decent vertical doesn't exist, but unfortunately they require code customization to address pain points. Otherwise you just end up with more Excel and manual gyrations patching up holes in functionality.

The SAAS model sounds good on paper (especially the SAP BYD pitch) because they make it sound that you just pick your industry, press a few buttons and Voila...

Mark my words, other than Moore's Early Adopters and a few others, if they don't make it easy to change business logic etc, than it is no better than trying to ram Quickbooks Enterprise down everybody's throat. you'll just get lots and lots of external spreadsheets dealing with holes in functionality relative to needs.

In addition, most SAAS vendors are not Partner friendly. They focus on direct sales and those with some partner programs, don't offer nearly enough of the pie.

Without a local partner to implement and customize, most of these projects will be garbage and will offer a significantly worse fit than the prior older system and now they are locked into perpetual annual fees.

[Joe (changed to prevent SAP retribution...)]

Dennis,

I feel SAP & BBD (now called BYD) has got you sold on an incredible bill of goods. If you ever get a chance to actually see a demo of the live application or better yet, hands on, your opinion will change rapidly.

The design and flaws in that product are unbelievable. The fact they spent 1,000,000,000 (yes my zeroes are correct) and have something that isn't remotely implementable for all but the earliest adopters is pathetic. Simple top of the head examples... No budgets in the GL, hmm QB has that...No inventory costing beyond Average and Standard...No reports whatsover besides some static dashboards..hmmm, no data import tools at all...very limited data export..., The ability to record time and projects, but no way to bill it, haha...

Noticed they pulled back on "try before you buy" because if you actually tried it, nobody wanted to buy it.

They promised us partners the world to join up. We each spent tens of thousands of dollars in time and training, and then they heap an agreement on us that isn't remotely like what they promised and they say sign it or else. Not negotiable. This includes 1/2 the original promised margin, the ability to take ownership and revenue from all our clients on 60 days notice etc... Who in their right mind would bet their business on a company who with the stroke of a pen would put them outof business? We could never sell our company based on these recurring revenues if the legal agreement is so lopsided.

The only partners that will see BYD through are those too desperate and financially weak to make it in the long run. SAP is bleeding losses staffing up consultants and sales people to sell this direct (and they admit its realistically 2 years away from being remotely ready), but at $150/user, this reminds me of the original Buy.com financial model.

If they don't fire all senior management associated with this product and bring in a complete new team that understands just because something is SAAS, doesn't mean it is going to have a runaway success, this will be their biggest debacle ever.

Netsuite, for all it's warts, was built much deeper and broader with more reporting and customizability than BYD for a tiny fraction of what SAP flushed. I couldn't imagine even the US government being more wasteful in a project.

SAP seems to have forgotten how to write software.

[vinnie mirchandani]

Joe, I will let Dennis respond, but wanted to let you know he and Brian Sommer have looked at BBD in detail over last few weeks and are finalizing a 20+ page white paper on it...that is what he had called me about as I mentioned in the post. And my reaction was - as summarized in the post and various comments above

[Dennis Howlett]

@Joe - your points are well made. I cannot comment on specific functionality because the look we got was inevitably limited given the scope of BYD. I wonder however whether your expectations were set too high by the BYD team?

We pressed them on functional completeness and technical readiness to go on a number of occasions and very specifically at the last 2 SAPPHIREs. They have assured us time and again the problems they have are not technical. That's come from the board. So if you are correct then either they're lying or blinkered or both.

On the partner issues, I have been concerned about this aspect for a very long time (all the way through since last September) and it is fair to say the answers we have been given are far from satisfactory. I do know partners have walked away from this on the basis it will be some time before the real deal is on the table.

It is however a different kind of product from one you'd implement in the traditional world. There just isn't going to be the margin you'd normally expect in a c/s scenario. There should definitely be VAR value in implementation. If that's not enough to tempt then fair comment. As for ongoing revs, we'd be surprised if there's more than 10-15% for VARs. Given the saas model, that shouldn't be surprising.

On NetSuite, I beg to differ. Sure you can customize but as you will know, there's often a LOT of scripting involved that can run incredibly expensive very quickly and is far from guaranteed to deliver the final result.

In conclusion, I can only go on what early customers are saying to me. Fact is they're happy. If it was otherwise, I'd be the first to say so.

[Joe (changed to prevent SAP retribution...)]

Dennis,

When you do the math, a VAR can only make money by making margin on software. That is unless the publisher hands them the closed deal on a silver plate.

The cost of marketing, the commissions to salespeople, the pre-sales demo people, the proposals, the negotiations etc, are just too expensive.

At 10% to 15% recurring margins, this is less than th 20% to 40% we already get from the Microsoft's and Sage's on annual maintenance renewals.

Considering good consultants who speak english who under stand how to apply complex software (that will be bug ridden for quite some time) to complex business problems for less than $120k/year including almost 2k/month in health insurance, .55/mile travel reimbursmenet etc will be near impossible to find.

At the $$ it cost to find these people, you would need to charge $250/hour if the margins were this low.

I've met prospects who were seriously considering BYD and watch their reactions in demos. These are Moore's "early adopters" to a tee and only represent a tiny fraction of the viable market. These are the people you must have spoken with. They have a "please sir, may I have another" attitude. Wish the other 98% of my clients were like that.

I'm willing to bet 80% of those on BYD today could actually be as well if not better served by QBE or QB Online.

They are SAP coolaid drinking people. However, that is 20 to 50 companies worldwide. They need to sell 20,000 to 100,000 companies on this, and with what they have at this point, it won't fit anybody but this strange niche who you could hand an Abacus to and if it said SAP on it and on the back said SAAS, they would buy it for any amount of money.

Back to VAR's.

The only way for VAR's to survive long term will to have a predictable re-occurring revenue stream like publishers have in the form of maintenance (and with SAAS, Rent).

Otherwise, a VAR's business value is about 15% of their annual billings paid out when collected over 2 years... Enough to take a vacation and then prey you can live on Social Security for your retirement.

The real problem with the BYD contracts for VAR's is they can be unilaterally terminiated with little notice and for no reason. This is a similar problem for software companies who can't offer a money back guarantee because they then can't recognize the revenue. We can't sell our companies for any value down the road because our contract says our future recurring revenues can be wiped out for no reason with little notice.

The sorry truth is we make most of our money currently doing upgrade programming and consulting and writing lots of reports and integrations.

SAP wants to do the reports and integrations (some day) themselves, they will do the upgrades, they will provide alot of online training etc. But they think this will work with pretty much a one size fits all approach.

ERP is too complex for that, and this product will be successful to them when Ballmer's promise of MBS being a 10,000,000 business by 2010 is realized.

On paper, SAP is onto something here, in execution (like with Business One) they are seriously flawed at this point in time