deal architect

A perspective on the SAP Capital Markets Day

I am a customer and market analyst and tend to not attend too many earnings calls or Wall Street presentations. But I made time to listen to the SAP presentation yesterday. It was a coming out event for the 2 new co-CEOs, Jen Morgan and Christian Klein and there has been much speculation (with a capital S in my opinion, not fact based) about the activist investor impact on SAP trajectory. The full set of presentations is in the video here - without the breaks its about 3 hours long. The theme was "Growth and Operational Excellence" and I liked quite a bit of what I saw and heard.

To me, growth comes from market differentiation and here are key areas where SAP executives scored well

Momentum in Asia

Both Jen and Adaire Fox-Martin made repeated points about Asia/Pac. SAP is very well positioned in that region as I wrote a couple of months ago "SAP has been in Asia over 30 years and now has over 9,000 employees spread across 31 office in the region. The event in Bangkok showed me just how far the competition has to go to catch up."

Cross-selling

I always shake my head at how little cross-selling has taken place across SAP's product portfolio (listen to Jen starting around 0.16 and Christian around 0.34 about inter-dependence and synergy across SAP products). Most of their competitors can only play in one or two categories.  I am seeing many customers look at application rationalization, and reverse a decade of "ring fencing" their ERP with best of breed cloud applications. As SAP better breaks down its many siloes, starts to show more coherent road maps and delivers better integration, its broad suite should open up many new opportunities within its incumbent customers. 

S/4 adoption

SAP is associated with large, multi-national customers, but the CIO of Chobani, the yogurt company, Parag Agrawal (starting 1:29) was a good representative for the mid-sized, fast growing market that S/4 is doing well in. 40% of S/4 adopters are net new to SAP. The ECC to S/4 conversion market is also gathering steam. As Adaire says, the question for most customers is not 'if" but "when" "why" and "how". As I described in SAP Nation 3.0 - "tilting its bell curve of customers" is its largest single opportunity.

XM and CX

Qualtrics is still a missionary sell to many operationally focused ERP buyers but Ryan Smith humorously reminded the audience that precisely a year ago, he was presenting in a road show which valued the company at nearly $ 5 billion, and that now, as part of SAP, the deal size and customer growth has accelerated. It is another differentiation for SAP. Similarly, SAP has had fits and starts when it comes to the CRM market. But with all the musical chairs in the executive suite at many CRM vendors in the last few weeks you get the sense that market is poised for disruption. SAP's CX portfolio, especially the Commerce piece, and with new leadership under Bob Stutz, will get another shot.    

The Microsoft "embrace"

Microsoft and SAP have been 'frenemies" for decades. At Gartner and since I have written about many joint initiatives like Mondecino and Duet (nearly 15 years ago). The collaboration around Azure opens up support of the vast Microsoft channel, and also simplifies the hyperscaler choice for many undecided customers (while keeping open support for customer loads on AWS, Google and Alibaba clouds). The cloud version of S/4 and SCP should in particular benefit.   

Turning to Operational Excellence, there was quite a bit of focus on margin and cash flow improvement.

Christian has led a digital transformation within SAP for a couple of years and it is accelerating. It's the tagline of "Best Run Business" applied to SAP itself. His points, starting around 0.38, lay out the high level agenda.  Adaire described some of the digital and AI impact on the sales function around 1:26. Thomas Saueressig, starting at 1:09 talks about changes in the development organization. He also addressed the thorny issue of integration, especially across the slew of acquisitions in the last decade,  that customers constantly complain about. In his previous role as global CIO at SAP, he is acutely aware of the pain points (It's also something Bob Stutz in the CX area will have to accelerate). He also touched on centralization of infrastructure. which CFO Luka Mucic quantified (starting at 1:40) as they move from 25 mostly acquired technology stacks to a converged one, and also shifting many cloud loads to the 4 hyperscaler partners.

Luka also touched on improvement of cloud gross margins and marketing and SG&A efficiencies - consolidation of many sponsorships, supplier base among others.

Three areas I would like to understand more:

Margins at the expense of customers?

There is plenty of fat to be removed from within SAP and that should deliver the improved margins SAP is promising to investors. But the temptation in our industry is also to milk the customer (Oracle and the fast growing SaaS vendors are not much better). In the last few years, we have seen quite a backlash to Indirect Access and other SAP audits. I am also seeing SAP propose license conversion fees to move from on-prem to cloud versions. Customers are willing to pay for new functionality, not so much for what they have already paid years in maintenance. So, trying to extract more from older function points, which frankly have been commoditized over the last couple of decades, will only slow down incumbent customer traction.

Focus on total cost to customers?

Historically, SAP has not been very good at benchmarking and managing its partners. That led to my quantifying the huge "GDP" of SAP Nation. As we look at moves from ECC to S/4, I am starting to again see scary SI proposals. Labor intensive and not much automation, with the suspect quality and economics those threaten. Now with the 4 hyperscalers customers could face significant additional exposure. SAP likes to brag it has 000s of partners - without pointing out that cost is borne by customers. I would like to see more SAP detail on how it will better manage its ecosystem, and accelerate its automation and application of ML to its many of the routine conversion, testing, training and other tasks - see more ideas here. Adaire did mention conversion factories - like to hear more about that.

Not enough R&D or Capex to grow the functional footprint?

There was surprisingly little on industry functionality. SAP keeps promising its partners are working on it. For the next few years, it appears there will be little excess R&D or capex for acquisitions. While SAP needs that discipline in the short term, markets don't wait for ever. Beyond verticals, as I wrote earlier this week "the definition of the "enterprise" continues to rapidly expand and morph, and I see a very fragmented market for the next few years". SAP says it has a shot at a TAM of $ 500 billion by 2023. In my opinion, they could already be aiming for a trillion.

Overall, there was much to like in the 3 hours. As an analyst, it is my job to keep pushing vendors to do more for customers, but realize the new executives already have a very full plate to tackle. Should be a very exciting next few years. It is a great way to kick off a new decade!

I will see Josh's five and raise him ten!

Josh Greenbaum has a fascinating post - how Microsoft and SAP plan to take over the enterprise software market. There is much in there I agree with. All the recent executive changes - Jen, Christian, Bill, Bob - are exciting for the industry. Microsoft's infrastructure cloud is on a roll - the SAP "Embrace" and the DoD JEDI contract only add to the momentum. But I see much bigger changes in the enterprise software market beyond what SAP and Microsoft will touch.

To me, Google, Facebook, Amazon and agencies like Accenture with their share of digital advertising and CMO access will continue to significantly influence and morph the CRM space

The customer service segment will be significantly reshaped as IoT, satellite, drone based concepts mature. I expect industrial asset makers like Siemens and Caterpillar and logistics providers like UPS and Amazon to also be major players.

Contract manufacturers like Foxconn and Flex and boutique design firms will have more than their fair share of influence in the product engineering and manufacturing areas.

Amazon, Alibaba and other big commerce sites will continue to commoditize fulfillment functionality for countless SMEs and set a bar for broader supply chain and logistics functionality.

Robotics and other automation vendors will reshape many a business process. Similarly, Google will help many an enterprises rethink processes with machine learning.

A whole bunch of customers are themselves reshaping their industry specific operational systems with custom development and specialist startups - they are tired of waiting for modernized vertical packaged software.

Major economies like China, Japan, Brazil and others have seen so far only modest traction with modern enterprise applications. I have a feeling regional players will have a bigger role in the next few years.  

Josh has a lot of ink about activist investors. To me, they play a vital role in shaking up status quo, but smart as they are, I dont see them as significantly reshaping technology markets. In later, more mature markets, private equity investors have more influence in consolidations and other seismic changes. But we are not at the stage in the current iteration of enterprise software.

Net-net to me : SAP and Microsoft will continue to do well in traditional transactional areas. But the definition of the "enterprise" continues to rapidly expand, and I see a very fragmented market for the next few years.     

Of course, Josh may well be right. My little bet is my ticket to what will be a wild ride. Cannot wait for the 2020s!

A vertical that is growing...well, like a weed

I have been imploring software vendors to globalize and verticalize their applications for a while now - after two decades of cloud apps, less than 20% of the grid of applications across countries and operational processes is filled. I have been increasingly writing about fintech, shop floor, healthcare and other industry functionality. But I wasn't sure when Tom Brennan, CMO of the Salesforce platform-based ERP vendor, Rootstock wanted to discuss what he calls the "Cannabusiness" vertical. I have known Tom for over three decades going back to Coda and more recently, Financial Force. He is a straight shooter, but all kinds of word associations crossed my mind as I thought about roots and weeds.

As background, cannabis legalization has been spreading across North America – 10 states plus Washington, D.C., have legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018. That made Canada the first G7 nation to do so.  Tom adds "Then you have the hemp side of the market – such as CBD (cannabidiol) oils, which claim to have many health benefits." In many other parts of the world, irrespective of the legal status, enforcement of cannabis and hemp is increasingly lax. While this inconsistency causes nightmares for HR groups in terms of employee drug testing and compliance and for law enforcement, the industry itself is growing rapidly.

According to Rootstock "In just the past three years, industry employment has grown 110%. That’s faster than the ten-year projections for the trendy sectors of solar, wind power, and health care. And it’s why the industry was estimated at $10.4 billion in 2018, accounting for more than 250,000 jobs, and is slated to grow to $21 billion by 2021."

The challenge for the industry is less about selling, much more about quality and consistency. While there are clear exceptions like their professionally run customer, Aphria described later, for many companies in the vertical, the need is one of differentiation earned through reliability.

Tom says "many companies that have entered this market must consider state-by-state regulations. A lot of them implemented entry-level systems or used spreadsheets to manage orders and inventory. But with a booming market, they’re now facing significant challenges around operations, inventory management, compliance, and keeping up to date with changing regulations. Many found themselves in a tough spot."

Rootstock partners with another AppExchange vendor, ComplianceQuest. I had a chance to catch up with Prashanth Rajendran, CEO and Shalini Chowdhary, VP of Marketing and Strategic Alliances.  They have long offered quality, inspection, compliance and risk management to industries like life sciences, cpg, and aerospace. They recently raised a $36 Million Series A round led by Insight Partners. 

The combination with Rootstock offers "seed to sale to service" to the Cannabis industry as the schematic below shows (click on image to enlarge)

According to Tom, the flow is "companies take seeds and cultivate them. And then they have to perform testing and QA to measure potency and ensure consistency in their product. They want to process orders efficiently and compete on both the service and quality fronts."

"On the CBD and recreational fronts, after they’ve packaged their products, they’re fulfilling orders to retailers or selling it through their own store fronts or websites. And all cannabis companies – both recreational and medicinal – have to be able to track incidents, in which customers may have had an adverse reaction. This is a huge challenge, and lot and traceability features can help."

Recent scrutiny of the vaping market is drawing even more interest in quality management and traceability.

"We have track and trace capability where you can drill down from a CRM system. Companies will have the service case. They have the serial number or the lot number and can track it in the ERP system. They can see if it was tested in the ComplianceQuest system. Then figure out, do you need to pull the whole lot? "

Many states are deploying tools like Metrc to track and trace cannabis inventories and products to origin when there are health issues. Besides the compliance issues, there is the inventory shrinkage issue. As Tom says "Companies have cannabis products flying out of their warehouses at a fast pace. When issues arise, they need to be able to track back to where those products came from, from which suppliers and what type of testing was done."

Tom describes some of the customers in this vertical. "NuLeaf is based in Colorado. The company makes CBD oils from hemp. KIVA Connections makes gummies and chocolate bars with THC (tetrahydrocannabinol). Michigan Pure Med is going after the medicinal space and they consider themselves a pharma company"

But their most prominent customer is Aphria which is listed on both the Toronto and New York Stock Exchange, and is one of the largest cannabis companies in the world. In Canada, cannabis is legal for both recreational and medicinal purposes.

Aphria hopes to benefit in a number of ways from the Rootstock/ComplianceQuest functionality and the Salesforce platform including:

• Competitive advantage over other cannabis producers. This gives Aphria an advantage in time-to-market, license approvals and external audit readiness.
• Fast and flexible compliance in a quickly changing, regulated Industry.
• Demonstrable compliance with Health Canada and GMP/GxP Regulations.

Aphria is bringing a professional image to the industry and as the video below shows their "manufacturing" process is increasingly automated. The more this industry matures, the more it should also help the vendors position for other process industry and other regulated verticals.   

Constellation Research event: Expansive, respectful vibe

Let's face it - industry events are increasingly formulaic. Most vendor conferences are predictable - keynotes and product futures, rock bands, large partner booths. Most research firm events tend to be siloed around their category definitions and what currently excites them. So, I particularly enjoy events like Cognizant Community which are about conversations with peers, mind expansion, and not so much about bragging or selling.  

I had a chance to spend a day at Ray Wang's Constellation Connected Enterprise event this week. The event honored a wide number of innovative customer executives, definitely different from other events where vendor executives dominate. It is different from the Cognizant vibe - the content here was much more dense and rapid fire. But I liked the panel and fireside chat formats. Way too many events have one talking head after another. I find in my own presentations, the conversational style with a moderator improves audience engagement. Of course, in the 30 minute CCE session format, there is not much time for audience questions. Instead you get to ask questions one on one. In fact, many attendees were outside networking. Ray had opened the event with - 'you are all here because you are intelligent, innovative...and impatient'. I was clearly a rookie - most attendees had been to 3 or more of the 9 annual CCE events. They get their value from the networking outside the sessions. Impatience personified:)

The wide breadth of sessions was refreshing, if covered a bit shallowly. CCE had sessions on sports, economics, fintech and much more. People know me as a SAP or an outsourcing analyst, but the reality also is my New Florence blog has racked up close to 7,000 posts over the last 15 years and books like the New Polymath have focused on the exponential payback from combining cleantech, healthtech, agritech and more. I enjoy diversity in topics.

I could have participated in the event remotely. Every session was streamed like this chat with Aneel Bhusri of Workday. Every session had a visual story from Heather Willem artists like the one above and below. Given Ray's own prolific Twitter habits, the audience provided instant feedback in tweets on every session. However, I am glad I was there in person and here is what I observed in the few hours I was on-site

Honoring the Past

Ray had his parents in the audience. That was very respectful as was his fireside chat with Vint Cerf. It was good to see on-stage executives from MicroStrategy, Tibco, Infosys. These companies are not dead by any means - they are reinventing themselves. It was good to see Jim Cavalieri of Salesforce and Aneel Bhusri of Workday in different sessions look back and honor Marc Benioff. In many ways, it was nostalgic and feel-good. As an industry, we don't do enough of that.

Savoring the Present

To me it is puzzling that so many people are miserable and angry when the economy is so vibrant. I like meeting content people so it was nice to spend a few minutes with Ray's wife, Tina who balances so much with a smile. Ditto with Ray's associates like Dion, Holger and Nicole who are always positive. I only had one meal at the event but have to point out several people at my lunch table went back for the to-die-for crab bisque. The administrative and event staff did an excellent job with logistics.  Dr. Alan Beaulieu of ITR Economics had an informative and humorous session on the world economy and assured the audience the US economy is healthy short-term given its energy and manufacturing balance, but cautioned about longer term impact of national debts and aging demographics.

Inviting the Future

It was nice to see Ray's son, Nathan and his school mates at a table - a good metaphor for what's coming next. There were sessions on spatial computing, blockchain, quantum computing, global opportunities. In my conversations I heard of next-gen applications - very little mention of today's vendors, much more of start-ups, custom development, platforms from Google, Amazon and Microsoft. 

Some quotes out of hundreds I heard give you a clue to the future world that was discussed - not all positive, but should give you a flavor for the variety of conversations

• The notion of pure anonymity on the internet may evaporate
• We need to get beyond Next Best Action to Next Best Conversation. If you don’t understand me, how can you support me?
• Teach your kids French. Africa will play a big role in the future and French is a common denominator on that continent.
• 3D designs that look crappy look REALLY crappy in VR
• Digital strategy should run parallel to corporate strategy - Under Armour needs have evolved from apparel footwear industry features to that of a fitness platform
• We are significantly increasing our attack (vulnerability) surface as we head into 5G and with massive amounts of IoT.
• Tracking your lettuce from farm to store doesn’t implicitly add security or prevent it from spoiling. It made zero sense to me when I first heard that use case and it still makes zero sense today.
• “Our equipment works equally well on the earth or the moon for intelligent data processing. We will have mining operations on the moon in about 15 years.“

If you were looking for a string to pull all the pearls together, sure Ray has it. I was only there for a third of the event so have no right to expect that. His loyal fans who show up every year will likely say - who cares? It is a good forum to enjoy Ray's hospitality, get some pretzel logic, energize body and soul and to renew long-term friendships. Mission accomplished. Glad I could be part of it.  

The disconnect between software buyers and vendors - about the role of SIs

In the case studies I wrote for SAP Nation 3.0 I noticed two common threads

A) Customers were using SIs cautiously - the last set of experiences with SIs and outsources has made them wary. A couple even thanked me for writing the first volume and bringing out the massive cost and poor quality of the SI ecosystem. “You opened our eyes” said one.

B) Several insisted I not include the name of their SI in their case study. It’s their prerogative and I did not pry why. It could be for legal reasons, but I got the distinct sense that they did not want to overstate the role of the SI versus that of their own staff. 

Both trends are healthy. In contrast, I am seeing software vendors go the other direction. They call SIs “partners”, brag about how big the SI staff counts are around their products forgetting that this is a direct cost to the customer, plus often another 15 to 20% in travel expenses. 

Even more I have noticed SIs are being brought it to present to analysts at the events, and in most cases the SI executives are unprepared or unwilling to answer tough questions. These three comments are in the last few months from SI executives at 3 different major vendor events. 

“We have 000s of consultants. We wont change overnight. But I can assure you we are not making revenue from what we did a decade ago”. 

“We mostly work on large, global projects and those are not really going to be automated”

“Either he leaves or I leave” - by an executive offended by a fellow analyst’s question about failure rates involving his firm

In each case, I should have challenged the SI statement as either inaccurate or too defensive. Instead being there as a guest of the software vendor I just let it pass. And the host in each case also let it pass.

I am seeing some software vendors start to bring improvements to the world of software projects. 

 

In this post, Jerry Foster, CTO at Plex described a machine learning project applied to parameter configuration. No reason other vendors cannot do the same and encourage their SI partners to train machines learn from their own work across 000s of ERP and CRM projects.

https://dealarchitect.typepad.com/deal_architect/2019//plex-ml-project-something-every-software-vendorsystems-integrator-could-emulate.

 

Workday has been more diligent about requiring its SI partners to certify their consultants and keep their certificates refreshed. It has also been pushing a series of project checkpoints as part of its Delivery Assurance initiative. Certification by itself is no indication of project success, but it’s a start. If they could enhance certification with customer feedback from each project the consultant has worked on, they could have the makings of a ‘FICO’ score - that could be revolutionary for the industry. 

 

As part of moves to S/4HANA, SAP customers benefit from its ‘Simplification List’ which identifies functionality which has been deprecated to remove redundant code in previous versions and its ‘pre-checks’ which examine customizations which may cause problems during the migration. If they can continue to bring more automation to common steps in every project - in data conversion, testing, testing - they could shrink at least some of the labor intensive tasks. 

 

There’s lots more to do. I can point to hundreds of small and major things software vendors can do to improve their services ecosystems. The question for many is why should we invest? Why aren’t SIs making their own investments? They are, but the business model has not evolved much - it still thrives on labor intensity. And with that comes the costs of staff turnover, travel, inconsistent quality and more. 

 

Somebody has to break the cycle. Buyers increasingly want changes. Software vendors need to help deliver them. 

Gradually, then suddenly

Lots of people are rattled by all the executive changes in the industry over the last few months ...Bill McDermott and Rob Enslin at SAP...John Donahoe at ServiceNow...Mark Hurd and Thomas Kurian at Oracle ...Charles Phillips at Infor....Bob Stutz at Salesforce....

There is plenty of speculation ... Call me old fashioned, but I take the long view and being one degree of separation removed from many of these executives, I prefer to do my usual 360 degree calling around. Besides, as a colleague said "The signals were there if you knew where to look". Hemingway was even more poetic when he wrote “How did you go bankrupt?" Two ways. Gradually, then suddenly.”  

To me, change is healthy. And often builds up over a couple of decades. Unlike many, I am not that agitated by what is happening in Washington or London. I ignore the shenanigans and the political media but I can see why we got to where we did. And look at ways to adapt to the changes.

Same thing with enterprise tech. In my recent book, I cataloged the last twenty years and described how Apple near dead, Google, Amazon, Foxconn and many others, mere babes then have thrived. I looked at how over a million on-prem customers have not budged. How 80% of the geographic and vertical white spaces have not been filled with modern solutions. Systems integrators continue to try and do business the same old, labor intensive ways they did in the last go-around. 

It would be silly to not expect major changes given this build up. The key is not to confuse individual with corporate trajectories. The good news is we are seeing new leaders like Jen Morgan get a chance to put her imprint. With McDermott headed to ServiceNow and Stutz to SAP, we will see plenty of activity in the customer/revenue-centric segment of the market. There will be lots more activities in areas that did not see investment in the last few years.

Here's my advice to customers. Take time to revisit your application portfolio. There are plenty of opportunities to modernize, consolidate, better integrate your applications. Your legacy has security and compliance risks and plenty of recruiting risks as you look to attract younger talent.

To vendors - question what may have worked over the last decade or so. Plenty of new opportunities and threats to focus us.

There will be plenty of distracting noise and speculation as we are seeing in politics.   Ignore all that, disrupt yourself and embrace the change.  Lots coming.

A wide open race in enterprise software

If you are into speeds and feeds, last week in sports was particularly interesting. It marked the 19th anniversary of Dale Earnhardt's improbable win at the Talladega Superspeedway. Seemingly hopeless in 18th place with just 4 laps to go, Earnhardt somehow went on to win that NASCAR race. It was his last major win. Watch the last few laps in the video below.

Earlier in the week, Eliud Kipchoge of Kenya ran 26.2 miles in Vienna is a record-breaking time for a marathon in just under two hours. It was not an official race but it showed the art of the possible when technology (supplied by Nike, INEOS and others) and technique come together as I posted on New Florence. 

As we approach the end of this decade, I have thinking a lot about the race in enterprise software.

In my recent book. I looked at the last 20 years in software. By many metrics, the pace of change has been glacial. Over a million on-prem customers have not migrated core applications to modern cloud or in-memory architectures. On the vendor side there are all kinds of neglected white spaces when you look at industry or country specific coverage.

And yet the vendor landscape has changed considerably. You could argue Apple, Amazon and Google have had more of an influence on enterprise applications than did SAP, Oracle and Microsoft. Salesforce, ServiceNow, Adobe, Workday and others have become major players. Plenty of global and vertical players are nipping at the heels. With customers building more than buying applications players like VMWare have become more influential. Service providers have evolved - many these days are as much contract manufacturers, digital agencies and third party maintenance providers. Telcos are gearing up for a next wave of 5G and satellite services. Customers are themselves becoming tech vendors as they make their own products and services smarter with software and sensor support.

When I talk to CIOs these days, I hear of opportunities and challenges like vendor end-of- life dates, automation, digital transformation, multi-cloud leverage and application portfolio consolidation. They increasingly worry about their recruiting profile as younger tech staff show little interest in supporting their legacy applications.  Vendors are themselves showing signs of big change - there is new management in the last few months at SAP, Infor, Oracle and Unit4.

It should be an exciting next few years. May be the roaring Twenties again? But they also raise some interesting questions: Will we see an Earnhardt break away from an increasingly crowded vendor market? In that race he was described as"...suddenly, seeming out of nowhere, Earnhardt charged forward, parting the field like Moses parting the Red Sea.."

And who like Kipchoge is working on stuff that makes you go wow. 

In my role, I am paid to help clients put bets, so I have my views on the likely Earnhardts and the Kipchoges.  But I would love to hear your perspectives. Comment away!

 

RIP Mark Hurd

Larry Ellison hinted at this in his keynote at Oracle OpenWorld last month. He joked he did not have many friends and that he would hate to lose Mark Hurd. In a corny way that was quite a tribute to the man, who at 62 passed away way too young.

Over the years I had come to respect the man - we had conversations around complex supply chains and global policy matters. Most people did not realize how analytical he was and made Oracle marketing a digital marvel and made their sales organization much younger. He had an interesting presentation style and preferred to come off the stage and podium - that puzzled some folks but I thought it was humble of him to come down to the level of his audience.

His presentations always invoked data on market trends. Which is where I did not always see eye to eye with him. Given the market opportunities he presented, I wondered why Oracle's products and investments did not always take advantage of those white spaces.

It's not the time to bicker. Oracle and the whole tech industry has lost a disciplined operational executive and as a personal tribute, I have to add, we have lost a damn good analyst.  

RIP.

Workday Rising: The peaceful, easy feeling

OK, it could have been just me. I drove to Rising and parked for the duration. No airports or highways to worry about. Unusual week for me. I was certainly in a relaxed state of mind.

However, I noticed it wasn't just me.

Could have been Jerry Seinfeld who kicked off the event. Unlike most stand up comedy these days, he did not invoke any politics or use any foul language. The crowd continues to be amazed by his observational comedy about every day life. Like why do restaurants feel the need to announce daily specials? If they are so darn special, should they not be on the menu? People were talking about Seinfeld days later.

Or it could have been Harry Potter's magic. Instead of some loud rock band, Workday had Universal Studios open up a glorious Orlando October evening as a thank you to the Rising audience. 

Perhaps it was the vendor feedback. Many loved the layout at the Orange Country Convention Center which brought lots of foot traffic to their booths. The startups in the Workday Ventures floor space were cheerful talking to me even on the last morning when usually roadies are packing and shipping their stuff.

Maybe it was customers who love that Workday continues to mature features like the Skills Cloud and surprise them with Procurement, Planning and other new features even after 33 releases of the product. And also keep them buzzword compliant. This event was big on machine learning with features like the Accounting Center, Discovery Boards and  People Experience.  Blockchain in the form of credential technology and the WayTo mobile app shared with event attendees. Unlike other vendors who recruit partners by the hundreds to develop on their Cloud Platform, Workday has been developing apps with a handful of early adopter customers like Flex and Sun Life before the planned GA next year

Or it was the omnipresence of CEO Aneel Bhusri. User conferences are hectic for vendor executives, but Aneel was remarkably accessible. He took photos with several attendees. I introduced him to several much to their delight. Earlier in the year, he had promised to make more time for analysts.  He delivered that in q&a and less formal settings.

Workday stock took a hit during the event with the fear of slower revenue growth. That did not appear to faze Aneel. I certainly see all kinds of wide open white space for Workday. Even after two decades of cloud computing, industry and geographic coverage is spotty — by my estimate, less than 20% filled. After 20 years, over a million on-prem customers continue to use ECC, BusinessOne, Oracle EBS, PeopleSoft, J.D. Edwards, Lawson, Baan, Microsoft, IFS, Sage and Unit4 products on-prem, with no benefits of multi-tenancy, machine learning or other contemporary innovations. They continue to be Workday prospects. Importantly, unlike with some other vendors, people actually like doing business with Workday. Even more importantly, Workday leadership has been steady, if a bit conservative.

Perhaps it was all of the above, but I found myself thinking of the late Glenn Frey quite a bit during the event. Yes, that relaxing, peaceful, easy feeling.

 

Why the changes at SAP may be timely for the industry

Since Thursday evening I have heard from many if I am surprised by the changes at the top at SAP

My answer is "only slightly"

From Sapphire in May, I wrote after some of the changes earlier in the year

"Nick Tzitzon, EVP of Marketing and Communications had told me "we have individuals in some cases who collectively have worked for SAP for 100 years, and who decided that it was time to try something else in their career. Does this not happen in every company?" Hasso Plattner was even more emphatic when he told a few of us that several customer executives have marveled at the smooth transition. He told us SAP is much "younger" now and he has never been more proud of the company. Watch this keynote and see the energy of execs like Christian Klein, Ryan Smith, Jen Morgan and others."

At the event, Bill McDermott had asked me what I thought of the new-gen of executives.  In background, I had heard from many customers as I was writing SAP Nation 3.0 that their legacy ECC (and PeopleSoft and Baan) systems were increasingly a recruiting liability as they tried to hire younger tech talent. So, SAP's changes were in line with what many customers were experiencing. 

However, there are more executive changes since at SAP. So people ask did McDermott need to leave along with Rob Enslin and others this year? Who exactly are Jennifer and Christian? What's wrong at SAP?

Let me try and address them. I have not talked to Bill since Thursday but his decision to leave after 10 years as CEO is really not that dramatic. According to Korn Ferry, the average Fortune 500 CEO tenure is less than 5 years.

People speculate he wilted under pressure of activist investors. Frankly, as I wrote in the book, the last 3 years have been quantum more demanding.

"That (McDermott HBR) interview was conducted before President Trump came to office. I imagine there are now additional challenges in being an American CEO of a European company."

About Jennifer, Fortune included her in its list of the 50 most powerful women in the world. They described her meteoric rise at SAP "going from head of regulated businesses (till January 2013) to overseeing all of the Americas, Japan, and Asia Pacific in just five years.”

In my book, I cataloged the Digital Transformation that Christian has led within SAP. This extract should give you some dimensions of the complexity

"We are tackling the whole value chain at SAP. We are looking end to end, looking at marketing, sales, finance, service and support, cloud operations and the cloud infra- structure. That’s the first aspect of our transformation. Next, we are infusing machine learning, IoT, predictive analytics and these new technologies to bring the intelligence into play. It’s about adapting business processes to the new digital age. It’s about fixing the data architecture. Last but not least, it’s about change management, and taking the people with you. In the end, everything that we do in the cloud impacts our 90,000 employees and our 400,000 customers.”

They are both impressive executives. The Co-CEO arrangement is unusual, but not at SAP. McDermott was co-CEO with Jim Hagemann Snabe for several years. They replaced Léo Apotheker, who himself was once an co-CEO.

Honestly, I think the industry needs a jolt. While the book overall is positive to SAP, it highlighted the under-achiever performance of the industry in the last two decades. I mean that to include SAP and Oracle and Salesforce and Workday and Infor and IBM and HP and many others.

Amazon shows authors "popular highlights" that a cluster of readers mark on their Kindles. Chapter 2 of the book looked at the disappointing performance of enterprise vendors. The majority of the highlights so far for my book are in this chapter - see some extracts below, courtesy of Amazon's algorithms

Page 32

In the meantime, SAP and its competitors, who mostly focused on each other while trying to one- up each other and impress Wall Street, have missed out on large opportunities emerging around them. (the chapter discussed cloud infrastructure, smart products, digital advertising, IoT and many other markets that new entrants like Amazon, Google, Foxconn, Siemens and others took advantage of)

Page 40

In October 2018, Oracle co- CEO Hurd predicted that 80% of business applications would be in the cloud by 2025. Today, even after two decades of cloud computing, industry and geographic coverage is spotty — by my estimate, less than 20%.

Page 45

More alarmingly, we are starting to see customers get tired of waiting for vendors and go back to building their own replacement systems. With microservices, open source and other options, we are seeing the pendulum swing away from buy back to build. That’s a stunning reversal from the 1990s.

Page 53

However, they don’t have enough process visionaries who can dream up next- gen shop floors, emergency rooms or warehouses. So you see the industry continue to invest in infrastructure, platforms and tools.

 

If Jennifer and Christian only focus on financial performance, they will do little to change the industry trajectory. We desperately need them to aim differently. Much as I respect what McDermott did, I am looking forward to the next era at SAP with that hope.

Workfront - looking for work productivity in all the right places

Alex Shootman, CEO of Workfront, is versatile on many fronts. He has traveled more of the world than his tech peers. He has a family with adopted kids which deserves to be profiled in a movie. He is very good with financial numbers. But, to me, most impressively he knows the application landscape at many (most?) of his 3,000+ customers.

Workfront positions itself as the "operational book of record" for work. While many tools like Jira aim to provide visibility and productivity across IT programs and projects, Workfront aims much more broadly across the enterprise.

Alex proudly shows slides of customer application landscapes to investors and anyone else interested.  He told me one of his challenges is to keep scaling that customer intimacy culture. For now, the customer-centric gene runs through the organization. As he described in his book Done Right, one of his "laws of leadership” is "What the leader is interested in, people will be fascinated by".

His customers, in turn, say how much they like working with Workfront. Sue Fellows, Chief Customer Officer, interviewed a few of them during the Analyst Day this week that I was invited to. They had stayed on after their Customer Advisory Meeting earlier in the week and joined us for dinner and most of the day. (Next year, I have requested that they consider allowing a few analysts to observe and participate in the entire Advisory meeting.)

Brent Rudewick described how he started in Marketing Operations at Charles Schwab and since has had Risk Management added to his title, and how his group has steadily grown. His Workfront experience has attracted attention of his Investor Relations, Vendor Management and Training groups. Paul Tasker at Sage Software described the role of Workfront as they re-architected and launched a new web site across 25 countries. It involved global, regional and local coordination between Sage teams and those of external agencies.  Think of the coordination and quality assurance challenge. Angela Lapovsky of Lincoln Financial described how they go to market with their annuities, life insurance and other products almost entirely through channels like brokers. Workfront helps with that extended ecosystem and complying with the regulatory issues they are subject to. Since all these executives had marketing roles, I asked if that is Workfront's sweet spot. Alex told me if I had been in the Advisory meeting I would have met many more from other disciplines. When I was first introduced to Workfront they told me they had a "Land and Expand" strategy. Most vendors say that, but I have seen that now in many Workfront customers - they start in a pilot area and in a few years have been adopted widely. 

I had previously seen Steve ZoBell, the CTO present a case study on new product development. It wove together several creative groups in medical product design and product engineering . In the past, an idea for a bionic knee may have been noted but stayed invisible in the CRM system. Each product area would begin design anew. Workfront has changed that.

These buying centers - Marketing Operations, New Product Development, and various corporate shared services - all are increasingly digitized and tend to have a complex web of projects, and most have a high degree of quality and compliance activities to worry about. These buying centers also don't get much love from large technology vendors.

It's not coincidental that we are also seeing growing interest in categories like Robotic Process Automation (RPA) and investments like Salesforce has made in Mulesoft. There are plenty of inefficiencies in enterprise technology "junctions".  

Digital tools like email, instant messages and social media tend to distract workers even more in these hubs. In their annual State of Work survey, Workfront reports "Over the six years we have published the State of Work report, we’ve consistently found knowledge workers on average spend just 40% of their work week on the job they were hired to do." Get your own copy - it's well done.

As Alex says in our digital world "seamwork" is even more important than "teamwork". We heard the term "citizen integration' early and often during the day. They are facilitated by over 150 pre-built integrations Workfront delivers.

For now, Workfront has its hands full in white collar work centers to worry about shop floors, emergency rooms and other operational work areas. Plenty of productivity to deliver in white collar work.

I changed planes at Delta’s Atlanta hub 3 times this week (I love that place, not!). The crowds and the weather and other delays at such hubs are a good metaphor for similar work concentration and inefficiencies at the intersections of enterprise applications. Providing visibility and productivity at these hubs is what Workfront excels at.

SAP Nation 4.0?

I sent Bill McDermott a “please stay in touch” note last night, and sure enough a couple of hours later, even on what must have been an emotional day for him, I got a nice note back. I have always admired his polite grooming and his always-positive vibe.

 

As an analyst, though I have to unemotionally look at technology vendors from a customer pov and my trilogy of SAP Nation books provide a nice summary of McDermott’s legacy at SAP.

On Wednesday, before I knew of his decision to resign, I had the opportunity to summarize that at an ASUG Executive Exchange event. On a panel with CEO Geoff Scott I laid out what I have liked about SAP in the last few years

A) It has been a product launch machine, and I encouraged the audience to not just look at S/4HANA, but also C/4, Leonardo ML and IoT, Qualtrics, IBP, AIN, SCP and other newer products.
B) I told them I liked what Bill and Hasso have done to make “younger” the SAP leadership with Christian, Jennifer, Juergen, Alex, Ryan, Jared and many others.  I suggested the audience similarly think about their recruiting profiles to attract younger tech talent and make that a consideration and not wait till 2025 to consider migrating from the ABAP world
C) I told them Bill, in particular, had made SAP a lot more open and humble. I certainly saw that in writing volume 3.0

I also told them what I would like to see SAP deliver and what will now become Jennifer and Christian’s legacy

A) I want to see SAP become much more serious about the public cloud. I have told Christian I worry that in a few years we will have 000s of single tenant S/4 installations. That will only replicate the implement, upgrade, AMS economics of the previous generation that led to my writing volume 1 which was not flattering to SAP. It will also prevent SAP from gathering substantive data in the cloud for effective cross-customer ML scenarios. SAP has always been better at developing code more than supporting it, so it will take a sea change for SAP to build and importantly scale its public cloud at demanding SLAs. It does have pockets of multi-tenancy experience with BYD and its cloud properties but needs to expand that. 
B) SAP’s “digital core” is already the widest in the industry compared to that of its competitors. However, even that is tiny compared to the industry footprint of the customers it serves. SAP needs to deliver vertical functionality - every industry has gone through seismic changes in the last 15-20 years - and it needs to step up not keep looking for partners to help deliver industry specific operational functionality that its customers have been paying it maintenance for all these years.
C) SAP has to significantly prioritize its customers above its partners. It has to push its SI and outsourcing partners to automate their operations or even cannibalize them with its own IP. Additionally, the market pendulum is swinging back to build technology from the last few decades of buying. SAP needs to view its hyperscale partners - Amazon, Microsoft, Google among them - not just as infrastructure but as platform plays. They have to be viewed as co-optetion, not just as partners and it needs to make its own cloud platform and other build capabilities much more vibrant. 

On the ASUG panel, I was asked when I would write SAP Nation 4.0. Not anytime soon I said. McDermott’s move has me rethinking, but I really want to give Jennifer and Christian time to make their mark. 

 

I look forward to their success, and in the meantime I promise to be tough but fair in my blogs and importantly, in the advice I provide to customers. 

 

Exciting times ahead. 

A tumultuous couple of decades

As I was filing our quarterly Form 941 last week, it hit me that we have entered the last quarter of this decade. As I flew into LaGuardia on Monday, it took me back two decades to my time at Gartner. In October 1999, there was nervousness about the damage Y2K could cause, but also euphoria at the phenomenal few years many tech vendors had enjoyed. The introduction of the euro promised another bonanza for the near future. Enterprise vendors, particularly two sectors that I followed - enterprise applications and service providers - had reason to feel very good about themselves.

In New York this week I heard an optimistic Mike Salvino , the new President and CEO of DXC, at a HfS event. I heard similarly optimistic (for different reasons) Cognizant executives at one of their events the day before - they also have a new CEO. I also kept up with the celebratory mood at HR Tech in Vegas virtually.

At Gartner, I had followed SAP, Oracle, PeopleSoft and their SI partners. CSC, EDS and HP Services were players back then.  They continue to live on in the form of DXC, founded a couple of years ago. Cognizant had revenues of less than $ 100 million in 1999. It has grown like a rocket with over $16 billion in revenues now. HR Tech was only 2 years old in 1999. But the backwaters of the HR function had led the client/server applications market. This time around, it has similarly led the cloud applications market.   

There is lots to appreciate and applaud.

However, the even bigger lesson of the last couple of decades is the many missed opportunities. Outsourcers missed out on the cloud infrastructure market. It was theirs to lose and so far, players from left field like Amazon and Microsoft have benefited. After 20 years of cloud applications (Salesforce was born in 1999), application vendors can barely cover 20% of the country/industry grid. At the HfS event last week, the biggest attention was on robotic process automation (RPA). Hardly any talk of Amazon's Kiva warehouse robots, or UPS's drones or other operational automation. Or automating the labor intensive outsourcing space. CRM vendors completely missed out on the digital advertising market. Google, Facebook, and digital agencies have made out like bandits in the vacuum. SaaS vendors had an amazing business model which bundled multiple contracts - the license, the maintenance, the hosting, the application management - into one. Then they got greedy like their on-premise competitors. I saw Bruce Rogow, my former Gartner colleague in New York and he told me he sees in his travels CIOs struggle with new opex/capex funding paradigms. Instead of delivering a knock out punch, SaaS vendors mostly co-exist with their on-prem competitors. Outsourcers saw every one of their clients develop smart products and let contractor manufacturers like Foxconn and Flex dominate that market. They have let GE, ABB and others generate excitement about the IoT space.

Vendors ask me, what's next? Blockchain, machine learning, quantum computing, sure. But much bigger opportunities will persist from those missed in the last two decades. A new generation of vendors will move in. Vendors will cannibalize each other. And here is the most important nugget. Customers learn from their mistakes - I am seeing that in the new wave of SAP related services. In writing my recent book, I saw much more caution about using SIs as they implement S/4HANA. There is a "fool me twice, shame on me" vibe.

So, forget about doing business as usual. The best thing every vendor can do as we enter a new decade is to be introspective, even if Wall Street is pleased with your performance. Ask the tough questions - how the hell did we miss as many markets as we did? And how do we re-organize to make sure and not miss so many markets again?  

Exciting times ahead.

TAMyopia

When I was at PwC in the early 90s, I remember we used to throw out statements like "we have 40 to 50% market share in the SAP (or PeopleSoft) implementation market" When I got to Gartner I saw their competitors were saying similar stuff. So, I started telling them - "no, actually you have less than 10%" . The tune of at least some of them turned to "we have 50% market share of deals we choose to chase". Choice - certainly their prerogative which segments or verticals they chose to focus on. But it's not a reflection of Total Addressable Market.

One of my favorite advisory projects is helping vendors challenge their previous definitions of TAM.

I have seen plenty of dysfunctional behavior from technology vendors of every shape when their TAM definition is narrow  - salespeople chasing deals convenient to them, not what the leadership would have approved, marketing claims to deliver functionality in areas which their R&D had no intention of developing in any meaningful manner, CFOs and investment committees which don't approve enough R&D and Capex needed to keep their entities competitive.

In my recent book, I outlined several trillion dollar markets that many technology vendors have missed since the late 90s. Those included smart products, digital marketing, IoT, cloud infrastructure, various verticals - - Google, Facebook, Amazon, Foxconn, GE, Siemens and a whole bunch of vertical players have thrived in those markets even as many technology vendors ignored them. Download the chapter from my recent book  in link here if you want to read about all the missed markets.

Many of those markets were brand new ones or what in MBA school we called adjacent markets so you can understand why so many vendors ignored them - even as they now wish they had entered those markets. But even in their core focus markets, I have seen many a myopic definition of TAM. Here are a few examples

a) Automation and Outsourcing

When I wrote Silicon Collar three years ago, I chose the title because it felt like traditional definitions of white, blue, pink collars were dated as technology was reshaping every job, everywhere. We all wear a Silicon collar these days.  I had examples of robotics, drones, machine learning, CGI, exoskeletons, robotic process automation (RPA) and other automation in the oil patch, in accounting, in films, in winemaking, garbage collection and many other sectors. I wasn't dreaming this up - executives at sophisticated companies were in the book describing their experiences.

So, it has been a bit disconcerting to see so many outsourcers have glommed onto RPA as their major (in many cases only) focus when it comes to automation. Even more cynically, most outsourcers do not take seriously repeated customer expectations to automate their own labor intensive services.  

b) Data Centers and networks

I cannot believe how envious many vendors are of AWS's and Azure's recent success. On the other hand, I cringe when I hear software vendors and many outsourcers say "glad we didn't have to invest billions in Capex". The reality is less than a decade ago HP(with EDS), Oracle (with Sun), IBM, Accenture, Verizon, Deutsche Telecom and other telcos populated and ran data centers and networks for the world. The emerging cloud infrastructure market was theirs to lose and they have done so - spectacularly, so far.

Many SaaS vendors view the cloud infrastructure market as a bonanza - let someone invest the Capex, we will just rent it for cheap. It's not really that cheap and increasingly they are being expected to support multiple clouds. Zoho has continued to invest in its own data centers and passing along those savings to customers. The time will come for other software vendors to similarly hedge their bets. They will have to expand, or at least, morph their market definition of infrastructure.

c) "Glo-ver" in SaaS

I have increasingly been pointing out a huge under-achievement in the enterprise applications market. After two decades of cloud and in-memory applications, only about 20% of a grid across countries and industry processes has a decent choice in contemporary architecture. Myths persist such as "verticals are a sink hole". Sure if you dont do it right, but go see how much lock-in revenue and margins SAP has enjoyed with its vertical investments in the early 2000s.

I have accelerated my coverage of applications and executives who are focused on the white spaces - see some of that coverage summarized here in a trend I call Glo-ver  expansion in focus.

Back to helping vendors challenge their previous definitions of TAM.  Those are fun projects when the vendor is willing to open up. I must be honest though - many vendors look to influence analysts, not use them much for intelligence. So, they would rather posture they have "50% market share in deals they choose to chase".  

Seriously, I hope that changes. Too many vendors are defining markets too narrowly and finding their competitors have done the same and a result too many are chasing after the same, narrow markets. That is a sure path to commoditization.  Trust me - I have seen it repeated many a times over the last three decades. There is little safety in those numbers.

Occupation: Advisor, Analyst, Author

In my four decades of global travel, I have always hesitated about the correct occupation to list on a landing card or tell a passport officer (apparently I am not the only one who agonizes about that answer). At PwC, the answer used to be consultant or advisor, and I am sure I noticed a couple of immigration officers smirk at that. At Gartner, the answer was analyst, till an officer asked me "so why are you not using your diplomatic passport?" and I had to say "not that kind of analyst". I felt the most welcome ever entering Canada a few years ago. The immigration officer practically hugged me when I said I was an author. That did not last. Couple of trips later, in some other part of the world, that answer triggered the question "so how many copies of your books are you carrying?" Ergo, let's figure out how much customs duty you owe.

I should say AAA - as in advisor, analyst, author as my professional bio describes me. But then they would assume I worked for the automobile association.  Can you imagine how long I would hold up the immigration line?

AAA confuses far savvier clients of mine. Many of them see my 7 books and assume I am an academic. My accountant does not understand all the different revenue and spend categories that apply to each. Vendors see analyst and wonder why I don't do Magic Quadrants. Still others have no idea I write the New Florence blog - 15 years and 6,000 posts later. The Deal Architect name has led to inclusion on mailing lists for architecture magazines.

But deep inside I know if I were to unbundle AAA I would probably not get a nice reader review like this

'Mirchandani not only does his homework but seems to have first-person access to everyone who’s anyone in the technology sector, so the quotes peppering the text are all germane and keen'

Even better are those from my advisory clients who say "Thank you for stopping us from making a $20 m mistake" or others who say "you opened our eyes to all the white space in the market we were not addressing"

They don't get hung up on monikers. They do ask me how I manage any conflicts of interest. Otherwise, they just know the blend of AAA brings them a very different perspective and much higher payback than what they get from others. 

Curious - would love to hear from readers what unusual experiences you have had with immigration and customs.  

Oracle: Gen 2 cloud, but Gen 1 applications

Larry presented on Fusion applications in his second Oracle OpenWorld keynote yesterday. It is a bit unusual for him to dedicate a full keynote to applications. He tends to focus on database and infrastructure topics, and mostly tweak application competitors where it suits him. In a nice touch, he did take time to talk about co-CEO Mark Hurd who is out on medical leave.

I have followed Oracle for three decades and even when talking applications, Larry emphasizes what at Gartner we called "speeds and feeds". So, buy Oracle apps "because we use native stored procedures, we have a thin client architecture" etc. The reality has always been that customers buy applications based on functionality and economics as much as architecture and tools. However, he continues to mostly emphasize the technology not what the business user needs.  Yesterday it was about using the autonomous database, multi-tenancy in the cloud and machine learning.

History has shown wave after wave of Oracle applications do fine, but never get to dominant market share, and Oracle ends up catching up with acquisitions. That's partly because they don't benchmark their features and functions against world class customer needs. Could their manufacturing software run the BMW plant in Greer, SC with its massive amounts of automation - robotics and sensors? Could their warehousing functionality run an Amazon fulfillment center which utilizes concepts such as "chaotic storage"?  Can their supply chain run last-mile and same-day delivery concepts being tried out in retail, grocery and other distribution markets? Can their applications run a world class 'operating room of the future" for a healthcare company? Could a MNC customer looking for a global 2 tier ERP strategy count on NetSuite to support it in Indonesia, Brazil and Poland?

What was striking yesterday was how narrowly Larry defined enterprise applications. He said cloud infrastructure competitors (Amazon, Microsoft, Google etc) don't have such applications, ignoring that the pendulum in the industry is swinging from buy to build and tons of enterprise application code is being written on their infrastructure and platforms. He ignored that massive amounts of VC and customer investment has gone into vertical functionality like in FinTech - just visit Shanghai or London and see the vibrant startups there - and that for healthcare and other industries.  

He claimed Oracle has "more applications, more features, more functions" than any other suite - ignoring all the vertical functionality SAP has. He said Oracle is replacing SAP at customers - but none of his examples showed SAP customers moving industry functionality like utility billing or oil and gas functionality to Oracle. He took shots at S/4HANA as "hosted, not in the cloud" ignoring that many of his own customers are still not convinced about the public cloud. In fact his own announcements this week with VMware and "Oracle Cloud at Customer" reflect that reality. Or that SAP's contemporary portfolio today vastly exceeds his - it includes S/4, C/4, all its cloud acquisitions, AIN, IBP, ByD, Qualtrics and much more.

To his credit, he acknowledged that Fusion applications have taken "12 or 13 years" to bring to market. Actually, it has been longer than that because in January 2006, Oracle was already announcing it was "Halfway to Fusion". But let's not nitpick. The reality is in those 12, 14, 16 years Oracle has and in fairness its peers have completely missed out on developing applications for several trillion $ markets. Those included smart products, digital marketing, IoT, various verticals - - download the chapter from my recent book in link here if you want to read about all the missed markets. Google, Facebook, Foxconn, GE, Siemens and a whole bunch of vertical players have thrived in those markets even as Oracle and other applications vendors ignored them.

The good news is those markets are not closed. They are looking for their own Gen 2 applications.

That's Oracle huge opportunity - Gen 2 applications on its Gen 2 cloud. But it needs to get serious about developing or acquiring those Gen 2 applications, not just peddle its long-delayed Gen 1 applications.  

Oracle OpenWorld from afar

I have been watching bits and pieces of OOW from afar. Some observations

Larry, can I please have some of the anti-aging stuff you are on? Damn you look good

Marc Benioff and Aneel Bhusri, I know you are good friends but I want to know which of you, and after how many glasses of wine, thought up this brilliant placement at Oracle Park

The Oracle autonomous database does work. No DBAs on Howard Street during OOW week! Replaced by autonomous cars

Vishal Sikka, curious minds want to know whether you were thinking of your escape from SAP or Infosys here

Jeff Bezos should talk to Marc and Aneel - buy some space at Oracle Park and Larry may just leave him alone

Safra, my wife similarly wants to know your anti-aging secret.

Three pivots on one slide! I watched the whole Accenture pitch and ended up with a whole new buzzword dictionary.  

Oracle freemium......I cannot want to see the anti-aging stuff for this

Good to see Moscone center infrastructure has dramatically improved. NOT, but at least people are good humored about it. Or at least the female of the species.

More anti-aging - Steve Miranda's baby face never ages. He need not have had 2015 call in.

And the Oracle Twins - they age together and ever so gracefully

You know, I may never physically go to an OOW again. I would be wasting time with silly bloggers and missing out on all these astute observations!

BTW, I also have some drone generated pics. As they say, I could show you, but then I would have to .....:)  

Photo Credit - Oracle session replays and the #OOW19 Tweet stream.  

Zoho One evolves at rapid clip

Earlier this year, I wrote about Zoho One " ... the bundle priced at $30 a month an employee, or $75 a month on per-user basis. It was launched in 2017 with 35 applications, it now has over 40.  And from the presentations we heard more apps will join the bundle. A dollar a day per employee is a compelling value proposition, when the functionality keeps growing exponentially. "

I compared it to Amazon Prime "The more I heard of Zoho One and the growing apps coverage for the same price, I thought of how Amazon Prime has grown in coverage. It started off a free 2 day shipping, then added free movies and since then countless new features." Prime, of course, has proven to be a rocket ship for Amazon.

This week, Zoho provided an update on One. It's now up to 45 applications. They told me in a side conversation they have 50+ apps right now....just not all announced.  "Some are on alpha programs, and we really do test them before we formally launch them or add them to Zoho One!"

Features keep evolving including its workflow management tool, Orchestly, which lets managers and administrators design and run workflows without the need for coding skills and PhoneBridge, its telephony platform, which integrates over 50 telephony vendors on one side and several Zoho applications on the other side.

When you look at services under the cover, like in the "AI" category, you get a sense for the growing richness of the applications.

The tools in the bundle keep evolving, many aimed at end users which SMEs with small IT staff especially appreciate.

Bear in mind, many vendors promised they would take savings from taking advantage of cloud infrastructure at vendors like Amazon and invest that into application functionality, and either have not done so, or are just not productive. Zoho continues to rapidly grow its application footprint even as it grows its proprietary DC network. They have shown they can run their DCs more efficiently than going with public cloud infrastructure.

No wonder the bundle is popular. There are now 20,000 businesses using Zoho One, up from 12,000 last year. According to Zoho, a quarter of Zoho One customers use more than 25 applications and more than 50 percent use 16 or more. So, clearly, customers are buying into Zoho's version of suite.

Indeed, Zoho tried to jam a 158 slide presentation into an hour's time slot. Hey, it's good to see a vendor continue to invest in new functionality, and not just milk what they have delivered in the past.

Makes you wonder how much further our industry would be if other vendors would similarly reverse their 50 to 60% of revenue investment in Sales and Marketing and plough that into R&D.

 

Re: Oracle OpenWorld

I am going to miss going to the event next week. My fault. I had a conflict that cleared up, but not in time for Oracle to register me. I have asked them for streaming info so will catch up on a few sessions that way. Sorry to miss those who are going.

In the meantime, thanks to many of you for your input on whether I should think of next writing Oracle Nation. I have also reached out to Oracle to measure what their level of support might be if I do end up writing. Hopefully, it is comparable to the support I got from SAP in writing SAP Nation 3.0. I expect to hear back in a couple of weeks.

Those who do go to OOW, please send me your thoughts on the book, especially on the applications side of the business. You can be my eyes and ears there - will help considerably in my decision. Thanks!!

1995 called. Time to revisit your applications strategy. Now!

I joined Gartner in 1995. I remember clients would call and say they were getting ready for next-gen applications, but that they felt they had "enough time". The deadline in their case was, of course, the Y2K "wall". By the end of the year, the urgency grew and for the new few years, for several analysts like me, all hell broke loose.

Gartner had an elaborate call tracking and scheduling system called GAMEC to facilitate 30-to-60-minute consultations with clients. The average, annual GAMEC metric for an analyst was about 500 inquiries. In the 4 and a half years that I was at Gartner, through the end of 1999, my GAMEC count was over 7,500!

Having come from Price Waterhouse where I ran a software intelligence group, I handled many of the ERP software queries around SAP, Oracle, PeopleSoft, JD Edwards and other client/server vendors. Having done multiple implementations, I also handled many of the ERP systems integration queries around Deloitte, IBM and other SIs. And for years after leaving, in my own firms I helped many of these customers source and negotiate their ERP application management, hosting and other contracts.

As an industry, we declared victory that Y2K was not as lethal a disaster as some had projected. The reality is many clients waited too long and then paid significant premiums to SIs and still had poor implementations. Others did not do enough due diligence on their software vendors and many are still paying the price. Many only replaced back office systems, when updating operational areas would have delivered them much higher payback.

I get the feeling we are about to see a similar spike in interest in next-gen apps in a move that Hemingway called "gradually, then suddenly". As I tell my advisory clients "fool me twice, shame on me" - we made a lot of mistakes in the 90s and we would be remiss to repeat them.

I have had conversations with several SAP customers in writing SAP Nation 3.0 and others since it was published in March. Many of them say they are looking at migrating to S/4HANA, but then they add "we have time till 2025",  the announced SAP end of life for their current ERP software. Honestly, they should be looking not just at S/4 but other new SAP technologies like C/4, IBP and Leonardo. BI customers should be looking at the Analytics cloud. BusinessOne customers at ByD and so on.

But, wait a minute, we don't have a hard Y2K wall this time, so what's the hurry? If anything, it is possible SAP may extend ECC support beyond 2025. Customers of Oracle, Infor and other on-prem vendors show even less urgency in looking at next-gen solutions. But the management changes and layoffs at SAP earlier this year reflect an industry where open source, ML, IoT are the future not ABAP or Basis. The acquisitions of Mulesoft and Tableau at Salesforce, the autonomous database and cloud infrastructure investments at Oracle are signs of a significantly changing industry. Your Board and management team are talking Digital Transformations. Do you really want to be stuck in 2025 with technology and talent from the 90s or even earlier? Have you considered your recruiting brand for younger IT professionals if you want them to support Baan or PeopleSoft? Have you considered the compliance and security risks with your customizations around that technology?

If we learned anything from the 90s, we should be preparing for things very differently

a) Spend time to envision your next-gen application portfolio

In the 90s, applications consolidated many departmental solutions and allowed companies to set up shared service centers across global subsidiaries. This time around the goal should be about (and the payback will come from) retiring last-gen customizations and tons of spreadsheets, consolidating many of the surround cloud solutions companies have acquired in the last decade, and most critically modernizing industry and geography specific operational systems. They were neglected in the Y2K rush and in the twenty years since every industry and country has gone through seismic changes. Evaluate your current major software vendors to see if they can support you (make them share detailed road maps for industry and geographical growth, and negotiate penalties if they delay planned deliveries), but also be prepared to look around. There are plenty of vertical and geographic application specialists, and you should consider custom developed applications which leverage next gen ML, multi-tenancy and other platform capabilities from Amazon, Microsoft, Google, Alibaba and others. All this will take months, if not years to evaluate.

b) Spend as much time to review your service providers and your own talent needs

No question - the last wave of services procurements was poorly done. Companies did not plan for a life cycle of needs. They hired SIs for initial implementations, then outsourced their infrastructure to hosting firms, then hired application management, often offshore firms to help with on-going care and feeding of their applications. Each of these was done over years, often with different providers. It has also become their biggest single cost, without proportionately positive results. However, so much has changed in the last twenty years. Services should be a lot more automated now. They should deliver shared service/multi-tenancy efficiencies. There are third party maintenance firms for level 3 support, rural sourcing and near sourcing firms for AMS. We are also seeing a reversal and several CIOs are insourcing talent. Much of it is for making their own products smarter, IoT compatible and contemporary in design. As with vendors, customers are having to look for talent with open source, ML, integration and other capabilities. Reviewing the changed talent and automation marketplace similarly deserves months of analysis.   

c) Do more scenario planning, not traditional TCO/ROI analysis

I hear from several customers they cannot justify a move to a next-gen product. I can certainly empathize, but often their analysis of the cost and benefit is one-dimensional, focused on a single application and does not cover the lifecycle. We need a new generation of IT financial analysts who can perform scenario analysis to handle the complexity of multi-year, portfolio wide migrations.

d) Develop a new intelligence network

The one big difference since the 90s is proliferation in information sources. Blogs and vendor marketing materials are plentiful. But they tend to be anecdotal, or single threaded. And many tend to focus on the negative. Google the term "SAP Indirect Access" and you get 6.5 million hits. Is that a concern? Of course, but one of 00s of things to consider as you look at next-gen applications. Peer networks are a far better source of intelligence and sharing. Again, you need multiple conversations given the complexity of the portfolio.

Long and short, it's not too early to start reevaluating your application portfolio. Don't let vendor end-of-life projections lull you - or in reverse, force you to join a stampede in migration. Do it on your own terms and speed, but don't ignore the history of the 90s. You may be doomed to repeat those mistakes.  

SAP and the changing face of Asia

I have increasingly been pointing out a huge under-achievement in the contemporary applications market. After two decades, only about 20% of a grid across countries and industry processes has a decent choice in cloud solutions. As a result, I have accelerated my coverage of applications and executives who are focused on the white spaces - see some of that coverage summarized here in a trend I call Glo-ver expansion in focus.

So, I looked forward to an opportunity to meet with several of SAP’s Asian customers at an event in Bangkok last week. Even better, they actually showcased a wide range of industry nuances across the country/industry grid.

Zahila Mohd-Ali of Sarawak Energy talked about a Vegetation Management System, an important consideration for a utility in tropical Malaysia. She covered wide ground including drone applications in thermographic inspections, mobile field force applications and operational parameters at power plants.

Hans Van Wuijchkhuijse of Troo talked about the very different challenges of selling life insurance in a country like the Philippines where 52% of the population is under 25 years old and tethered to mobile technology. He related to his own experience growing up - his dad had told him to go talk to the insurance agent the family had long patronized.

In another country with a similarly young demographic, Myanmar, Roland Lee described City Mart’s fantastic growth from a single supermarket in 1996 to wide range of modern physical and electronic retail channels with 9,000 employees. In a fascinating breakout, listening to him describe rapidly changing customer preferences and logistical challenges I felt like I could have been talking to a grocery exec in the US as Amazon and others dramatically reshape that sector.

Lisa Robins of Standard Chartered simplified the complex supply chain in auto, aviation and other manufacturing sectors across Asia, and then related that to cash flow her bank helps finance especially for smaller suppliers in lower tiers of the chains.

Daniel Laverick of Zuellig Pharma talked about his company’s efforts to ‘fight fakes’ - counterfeits and other pharma tampering in Asia. He talked about the promise of Blockchain in that context. In a breakout, he talked about bridging his IT organization - a seasoned ECC support staff with others focused on proprietary algorithms and Azure cloud nuances.

I especially enjoyed time we had with Scott Russell, SAP President, Asia Pacific and Japan. He likes to use the term ‘Asia Soaring’ for the region that has been home to him and his family. Organizationally, SAP has China and a few other markets reporting directly to the Board but Scott’s territory is wide and he can effortlessly cover nuances across each of the markets. I told him I could spend days listening to him talk about war stories from each market. I come to this part of the world about once a year - he has lived here every day since the early 2000s.

There were other perspectives from execs at Ananda, a real estate developer, the National University of Singapore, SingEx, a venue/events organizer and a tour of one of JustCo’s coworking locations in the city. 

The big takeaway from me from the event was Asia has long been a manufacturing base for the world. That is changing as trade tensions between US and China intensify. But even more so with its bright, young demographic Asia will increasingly influence customer expectations and experiences for the world. My wife and I then spent a few days in Japan with its fascinating blend of extreme automation in every aspect of life and immense respect for artisans of every flavor. The world will increasingly look to Japan as the man-machine mix similarly evolves everywhere.

I wish I had more time understanding how SAP competes in this more price sensitive part of the world. Also, how SAP and regional partners will support the vertical diversity that was highlighted at the event. One risk is SAP keeps just talking S/4, C/4, Experience Management and not drilling into vertical operational areas.

For now, it is time for Oracle, Salesforce, Workday and others to similarly start showcasing their Glo-ver investments. SAP has been in Asia over 30 years and now has over 9,000 employees spread across 31 office in the region. The event in Bangkok showed me just how far the competition has to go to catch up.

Plex ML project - something every software vendor/systems integrator could emulate

Machine Learning is a hot topic. Every software vendor is talking about ML and AI in their products. Plex applied ML to something very different - an understanding of how their customers configure parameters in the Plex system. This conversation with Jerry Foster, CTO, describes the project.

It has always bothered me that after millions of ERP, CRM and other enterprise projects and upgrades, we cannot get predictability and savings from automation in these projects. I think every software vendor and SI can build on this exercise around other SaaS products to automate configuration and related templates. Another interesting area Jerry describes is how rethinking customizations and the UX can dramatically reduce configuration change effort.

 

When your competitors talk about machine learning, it’s typically in terms of customer data and different functional areas like accounts payable. Your project looked at implementation configurations, which is a unique approach. Can you share your perspective on Machine Learning?

Just like with any transformative technology, everyone likes to ask, "What is your machine learning strategy?" or "What's your IoT strategy?"  But you can really go down a rabbit trail because those technologies are so big. So we've always tried to ask “What problems are we going to solve for our customers?” which could even mean solving an internal challenge that ultimately helps our customers.

At Plex, we didn't want to just start building Machine Learning models and doing them willy-nilly. Instead, me and my team discussed areas where we could apply machine learning efforts in order to solve a problem while also gaining our own internal knowledge on what a ML project entails.

Can you share some background on how this specific Machine Learning initiative began?

Last year, our VP of Services told me that about 15% of incoming customer care tickets deal exclusively with the configuration setup of our system.

Because the Plex Manufacturing Cloud is a Software-as-a-Service product, everyone is using the same codebase, which means we use configuration settings (also known as customer settings) that determine how the software behaves and functions.

Settings have business flow and visual ramifications. For example, some of those settings determine actual workflow, which may be different for a food and beverage customer versus a discrete manufacturing customer.  While others are as simple as a setting that will show certain columns on the screen and, if it's turned off, they are no longer visible. 

Because the system is so full-featured, there are a large number of settings so it would be unreasonable to expect our customers or even our Customer Care team to fully understand all of the interdependencies of the settings and the unintended side effects from turning settings on and off.

Obviously, when engineers build these systems, they try to take that into account.  They will add a new setting and see how it works with all other similar settings.  But over time, you can't ascertain all of the effects of all of those settings.

Our customers are trying to figure out how to optimize their settings, so when I was pondering that stat – 15% of our tickets are related to configuration settings – I realized this would be a great place to build a machine learning model that could help us understand what the net effect is.

Our desire was to ask “How could a customer use this model to compare it to their settings?” and be able to say, "Here are the settings you should change in order to have the optimum configuration.”

Once you identified your objective, where did you start? What technologies did you use?

We put together a team of engineers and gave them this assumption that there is a data set that could be analyzed to determine whether or not a customer's settings are configured correctly.

The team came up with a framework and a set of tools, which included Azure Machine Learning Studio because, in our opinion, Microsoft has done a really good job providing the necessary tools to very quickly get up to speed on a machine learning presentation.  We also used Neo4j as our graphing database and a system called Notebook, which is a way to put together any Python scripts that you are using to augment your artificial intelligence project. 

From there, the team put these tools together and started building out their models.

Once you had the tools, what was the process like?

 There were actually three phases to the project.  The first is feature discovery, which is basically asking “What are the data sets that we need to test our assumption?”  The second phase was building the knowledge capture system, which actually gathers all of the data from the feature discovery.  Then, of course, the final phase is a building a recommendation system.

The first phase – feature discovery – was determining which data sets were the most important.  One thing I learned is that feature discovery is just as much art as it is science.  You really have to have people on your team that know the data.

We put together a set of data that we could use to test our thesis and we started to build some models around that data.  We found that once we had a set of features and a set of data points, it wasn't enough to determine what data points to use, we needed to establish just how much data to use as well.

For instance, if we were too restrictive in our data sets that we were using, the models couldn't make any inferences from that.  It was basically regurgitating what you put in.  But if we were too broad in the amount of data, data sets, and features that we were putting into the model, it just came up with all sorts of crazy inferences and dependencies that had no meaning.

We had to keep refining, which we is a big part of the machine learning process. We really had to learn to accept that there is an iterative nature to determining which data could best give us the results that we were looking for.

Once we had a set of data points and features that we felt were representative and returned some good initial results, we built a knowledge capture system using Neo4j, Excel spreadsheets, and a data factory from Microsoft. This system pulled in the data, adjusted it, and used the models that we had built in ML Framework to start analyzing the data. 

The next part was actually consolidating and analyzing the data using mainly Azure ML as well as some Power BI and Excel along with Neo4j for some of the visual representation.

Can you explain how this applied to the configuration setting problem you were trying to solve?

As I mentioned, our customers turn settings on and off in order to configure the system to meet their needs.

To make that process easier, Plex has a set of customer setting templates – 12 or 13 primary templates based on size, industry, facility count, etc. – that we use to categorize our customers, which then informs new customer implementations. When a new customer is brought into the fold, it’s more efficient to associate them with an appropriate template and copy the template settings to their instance.

For this project, we wanted the algorithm to pretend we didn't have those templates and determine on its own how it would group our customers. We fed the data into the model and it begain to cluster our customers and match them with a particular customer setting template. Using a mechanism called similarity analysis, the model then made recommendations based on the delta between the customer and neighbors using their common template as a baseline. 

Can you show me how this played out in the model?

The image below is from Neo4j and it actually shows the clustering of customers matched to a particular template.  It first came up with its own clustering, and then it attempted to match those clusters with our templates. 

This next image shows the model’s clusters.  It identified 14 broad groups completely disconnected from our templates. 

Then what we told the model to do on this next screen was to try and match its clusters with our templates, and it actually grouped our templates into those four groups that you see highlighted right there: 0, 7, 9, and 11. 

So the model reclassified your templates?

Yes, the machine learning algorithm essentially said four of the groups it had defined (Group 0, 7, 9, and 11), could match up with one or more of Plex’s existing templates. 

What else does this tell you?

All in all, what you see here is basically six of its groups matched our templates. As you can see on this next image, the model matched two of its groupings – 3 and 8 – with a few templates that we don't typically use as much. The model also has two groupings, 2 and 6, that it couldn't match with any of our templates.

One of the main findings coming out of this is that we are basically missing two templates.  In other words, there is a set of customers that, when they onboard as a new customer, we're assigning them to a template that, although it may not be bad, is probably not the optimum template that they should be getting.

This final graph illustrates a finding that was consistent across the board : the number of times our customer settings were changed dropped off a cliff in about 2015.  That was a completely unexpected finding from the study.

 

This finding validated the work that we've been doing since 2014 to reduce our overall dependence on settings, including our new user interface, which is much less settings-dependent than Classic. It gave us confidence we were on the right path.

This is also really cool because it wasn't actually in our initial hypothesis. It wasn't what my team was trying to find or determine, and it was just an unintended side effect of the work they were doing.  Of course, one of the advantages when you start doing a project like this is you start looking at your data in detail and you come across insights that you had never expected.  This is something that the initial algorithms that we were putting together showed us that wasn't even part of our initial thesis.

Those were the two main results: identifying configuration setting templates that we had missed, and showing us that the work we had done in reducing the number of settings had paid off. 

What action will you take from here?

One of the follow-throughs from this, obviously, will be to look at the model’s groupings that do not identify with a Plex template and ask what are the characteristics of the customers in those groups?  Why did we miss those?  One of the main follow-ups that we're doing right now and in upcoming months is trying to determine which customers are in those groups and what are the characteristics of those groups so we can come up with a proper template for those customers.

The second action is to follow through with the recommendation system because that's really where the productization of this is going.  If I'm an existing customer, I want to know if my settings are optimum. I want to know, based on all the customers that are like me, which of my settings are different, and why do I have those settings different than all of the other customers who are like me?

We already have the "like me" part done.  Now, we actually have to productize that so we can provide a tool, and we want to provide that tool in two different contexts.  One is an internal tool for our support team so that when they get an incoming call that says, "Hey, I've got a problem," they can run this against the settings optimization tool and say, "You know what?  You might want to check these settings.  I've noticed that they're different from you, but all other customers like you have these settings set differently."  Then, of course, the next iteration or the second context would be a self-service tool that the customer could just go onto the Plex menu and analyze their settings. 

Were you happy with the results of this project?

Overall, I was very pleased with the outcome of the project and how the team worked.  It was exciting to see.  One of the interesting things about where machine learning has come from where it was five, ten years ago is that the tools are so strong that you don't need a team of data scientists.  You need a team of smart engineers and a couple people who know the data. 

Yes, a data scientist is obviously going to help, but to get 70% or 80% of the way, in my opinion, you don't really need a data scientist.  All the things we did here, there was no data scientist involved.  That, to me, was a real encouragement.

The last takeaway I'm taking from this is, once you start to realize what's behind machine learning, you actually start to use that as a mechanism to solve problems.  In other words, it's not just this machine learning project that the labs did.  It's how we can analyze any problem moving forward.

It's going to be a long journey, but it's very exciting.  I'm really excited to see where we can go with this.

Time for Oracle Nation?

I have analyzed Oracle applications business since the early 90s - first at PwC, then Gartner, now at Deal Architect. I have long been a Larry Ellison admirer, much less so of his company's applications. It has been a perennial, promising, second ranked "Avis" in the applications market. The problem is their "we try harder" mission often gets distracted by the company's database or tools or infrastructure business. I get excited every few years, but they always seem to lose momentum. Reading Steve Miranda's comments in Seeking Alpha, it may be time to get excited again:

"It is the industry's most complete set of cloud applications and consists of more than 1,100 different modules. We have applications for every business function from finance and HR to supply chain, manufacturing, sales, marketing, and customer service. Our portfolio also includes dedicated applications for industry verticals."

If the 1,100 modules cover a wide range of global and vertical angles, it  would make them by far the vendor with the widest functionality in the cloud. See my post about the poor Glo-ver coverage in enterprise apps. 

I have thought about writing Oracle Nation in the past focusing on its application business history over the last couple of decades. It is a rich motherlode to mine: 

- Lots of very interesting executives - Larry, Mark Hurd, Ray Lane, Charles Phillips, Thomas Kurian among the many who have shaped its applications journey

- A wide tapestry of application software companies which have been acquired by Oracle

- Changing mix of competition - Microsoft, SAP, Salesforce, Workday etc.

- Legal and other spats with DOJ, SAP, Rimini Street etc

I have hesitated in the past because of several reasons

- Many a gossipy book has been written about Larry, so I understand why Oracle is a bit wary of authors. That is not my angle - I write about companies not personalities. I have plenty of contacts at Oracle customers, partners, alum but but without open access at Oracle, the book would be incomplete.

- My style is case study heavy. I like to interview a broad range of customers across countries and industries. I have not seen that range of customers - sure Oracle has them, but will need help there.

- As a couple of my analyst friends have (snarkily) asked - what new will you present in the book? Their point is Oracle is the bully in the industry, not well-liked - how will I be able to change that perception? 

Frankly, my job is to present the facts based on lots of research and let the reader decide on the perception. As another analyst once told me "You can make a brown paper bag sound interesting". 7 books in the last decade have given me plenty of practice.

Two decisions I have to make in the next few months:

- The first is a business decision. Based on feedback to my recent book, SAP Nation 3.0, I sense a book on Salesforce/Workday and other SaaS leaders may generate more of an audience. Even more would be one on PaaS and IaaS using Amazon, Microsoft and Google tools. 

- Secondly, I have to make sure this is not another case of "mission accomplished". In 2006, Oracle had (way) prematurely celebrated "Halfway to Fusion". I need to ensure the 1,100 modules in the cloud, as Steve claims, cover a wide range of global and vertical angles and have a reasonable number of customers in production. 

Likely make a decision before the end of the year. Readers - help me out with your thumbs up or down and why.  

Promotional Price on SAP Nation 3.0

For all the talk about digital everything, the reality is 75% of my books over the last decade have sold in print version. That's largely because I order a couple of bulk print runs for larger orders of 50 or more copies.

For SAP Nation 3.0, the print version has actually been running over 90%. Two large bulk print runs sold out pretty quickly. (The actual readership is a bit more skewed to digital because Amazon offers an Unlimited Subscription and a Lending Library for Kindle copies and they don't show as unit sales).

That is amazing considering the print list price is 3X the Kindle price. Still, to give the Kindle version some more support, I am running a half-off promotion for a week starting Sunday morning on the Amazon.com site. You can get the Kindle copy here for $4.99.

Enjoy and thanks for your support.

Where have all the process visionaries gone?

A recent visit to an Amazon Fulfillment Center was eye-opening. They have completely redefined the old warehouse pick, pack, ship mindset. It's now stow, pick, pack, verify, and in their lingo, SLAM and "chaotic storage". Kiva robots and miles of conveyor belts bring work to employees not the other way round. Scanners, scales, sensors monitor and facilitate the worker - what size box to assemble, cut right length of packing tape, apply shipping labels etc. Read more about my visit here. 

I was recounting the visit to a software CEO. He said "Amazon is amazing". And I responded - "it's not just Amazon". I told him about companies I have worked with and written about that have dramatically rethought their processes with all kinds of modern technology - shop floors, cashierless stores, return logistics, transportation routing, payment processing and on and on. He asked me which vendors they work with. And I named a few then stopped and said "In the end, these customers are themselves driving the vision about the new process with a wide range of technologies. Rarely is there a single vendor or product".

The realization sunk in that true process innovation is not really being bought "shrink wrapped". Companies which are taking a "systems approach" - adding sensors, robots, flexible workflow, RPA at front, center, back of any process - are getting stunningly better results.

Of course, plenty of SIs will continue to talk about "best practices" embodied in packaged software, and many customers will say they are satisfied with "good enough" processes.

Most software vendors have in the move to cloud computing hired good architects who have helped them think about multi-tenancy and platform technology. They have not invested similarly in business process experts, especially those unique to individual industries or geographies. And even with the underlying technology they have waited for consumer tech to innovate with UX, AI etc. A few of their "good enough processes" added together could translate to several basis points of margin lost every year.

Jeff Bezos, CEO of Amazon has been known to say "your margin is my opportunity". I used to think it was his way of targeting fat, dumb, high-margin competitors. After visiting his warehouse, I think he also means to target companies which are not focused enough on margins and instead waste them in process inefficiencies.   

Infor: Part of the bigger Koch puzzle

I was excited when Charles Phillips and his team arrived at Infor in 2010. I looked forward to them executing to their vision they would focus on various verticals like healthcare and hospitality. Over the last few years I have become less excited as they have not delivered operational functionality for those verticals, but more horizontal financials, crm, and hcm functionality.  

I am not just picking on Infor. I have been clamoring for more "Glo-ver" functionality. After 20 years of cloud apps, we have too much of the horizontal stuff in English-speaking countries. Customers are not waiting and they are finding plenty of solutions to fill geographic and vertical niches. They are going to startups, SIs and are even filling the gaps themselves.

Which is why it is interesting to see (courtesy of Bloomberg, sub required) the other tech investments Koch Brothers have been making in addition to that in Infor.

Then you look at the breadth of the Koch empire across industries

Sure they are going through a variety of digital transformations in these subsidiaries and could commercialize that in the form of solutions to bring to market.

So, the opportunity for more "Glo-ver" is at the Koch level. I hope they start presenting to us at that higher level of vision. That would get me and many customers a lot more excited.

Maverick idea: Shift some marketing dollars to product design

(Sir) Jony Ive recently left Apple to start his own design studio. On his heels, Marcus Engman with a similar role at Ikea is doing the same, and he has an interesting value proposition “I want to show there’s an alternative to marketing, which is actually design ..And if you work with design and communications in the right way, that would be the best kind of marketing, without buying media.”

He is definitely on to something. Look at all the money we have poured into modern marketing and the poor results

1. email marketing has led to all kinds of spam and phishing scandals
2. telemarketing has turned into nuisance calls, robocalls and scams
3. TV advertising has been abused to the point where the FCC does not even try to limit number of commercial minutes per hour anymore - other than for kid's programming
4. digital marketing is turning into a privacy nightmare

BTW, there is a naive view that GDPR and EU regulators will somehow make 4) more viable. To which I point to how poorly regulators have done trying to regulate 1, 2 and 3.

Nineteenth century retailer John Wanamaker is credited with saying “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” We spend a lot more on advertising these days, and have much better tools, but the results are only marginally better.

The sad thing is enterprise vendors have for over a decade now missed the move to smart products, a trillion+ dollar market I covered in my 2012 book The New Technology Elite. Contract manufacturers like Flex and Foxconn and design firms like IDEO and frog were the big beneficiaries of a focus on smarter, better designed products and services.

Enterprise vendors brag about CRM, but the reality is most also missed out on the digital advertising market. Google, Facebook, now Amazon have mostly benefited.

Will they change their tune and encourage customers to try the balancing act Engman is preaching?

Is Oracle having an application fire sale?

I tend to not focus so much on what vendors report to Wall Street and focus more on what they are delivering to customers, but three numbers jumped out at me in this Seeking Alpha article

Oracle cloud apps annual revenue of = $ 11.49 billion

Oracle apps modules in the cloud = 1,100

Oracle cloud apps customers = 6,000

That makes it average annual revenue of $ 1,741 per module per customer. That's way cheap for Oracle.

One or more of those numbers is likely off. I will let my financial analyst friends check into that.

Me - I am going to tell Oracle customers to invoke their "most favored customer" clauses and ask for software at that bargain price :)

Rimini Street tries to reshape AMS

I drove by the Renaissance hotel in Powai on the outskirts of Mumbai in India last month. It brought back memories - I had taken a client there 15 years ago on a due diligence trip as they looked to outsource their SAP application management, Basis support etc. Over the next few years I took several other clients to other Indian and E. European cities.

Then in 2010, I stopped doing so. The economics were just not as compelling, the staff quality was deteriorating/turnover was rampant, the overhead of dealing with staff often many time zones away added to an already complex environment. The offshore, and even domestic AMS model did not die, but it has been ripe for automation and a less labor intensive, more shared service/multi-tenancy model.

I have been encouraging Rimini Street for years to enter the market. They already support customizations to SAP and Oracle in their customer base. They have an agile, small team model. They could combine Level 2 and 3 support for customers. They have a generally happy customer base around the world, even if the publishers don't exactly show them much love.

They have finally entered the AMS market. Here is the announcement.

Is it too late? The AMS market is going through massive changes. SAP customers have been ring-fencing ECC with cloud solutions, and two-ERP subsidiary models. Many ECC customers will move to S/4HANA in the next few years. SAP has a whole new slew of products I describe in SAP Nation 3.0 - C/4HANA, SCP, SAC, AIN, IBP, Leonardo ML and IoT and on and on. It's not your Dad's SAP customer base.

Yet the ECC-centric AMS market continue to chug along at over $ 80 b a year. It was one of the biggest components in the models I had built of the economy in the first volume of SAP Nation.

So, it is good for customers to have another, quite different, AMS provider. In many ways, it is also good for SAP. Better late than never if SAP customers can see operational efficiencies in the Run phase. It will make them more willing to look at newer SAP products knowing they don't have to continue to live with circa 80s and 90s support models around today's products.

The "Glo-ver" phase in enterprise apps

I don't mean to pick on NetSuite but it is one of the oldest cloud apps vendors - born as it was in 1998. Over 21 years, you would think it would have a fuller global footprint. Especially since it had an opportunity for global subsidiary implementations in a two-tier ERP world.  Look at its site and see how few countries it supports functionally. Look closer and even there see how many functional areas are covered by partners. Some analysts say since Oracle's acquisition in 2016, its geographic reach has grown. Yes, likely in terms of sales reach, but in functional footprint - not sure it has.  

Same thing with Infor. For nearly a decade it has talked about emphasizing vertical functionality. But it has largely spray painted its financial, crm and hcm features with some industry terminology. It has not developed operational books of record - patient related functionality in healthcare, merchandising in retail etc. 

It's not just Netsuite or Infor. Most other cloud vendors are largely English speaking-centric and horizontal in functionality. Hey, cannot blame them - they are doing fine. Wall Street is generally happy with their performance.

In the meantime, however, the world has changed dramatically. Customers are not waiting and they are finding plenty of solutions to fill geographic and vertical niches. They are going to startups, SIs and are even filling the gaps themselves.

In the last few weeks I have profiled some of these extensions

• Mike Laven of CurrencyCloud covered fast moving trends in Fintech
• Larry Bridge of Cognizant talked about trends and solutions in healthcare 
• Uptake execs talked about assets and dealers in heavy industrial sectors 
• Raju Vegesna of Zoho talked about coverage in places like Japan, UAE and Nigeria which most vendors usually ignore 
• Mike Laven elaborated on how China and India are reshaping global financial markets 

Expect my coverage of global and vertical trends to accelerate. The applications industry is rapidly moving into the phase of "Glo-ver" extensions - global and vertical extensions to core horizontal functionality.

Cognizant and the healthcare vertical

I had a chance to talk to Larry Bridge, SVP Healthcare Strategy at Cognizant about the sector and how healthcare vertical solutions have evolved in his 30+ year career.  

Every industry is unique, but it would seem the healthcare vertical, particularly in the US, is truly unique. Is that why mainstream technology vendors struggle to get much traction here?

We always say the healthcare market has evolved rather than engineered.  I think that brings a lot of the complexity to it that everybody who plays in it deals with.

We get this, I'll bet, 20 times a year where one of our big partners from banking and financial services,  says, "Hey, healthcare is a big, growing business.  We've got a play to make," and they can't wait to have a meeting.  They want to end the two-hour meeting with a go-to-market plan.  Five meetings later, almost the glassy-eyed, overwhelmed look that you get from the, "I didn't know it was this complex," "I didn't know it changed so often." 

They walked in day one saying, "This will be a great two-hour meeting, and we're going to walk away with access to a $3 trillion market," and in fact, a dozen meetings later, well, not only are they no further than they were, but it's kind of stymied based on the complexity.

Whether it's Oracle, whether it's Salesforce which has invested a lot in healthcare, whether it's Google and Apple - a lot of investment in healthcare is taking place.  The nontraditional vendors certainly are building healthcare specific solutions but, in every case, what we have found is they lack depth of industry specificity, knowledge, subject matter expertise, compliance.  Compliance is huge in healthcare, CMS security rules, HIPAA, the new CMS interoperability rules that just got published.  Well, they actually aren't even published.  The rule just got passed and now they're determining the details around it for implementation in 2020.

The complexity of healthcare, I think, has kept some of the more generic platform solutions from really gaining traction in healthcare.  It's not that they don't have good assets and we use all of them in combination with our core systems, but it's still the industry-specific cores that are ruling the day.

Remember the Affordable Care Act came back several years ago?  Then it was all going to be done away with and we were going to repeal and replace.  Well, that didn't happen.  Now there are the new CMS transparency rules.  All of these changes require changes to the underlying platforms and services

What you have to put into these systems from a regulatory and compliance perspective is huge and to keep up with it, the new rules, making sure you're HIPAA compliant.  The whole security side of things when you're dealing with healthcare data.  The chain of control and the sign-offs that you have from people that can access certain types of data at certain times.  All very complex and evolving; I think that's one of the unique things that applies across all three of those customer groups. 

How do you segment the large industry opportunities?    

I break it into, generally, three big client groups.  Each one of those client groups has a core platform, and it's very specific to what they do

In the hospital and health systems, it's the big EHRs, the electronic health records.  Cerner and Epic Systems are the top two.  Allscripts is number three.  They're the ones that really dominate in that area. Now, we will help install Epic and Cerner and other EHRs and we sell services into that segment, but we don't own a software platform there.

If you move to the other side, payers, insurance companies, that's where we dominate with our Facets and QNXT solutions.  Epic does have a payer core system offering that's tied into its EHR called Tapestry, but the only place that really wins is if the health plan is part of a big health system that is already on Epic.  Then they'll use Tapestry to extend into the insurance side of the business, but it's much less functional  than what you would get from our core payer systems.

Then there are office-based physicians.  Their core system would be the practice management system.  You may have heard of, and maybe you're familiar with, eClinicalWorks, Greenway Health and companies like that.  They are all PM vendors.  There are literally hundreds of them that are out there.  In fact, 300+ of the PM vendors are our partners. If you think about a provider practice with anywhere from two to, let's call it, 50 physicians, everything around not only having your practice management system but submitting your claims, reconciling to your accounts receivable system, what comes back, handing rejections, things like that.  Almost everybody is buying a revenue cycle management and EDI service to go with it.  These are things we (Cognizant) sell using those channel partners. 

We also do revenue cycle management in hospitals and health systems.  That is pure services as opposed to the software.  We work with the software they have and provide those services around it. 

How has Cognizant's healthcare business and market evolved?

When you think of Cognizant's healthcare business, particularly when it comes to some of these core platforms, the real driver here was the acquisition of TriZetto (5 years ago) and the use of TriZetto's platforms as core operating systems for health insurance companies. 

TriZetto's platforms, two big ones, Facets and QNXT, are like SAP would be to a manufacturing company.  It's essentially the core engine that the company runs on.  Selling software in that area was TriZetto's history.  We still do that as part of Cognizant.

Now, we're bringing them to market increasingly with Cognizant, as part of Cognizant and its platform-based solutions.  It is the TriZetto software platforms, but it's services around it as well.  I would say that probably our new clients are probably evenly split between those who want to license the software to those that want it as part of a more comprehensive, end-to-end platform-based solution.  It's definitely trending toward the latter, particularly for specialized lines of business like Medicare Advantage where people are really looking for a business outcome, as opposed to just the software.

The place where Cognizant has the software that really dominates is in the payer and health insurance market.  The larger payers, the larger health insurance companies--Aetna, United, Cigna, companies like that--by and large are software buyers.  They will also buy a lot of services,  but they generally don't buy the complete end-to-end solution whereas, when you move down the line to the midsized and smaller buyers, it's just the opposite.  They're almost always buying an integrated platform-based solution, and especially when they get into things like a new line of business like Medicare Advantage.

If I were a midsized insurer and I sold generally to employer groups, employer-based insurance, and I decided to get into the Medicare business, which, for insurers, it's called Medicare Advantage, it's Medicare Part C, there is a whole new host of rules, regulations, reporting, compliance, submissions, reconciliations, everything you would have to learn to get into that business and perform successfully.  For anybody smaller than the largest companies out there, to figure that out, to build up the department, the compliance team, to go through the work, I mean they would pay double compared to having somebody like us bring an integrated solution to them. 

When we bring an end-to-end client on, on one of our Medicare Advantage platform-based solutions, right off the bat we save them about 30% to 40% compared to them doing it themselves.  Then, over time, say over a five- to seven-year contract, they'd end up paying about half having us do it as opposed to them trying to do it themselves just because there's so much that you have to do in terms of rules, regs, subject matter expertise, configuration, submission back and forth to the government, and so on.  In that market, it is very much an integrated services and software play in the middle to small plan size.  It's still a software play up at the larger side. 

What's it like to be a software company like TriZetto inside a big services company like Cognizant?

TriZetto was a fairly large software company - about $800 million of revenue when it was acquired.  There was enough heft to the company that allowed the software business to sustain

It's been a blending of cultures.  Software brings you repeatability, scale, but you have a lot less opportunity to customize your solutions than you would if you're a pure services company.  I think that finding the balance between the two was a key part of a successful integration.

What we found out, I think, is that we're well positioned to bring the best of both markets.  We can serve all the segments, and it really allows us to go in and tailor the solution based on their need.  If you're one of those larger companies, if you have an IT shop of 2,000 people, and you're really buying 50 software products and then knitting them together yourself to develop what you think is the best solution, fantastic.  We're happy to sell you the software and support you in doing that.

If you're a mid or a small company and you're trying to get into a line of business or you're trying to figure out your business going forward and you don't have the scale, you don't have the subject matter expertise, you don't have the infrastructure, then our integrated software and service solutions, our platform-based solutions, as how we refer to them, are the best.  We can serve both, so I think it's been a very positive combination for Cognizant, but also for TriZetto as well. 

It depends on who you look at, but I think everybody -- the larger -- if you take the largest players and probably the biggest competitors in the healthcare market, you'd be looking at Cognizant, you'd be looking at Accenture, and you'd probably be looking at Optum, which is the software and services arm of UnitedHealthCare.  If you look at all three of us, Cognizant is very much invested in that software, services, integrated solution type model where we can do everything we've been talking about. Optum is very similar.  They don't have the core platform that we have, but they have so many of the surround software pieces and the consulting and the things like that.  They're coming in very much with that, "I've got software.  I've got services."  We find Optum does a lot of work around our platform and the things that augment.

Optum is a partner of ours.  They're a client.  They're a competitor.  We partner with Optum on certain pieces of software that enhance the services we offer.  Optum is definitely investing in that software, services, consulting type combination, as we are. 

Accenture leads with consulting services and strategy. They partner with a number of different software vendors.  I haven't seen the investment from them in healthcare software  that either Optum or Cognizant has made but, in the end, through partnerships, they're still trying to deliver across that spectrum. 

We think we have an advantage because we own the entire suite, including the core systems on the payer side that gives us that edge.  But I think you'd find us very similar to the others, for instance, in the provider and health system market.  None of the three of us that I mentioned owns a core health system software asset, but we're all building services around software around capabilities and consulting around the provider market.

What disruptive changes do you foresee?

If you think of healthcare broadly, and this is at the highest level, for every dollar spent on healthcare, $0.85 goes to actually providing care, so the doctors, the hospitals, the drugs, the treatment, and $0.15 goes to administering care, managing the provider office, running the health insurance company, things like that.

Almost everything that we've done in the past has been focused on that $0.15.  How do you make the administration more efficient?  How do you make it more seamless?  How do you help the day-to-day operations run differently? 

We are pivoting to expand into the cost of care area. How do we bring value-based care models or bundled payment models to market efficiently?  What technology?  Think of us as taking technology and applying it to the care side. 

Companies like Optum are also expanding into this area.  Optum is buying up provider practices.  For us, we probably, at least right now, do not want to be in the “Hands-on patient” services, but there are a lot of things we can do to help that care delivery process take place more efficiently.

We can help bring these new care models to market.  We can provide the tools that allow for digital engagement.  A member using their mobile phone to stay active and involved in their healthcare.  How that mobile phone connects to a connected device that measures lung function and heart function and breathing and exercise and things like that.  There are a lot of technology-based solutions we can do on that cost of care side.

The second thing is looking at the real impact of newer forms of technology and what it can do to deliver a better healthcare model.  Two big ones that come to mind: AI and Blockchain.  Artificial intelligence; we all read about it every day.  We hear about it.  A lot of hype. 

Well, there's a handful of use cases in there, virtual clinical assistants for the providers as an example.  If I'm a doctor, I'm at the point of care, and I'm diagnosing a patient with a specific disease, do I need to rely 100% on my medical knowledge to tell that patient what to do?  What if I had a real-time virtual clinical assistant that could tell me what the best practice is around this type of disease, what kind of drugs, what type of follow-up, what type of specialist might want to be involved?  That concept, even to the point that they act as chatbots and are learning and consulting with the doctor, if you will, at the point of care, that's just one tiny example of a very valid use case in healthcare. 

The second is blockchain.  It's probably the most overhyped technology out there.  Out of the hundred use cases that might apply to healthcare, there's probably four or five that make sense.  But - those four or five can be game-changers.  The way they change the way workflow happens within healthcare, what it can do to dramatically reduce cost or to improve security or to improve accuracy. 

There are two key examples.  We've got teams focused on both of these areas, healthcare AI and healthcare blockchain, that have done well and scaled, have the potential to really define some key things going on.  Emerging technology, as it applies to healthcare, as well as addressing technology-based solutions for the cost of care, those are two big areas of expansion that we see opportunity and are investing in.

Uptake Verticals - Part 2 - Dealers of Industrial Equipment

This continues our conversation about verticals at Uptake. Yesterday Lisa Dyer talked about their "asset and maintenance engines" and how they are adapted to several industrial verticals. Below we cover the discussion with Joe Rosing, Director of Product Marketing about functionality for Dealers of Industrial Equipment.

The Functionality

"I've been with Uptake for about a year now.  Previously, I had a little over 12 years with Rockwell Automation in a combination of manufacturing roles as well as product management in the control systems business.  Here at Uptake, I have focused primarily on solutions marketing with our heavy industries, specifically our dealer line of products that serve dealerships with construction, mining, and ag assets, as well as mining operators and then manufacturing as well.

 Most dealerships for heavy equipment are split primarily between a sales function and a service function.  Within those functions, then you'll have individual divisions.  For example, earthmoving or a division for agriculture or a division for rental, the motions of that business and the customer base are slightly different.  But what comes across all of those divisions, really, is the sales and the service workflow.

SalesLink is what we call our industrial CRM.  At a certain level, a CRM is a CRM.  But we've built it specifically for a dealership business.  So, it allows you to click into things like, "Show me all of the pieces of equipment that a customer has.  Show me all of the service notices or the warranty information for each of those pieces of equipment."  It gives you that level of details that, as a sales function within a dealership, you're going to want and you're going to want that pre-configured for you versus going with a more generic CRM that is maybe purposed for a broader set of industries.

Then in a similar way, what you have here with this iQuote and iMacs, these are tools to help you do intelligent quoting.  The reason why this is specific to the dealer business is because it allows the dealerships to look up, in real-time, the current price list with the OEM to make sure that they're getting the best available price at that time.  Otherwise, what you have to have is either people go online to the Caterpillar website or you might have to build other APIs into other systems.  We have all that purpose-built, so it keeps everything in sync with the latest and greatest information that's available from the OEM or from any type of other promotional activity that the dealer might be doing.

Then COTI is an application that helps manage the workflow once an order is taken through invoice.  If you think about what's involved in buying a bulldozer, for example, while the Tonka trucks all look the same, in reality, they're all configured differently.  A lot of times these machines are basically configured to order from standard components.  Those components might be coming from different places.  Some of them might be in stock at the dealership.  Some need to come from, basically, a warehouse through the OEM.  Some might need to be built.  They might be custom or just lower volume and they need to put them on order a full lead time from Caterpillar.

There's a lot of touchpoints and a lot of people involved.  Actually, once the order is taken, getting it to the point where all of those components arrive at the dealership.  Once all the components are there, getting it assembled into the final product as the customer would expect it.  Then managing the delivery process to the end-user and, ultimately, generating that invoice.  Whereas, in the past, that whole process might happen between a number of different systems or on paper, sometimes on whiteboards, what COTI does is it helps create, basically, one central place that manages that end-to-end workflow for the dealership.  Those are primarily the applications for the sales workflow.

Then for the service workflow, we integrate with some of the same components like this industrial CRM.  We only want you to have one CRM as a dealership.  We don't want you to have to think that you need multiple CRMs for different divisions or different workflows.  But, really, we start one step in advance of this.  This is where we're starting to use the asset data as a way to generate new leads for the dealership based on service opportunities.

We were running it initially with the condition monitoring portal, which connects to the asset data that's available on all of the equipment that you have basically set up with the system.  That allows you to get access to the different machine alerts that are coming off of the IoT devices on the machines.  Then there's a condition monitoring analyst that goes through those alerts, filters out the ones that need to be actioned, and then create a case.

That case is turned into a sales lead for service that says there are five fault alerts on the engine that a technician should go look at.  Whether this piece of equipment is under warranty, under a CSA, or just a straightaway service sale opportunity, it goes into the CRM as a lead for a parts and service sales rep to call on that customer and say, "Hey, look.  The data off of your machine is saying a service needs to be done.  Let's talk about how we want to handle this."  That's why it's integrated into our CRM.

Then, from there, we have, again, some quoting tools that are specific to that use case.  In particular, parts and service quoter.  We want the dealership to have access to information like, again, is it on a CSA?  Is it covered under warranty?  Do we want to charge time and labor or time and materials?  Do we want to charge just labor only or materials only?  You have that flexibility built into this parts and service quoter that is a little bit more intelligent and prepopulated than you would just out of a standard quoting tool.

Then once the customer says, "Yes, I want to do that work," it gets saved as a work order in ServiceLink which is really a service work order management system.  You can schedule your technicians in ServiceLink.  You can have visibility to making sure that you have the right technician assigned to the right job or, if they're going to be in a certain geography at a certain point in time, you can have them based in that geography for a week, for example, and look at the four or five service opportunities in that geography and get those assigned to them.

All of the work order detail is saved and passed through the platform here.  From the point in time that a condition monitoring analyst identified those fault codes, that service technician, actually, onsite at the machine, can see what fault codes were identified, any notes that that analyst put in place.  All of that information is available to them.  That's the advantage, again, of just having a platform that serves the different points along that workflow, both for sales and for service.

The Value Proposition

When we talk about automated case recommendation, this is the AI package that we had built inside of Asset IO.  This is a new functionality that we just released over the last month that starts to automate some of the process that we established with the condition monitoring portal.  It starts to automate what the condition monitoring analyst is doing by looking at the history of the data, whether that be machine data, work order data, case creation history where we can identify, for example, if we see these same four fault codes, those four fault codes typically end up in a case that gets actioned by the dealer.

We take that as a key input into this recommendation so that the software now can automatically say, "Any time I see these four fault codes, I'm automatically going to create a case and automatically populate a description of what could be wrong and then add a prescription for what needs to be done to fix it.”

With our insights engine now from Asset IO, what we're finding is 89% of the insights end up being reliable cases.  Now, think about what that means for an analyst.  They can look at 50,000, let's say, machine alerts and put one percent of those in a case, or they can look at hundreds of insights and put almost 90% of them in a case

The vast majority of our data science team has been working with this dealer business now for about four years because Caterpillar was one of the initial customers of Uptake. We also send them out regularly to go visit dealers.  In particular, with developing these additional data science models, there is a lot of interaction, either by phone or in person, at the dealerships to gain an understanding.

We still rely on customers for deeper level subject matter expertise.  But I can tell you, to put this together, there were about 30 new data science models that were developed and a lot of those were developed with the subject matter expertise of our data scientists that have just developed that expertise over the last couple of years.

I would add that I think the other place where we have expertise isn't just in the asset, but in the process itself.  No one really talks about assets in manufacturing.  You always talk about process.  Everything is at the process level.

As we get into automotive cases, for example, or metal fabrication, you're not just looking at an individual stamping press.  You're looking at the end-to-end stamping process.  We developed expertise in how material moves through that process, the robotics that are involved, the control systems that are involved, the data that's available.

From an expertise standpoint, really, what you're looking for is, as you talk with an operator who has been doing stamping on an individual line for 30 years, they almost have this machine whisperer talent, right?  They can just tell by the noise a machine is making or by the vibration of something on the line that there's something wrong.  What we're trying to do is basically marry that intuition with data-driven precision.  Beyond just having knowledge or expertise around the asset, I think we've done a lot of work the last couple of years to develop this expertise around individual processes that help us accelerate implementation and time to value for customers.

The other point is that our customers, some more so than others, are thinking about their workforce, their aging workforce.  What do we do with all the intuition and the knowledge that walks out the door when these folks retire?  This is just another way of codifying that deep, deep knowledge and making sure that you have that as your workforce evolves.  That's one of the concerns that we have for customers as they think about their future is the workforce part of it.  In other words, it's assets, it's process, it's people.

That is a huge concern in this dealer space because the availability of technicians that can actually do the work to fix these machines has just been dwindling.  Every dealer we talk to talks about how hard it is to find good technicians, to retain the talent that they have as some of their best technicians start to retire.  How they're trying to bring new technicians up to speed.  All the more information that we can provide to them through this condition monitoring portal of, "Hey, these are the alerts.  This is the description of what's typically wrong when we see these alerts.  This is the prescription of what you should do to solve those problems."  All of that helps our dealers just be more effective with the technicians that they have and improve that technician efficiency also such that when we indicate that they need to go visit a customer to do a job, it is a job that needs to be done.  They know everything that needs to be done on that machine, so they don't have to go back out two weeks later to do some other minor repair, but they can get it all done in one shot, improve that first-time fix ratio, and then move on to the next customer.  Improving that technician efficiency is a key component of the value that we drive in the dealer business in particular.

Uptake Verticals - Part 1 - Industry Asset Engines

I had a chance to talk to two executives at Uptake about vertical markets they focus on, under their tag line of "Our technology has seen millions of machine failures so you don't have to". First are the notes from the conversation with Lisa Dyer, till recently their Director of Product, about their "asset and maintenance engines" and how they are adapted to several heavy industrial verticals. Tomorrow, we will  cover the discussion with Joe Rosing, Director of Product Marketing about functionality for Dealers of Industrial Equipment.

The AI engines

I've been at Uptake for four years now and since the beginning, we’ve always been really focused on the industrial space, industries with heavy industrial assets, with the goal of helping them to increase productivity, reduce downtime, financially optimize their maintenance strategies and, ultimately, help them to improve their own customer experience.

So how do we do this?  We have an APM application called Asset IO. Broadly, it offers a full suite of what I'll call blended maintenance strategies.  Meaning, a company - given their journey in transforming how they manage their assets - may be at different places in terms of their maturity and thus, appetite for different strategies.  For example, not everyone is ready to go all the way to predictive.  The blended maintenance strategies and offering that we have helps customers understand what they can do now, given where they are from a maturity standpoint, and gives them a path forward to advance their strategies.

Let’s talk about the ground work we’ve done with the Uptake Platform that ultimately supports our applications and provides our customers with an end-to-end solution.  The platform uses a series of AI methodologies to ingest and normalize data as well as predict failures and maintenance needs.  We have over 150 unique algorithms that serve all different types of assets and industries.  To create new models, we use our AI engines, which serve as a starting point for common use cases.

For organizations performing reactive and/or time-based maintenance, for example a time-based maintenance plan from an OEM, we can help them create quick wins for their organization by reducing over-maintenance of assets.  With our data integrity engine we clean up work order data by identifying missing or inaccurate data, using unsupervised, supervised machine learning techniques and text mining.  We use AI to automatically make improvements for missing values or records to create asset and failure mode tags for each operator action so we can standardize across the plant and the fleet regardless if a customer is using different EAM systems.  This mitigates data quality issues so customers can see true O&M cost analysis.  Then with our planned maintenance optimization function, we can perform what-if scenarios to find the optimized maintenance strategy.  Our asset strategy library, which is a catalog that contains something like over eight hundred asset types that are supported by over fifty-eight thousand failure modes that are found in over a hundred and seventy-eight thousand conditions, feds into the PM optimization function to allow what if scenarios to be conducted whether customers have connected assets or not. This helps them balance over and under maintaining assets.  One customer was able to reduce their maintenance costs by over a hundred thousand dollars a year by optimizing their maintenance strategy for 25 voltage motors across one plant.

We also can help organizations with other maintenance strategies like condition monitoring and predictive analytics.  We use our MLAD engine, that’s Machine Learning Anomaly Detection, for condition monitoring which detects abnormal behavior in asset data.  It determines the high/low tolerances for an entire fleet of assets.  This was helpful for one of our wind customers.  After just two weeks of monitoring the entire wind farm, we were able to determine one turbine was performing abnormally compared to the others. We alerted our customer to a potential failure and when they checked the turbine to determine the main bearing was about to fail. The repair cost them five thousand dollars verses the two hundred and fifty thousand it would have cost them had the bearing failed.

Additionally, the ‘normal range’ expectation adjusts as operating circumstances & environments change.  For example, a customer won’t see an alert when a spike in engine temperature occurs because of an external cause like increase in payload or going up a steep hill.

Our failure prediction engine ingests high volumes of  live streaming data across multiple sensor readings to detect deviations.  Instead of just understanding if an asset hits the high/low threshold, the engine correlates multiple sensor readings to detect and alert to deviations in order to provide advance notice that a failure will occur.  We caught a coolant issue because we were monitoring engine speed, engine oil temperature, and engine coolant temperature of a locomotive.  We saw that the engine coolant temperature was deviating slightly from the patterns of the engine speed and oil temperature.  Fault codes never fired because the data didn’t hit the OEM thresholds and the deviation in the data was too slight to notice by just looking at the data patterns, however our customer was alerted to the issue and able to schedule maintenance in advance of a failure occurring.

Adapting to verticals

While there are algorithms that can be used across different inquiries, most of our algorithms are built to support a particular industry.  We just use our AI Engines as a starting place to then tailor them by industry. This allows us to quickly deploy new models while also tailoring the applications.  Like in the trucking space, we have an algorithm to detect when a truck is running an inefficient DPF or diesel particulate filter. With one customer, we were able to save them over five hundred dollars a month for one truck with this model.  The fleet/trucking space is also a great example of how we tailor our applications to be industry specific not just with models, but capabilities, for example, we have driver scorecards and a mobile app for ELD, electric logging, that are needed to support our customers in the fleet industry.   

We have data scientists who are focused on specific vertical industries.  In part, what informs them and gives them the knowledge, besides the visits with customers and prospects and so forth, are regular deep dive sessions with folks who have been in the industry for 30-some years and they teach how to fix these assets, for example.  We rely on our advisors in understanding and getting down to the lowest level of how an asset or component could fail and all the ways in which it could fail, to help us find what causes it to fail and ultimately help improve the accuracy and efficacy of our data science models.

In certain industries such as transportation, the asset technology itself is evolving.  Take an on-highway truck, which is predominantly linked to a diesel engine.  Now we have CNC, natural gas-operated.  This is a whole new type of asset, a whole new process for maintaining and, again, that workforce that you may have may not be as familiar with something like a natural gas-powered or a renewable energy powered vehicle.  Our data science models that we develop around those new machines can also help with that.

 

 

Part 2 of conversation with Mike Laven of Currencycloud

In this part, Mike talks about the China influence on Fintech, Blockchain and other disruptive trends

Mike, I was in Shanghai a few months ago and I was blown away at how isolated I felt.  I didn't have the banking and other apps that the Chinese consumer has.  I felt cut out of that economy.  On the other hand, the Chinese consumer is so connected and digitally savvy. How do you see Chinese influence spreading to other global financial centers?

I just ran a seminar at a conference that I go to every year in the Alps.  It's a fun conference, put on by one of my investors. I ran a seminar for the morning on the Chinese Fintech Model.  I was the moderator and we had a whole bunch of knowledgeable people in the room discussing China. 

You’ve been in Shanghai. You walk into a restaurant. it may know who you are through geolocation.  You scan your QR code.  The menu shows up.  You order on-line, you just walk out, and you're billed.  Your account is then linked to the restaurant and everything works effortlessly. Payments can be embedded in your WeChat account.

There are a couple of things going on that are very difficult for us in the West.  First of all, a lot of the bank services are being delivered by a third party wallet outside of the banking system.  They're not being delivered by a bank.  Ant and Tencent effectively are running these huge balances that keep the wallet.  So we’re beyond the security of the banking system for holding balances.

The second thing that's quite important is our concepts of data privacy aren’t there.

Government has basically sponsored this massive infrastructure that totally integrates everyone into the financial system for every single thing that they do.  You get that utility at the expense of sharing all your information with government. Loose controls on anything to do with privacy and that makes all that work.  At this point the Chinese consumer doesn’t care about privacy in the same way, or has no choice. Maybe that will change in the future, but not now. That drives a level of integration and service provision that we can’t come close to.

When you think of whether the Chinese model will come to the West, I think, the answer is probably unlikely.  The U.S., is the most difficult market for financial innovation because U.S. banking regulations are so hard with banking regulated by 50 states. There have been attempts by the federal government to put in a national banking law and the states have defeated it each time.  Fintech innovation in the U.S., in anything that touches actual money, is incredibly difficult. The States have said, "No, we're not giving up our ability to protect our consumers," all of which means that it takes millions of dollars both in license fees and operation fees to build an innovative regulated financial platform in the US.

So in the US, Fintechs focus on technology first, and then the regulated platform becomes the bank.  Then the bank delivers the service and buys in the tech.  So I think the US model will be very bank focused.  In Europe where there is a single source of regulation it is easier to be a larger banking alternative which we’re seeing with the growth of large Neo Banks.

But the scenario that's more interesting -- and this is the summary of my seminar with a lot of really smart people -- what's much more interesting is, the Chinese may not care that much about Europe and the U.S.  

If you look at the places where that model is going, it's all over South Asia and all over Sub-Saharan Africa and all over Latin America.  The Chinese financial firms have figured out that the European and U.S. privacy standards, mean that the Chinese model of third-party wallets, total integration, and government access without so much concern for data privacy is not going to work in Europe and the U.S., but it's going to work everywhere else. It could come to dominate the whole of the world, except for Europe and the U.S.  We'll end up as a museum of how things used to done. The Chinese visitors are already piling in.

How about India's or Singapore's influence?

The interesting question here which has come up a couple of times, is whether there is a third pole globally in terms of financial models? That's India, which hasn't worked as aggressively outside of India, and is a totally different economic model and will soon have a larger population.  In India everybody now also has a government-issued ID.  There is some level of state knowledge and control but nowhere near the amount the Chinese have.  With such a massive internal market, tech savvy entrepreneurs, access to capital, India could develop a financial model more closed than China but with greater integration and ease of use than the West. After the demonetization of the 100 Rupee note a few years ago, cash payments went massively electronic through Paytm and others almost overnight. So there is scope. Whether India will end up as a third economic pole is an interesting question.

Outside of Paytm, which is huge which exploded after the demonetization of the 100 rupee note, we haven’t seen that many India Fintech product companies. Lots of expertise, the banks have huge development shops and large integrators. But the Indian market is large enough, like China, that internally focused products can get massive scale and eventually export. To go back to the Chinese model, when you go to China and see that total integration of the financial system, it's pretty impressive but its likelihood of spreading in Europe and in the U.S., we think, is really low.  However, you can also think of it this way: if China’s economy grows at 8% and India grows at 6%, if you paid a 2% penalty for a little bit more data privacy, maybe it's okay.

Singapore has a very active Fintech market, actively encouraged by the regulator and the government. But the S.E. Asia internal market is quite fragmented and except for DBS, the Development Bank of Singapore, most banks are not that tech savvy. Think of Singapore like Israel—a hot tech market focused on export.

What other trends excite you?

I think the transformation of insurance is now very interesting.  Insurance is about the ability to identify, price, manage and share risk. Now that we have the ability to collect massive data on everything, we can now refine our ability to identify and manage risk and then to distribute that risk across other venues. Additionally there are new kinds of risk. How do you insure self-driving cars, or shared vehicles, or home owners insurance for shared properties or drones.  Insurance is usually the last industry to ever transform as it’s so conservative.  Sometimes we think banks are conservative, but you're seeing a lot of InsureTech startups these days.  You should look at a company called Trove, which is pretty interesting.

People always ask about blockchain and crypto which I think isn't that interesting as a financial service at the moment. In terms of asset trading, crypto is very interesting.  But in terms of a financial services delivery vehicle, say payments or FX, it seems to have come and gone. No real advantages as yet in speed or cost.  There is a lot of experimentation with blockchain based financial systems and distributed ledger systems in the larger banks-but right now that is still only experiments. There are other ways to solve distributed data problems. A few years ago, when you attended Money2020, the major annual Fintech conference, the booths were full of blockchain and crypto start-ups. Walking around this year, they were there, but hard to find.

When I think of the conference I just came from, it was very innovative, and quite fun.  What were the themes?  The themes were InsurTech; the difference between selling to millennials to selling to the people who have the money, who are the baby boomers; and how innovative firms are trying to capture younger people without money because, ultimately, they're the people with money in 20 years. 

Conversation with Mike Laven, CEO of Currency Cloud

I had a chance to meet Mike Laven, CEO of Currencycloud over lunch in London, and then follow up by phone on how the Fintech market has evolved in major money centers around the world.

Mike, you have had a bird's eye view of the Fintech market, even before the term was coined, at Currencycloud and in previous leadership roles at Infinity Financial Technology, Cohera, Coronet and Traiana. Summarize if you can the trends you have seen.   

Currencycloud is a venture backed company that provides embedded international payments for many Fintech firms, neo/mobile bank and payment firms. We now effect well over $1B a month in payments. We got our first major funding in 2012 and then we were off and running.

I divide the Fintech world into two buckets: digitally native finance, and digitally transforming finance.  For the first five or six years of the company, we almost exclusively sold to digitally native Fintech companies. These firms didn't come out of existing banks or existing large corporations but usually from technologists trying to solve a personal or business problem. Fintech arose from meeting a customer requirement and an old, inefficient, almost customer hostile banking system.  Nobody loves their bank and the quality of services. Banks believed they had a lock on their consumer and corporate customer, and so felt no pressure to change and evolve. So Fintech companies set out first to meet Millennial digital demand, for digitally native consumers, and then have created a whole new ease of use in financial services. Those services, even when they don’t attract enough customers to scale set the standard for the traditional providers. So Fintech has massively punched above its weight in setting a standard for the industry. Digital consumers have set the standard which will filter upwards into all of finance. So yes—in finance customer requirements fueled by massive amounts of venture capital are driving industry transformation.

The early stages of Fintech were very much like other Internet-related areas.  Firms like ourselves and start-up automating lending, people, car loans, insurance, small business loans, wealth management, trade finance. Each picks off some feature and optimizes the hell out of it, focuses only on that, making a category killer. They were pure startups.  They took for granted that services would be delivered to millennials on a mobile phone and by-passed the out-dated physical bank branch system. Fintech is breaking up that massive bank platform into a series of optimized pieces. The optimized pieces are great for the early adopters but most people and businesses don't want to go to ten places to get their services. So the question is “who will provide the point of integration to provide all of these new optimized digital services. Will it be the banks who already have the customers but need the technology, or the Fintechs who have the innovation but need the customers". The Fintech companies and digitally native banks are built on a totally new banking stack, on a cloud-delivered, agile developed, next-generation banking stack.  But then those firms don't have a lot of customers compared to the large established banks.

In Europe, there's Revolut, Starling, Monzo, N26 and other Neo Banks who are starting with debit cards on which you can hold a balance and then layering in budgeting, insurance, travel, and a whole series of other banking services. These banks provide a whole new level of user experience. There's a whole series of consumer-oriented, digitally native, financial service firms.  You don't see them as much in the U.S. because of the regulatory issue but, basically, they start out mobile, and generally they start out targeting millennials. 

So talk about the incumbent global banks and their strengths and weaknesses in a changing world.

I've always been a believer that the big banks always win because of their ability to make a billion-dollar investment, their ability to shoulder risk, and their huge balance sheets but they'll just be late to the party.  Those banks still have the bulk of consumers.  Europe has this very active challenger bank segment, but it's still the early days for Fintech and the bet is that as millennial consumers grow up they won’t return to banks they’ll stay with their apps, and that the bank culture will not be able to deliver.

The established banks still have the customers and cost of customer acquisition is very high and requires off-line marketing which we see all over the London metro system and TV ads.  Pulling people away, even for a better service is complicated and expensive.  So to me the jury is still out—there will be few Fintech winners, but as you need massive scale and the banks have a lock on users, I wouldn’t bet against the big banks yet. A few Neo banks will make it-but not all.

In our world of moving money around the world, the banks, the big banks who do payments -- and that would be like JP Morgan ,Citi, Barclays, BNP and others -- service their large customers very well. Banking and finance are conservative and highly regulated industries, so their technical transformation to modern, user friendly, mobile oriented industries has come late in the internet revolution of turning all kinds of commerce on its head. Also, some of them looked at emerging Fintech and thought, "We have the customers.  Our customers aren't going anywhere.  These are small startups. Nothing to worry about."

The difficulty that the larger banks have is they're still running these big, on-premise systems.  The systems work. But if you want to offer flexible, mobile services that are delivered to the next generation of customers then, ultimately, you have to make changes to your core banking system or else you have to build a new platform. 

The firms who are really clever actually know that they can't touch their core banking system without spending hundreds of millions of dollars.  What they're doing is building an alternative platform to start the delivery of services and then hope they'll bring the platforms together later. 

We know from back in the old days of ERP, when you switch technology, when you switch from mainframe computers to minicomputers and minicomputers to desktop computers and from desktop computers to mobiles from mobiles to streaming that new entrants come in with new technology and the old guys just watch and eventually have to catch up or die.  What you're seeing now is banks trying to catch up in what I call digital transformation. Right now, the banks' advantage is that they provide all of those services through one single point of contact, but the individual services will be sub-optimal, over-priced, not transparent, hard to use, bad user experience … all the things we’ve come to expect in the digital age.

The difficulty for the big banks is that when they look at the assets that they lose or the transactions that they get, today it probably doesn't matter much because all of the challenger banks are serving a different demographic, which is the demographic that you need 20 years from now, not the demographic that you need today. 

I once had a conversation with a Head of Payments from one of the largest US corporate banks and we talked about my targeting services to SMEs. His response was that services to firms under $1B were unprofitable, so the more I could do to take that business off their hands the better. So when the established banks looked at Fintechs initially focusing on millennial consumers and small business—they just didn’t see a threat.

The smarter guys are trying to figure out how they do their digital transformation to economically capture these markets of the future and the dumber guys say, "Okay, we're fine today," but I think they're going to wake up in ten years and all their best customers are going to be somewhere else.  When I present to established banks about Fintech I usually tell them that the competition they need to worry about is not Fintech but smarter banks.

That's where I see the Fintech world now. Maybe five or six years ago, the consumer-oriented Fintech world was all about digitally native startups. Some of those firms have prospered and are scaling up and that's great.  Some have fallen by the wayside.  Now you're seeing less new entrants and a real sort of arms race on the part of larger banks who are very constrained because of old technology and old siloed organizations.

Where I see the challenge right now for larger banks is that you can't unlock a lot of the Fintech innovation unless you can migrate your core banking system.  But migrating your core banking system is really hard and really expensive. In order to provide a whole range of digitally optimized services, either the established banks have to rebuild from scratch, or modify their brand through digital partnerships. So will the banks become the point of integration for new services, or lose their customers? I actually think, from a market-facing perspective, the big banks are not in that bad of a position.  Acquiring customers is usually a longer and harder job than acquiring technology.  Their big question is “How to provide a next-generation service with a last generation core banking system?”  So, who will create the new integrated financial services stack. First for consumers, and then for business.

The other point, which I think is important, is Fintechs are tech heavy but asset lite, no balance sheet. In the world of financial services, the banks that have huge balance sheets that can meet regulatory requirements and have the ability to loan money from those balance sheets to corporates, they are the ones who have a huge scale advantage over Fintechs, even those with a banking license.

Fintechs like ourselves and people in other corners of our industry optimize transaction costs to near if not at zero, so you really have to scale and in the end there can not be that many players.  The real profitable business that's left for the banks is loaning off the balance sheet and making money on the capital.  As the Fintech world optimizes all of the transaction costs, the large banks with large balance sheets might be actually in a very, very good position because they can let Fintechs optimize all of the low margin stuff and they keep the high margin business.

European regulation, the Payment Services Directive (PSD2) is forcing the banks to open up their account information to third parties to build services on. At first, this looked like it might bring in an open banking environment. But consumers are often reluctant to switch banking providers and open banking may just allow established banks to off-load unprofitable current account services while keeping the deposits and the money making loan activities.

The reality is corporate customers are not going to go to multiple places to get finance or overdrafts, and another place to get short-term loans and another place to get a real estate loans. Corporates like to come into a single bank to get all those services.

A business wants to come to one place. So the digital transformation of corporate banking is taking longer.  The challenger banks are really at the level of very small business, you know, at helping sole proprietors and small businesses, people who sort of run their business using Intuit, Sage, NetSuite, or one of those packages.

If the core accounting system is Oracle, SAP, or anything that's really substantial, the likelihood that that firm is going to end up buying lots of different little apps to run their banking is fairly low.  The question then for the big banks is, as those alternative services put on cost pressure, to what degree are they going to respond.  They can be slower;   business banking takes a lot longer to transform than consumer banking.

Sounds like a lot of fragmentation. Do you see any consolidation anytime soon?

The way Fintech has grown up is that we’ve optimized different parts of the financial value chain:  cross-border payments, wealth management, current accounts, mortgages etc.

The current issue in Fintech, is that separate optimized services are massively inconvenient for consumers and businesses. At some point, all these things have to be reintegrated and the question becomes, who will manage the point of reintegration.

Goldman’s Marcus is a good example.  It starts as an innovative platform backed by the assets in Goldman Sachs with all the money they can put behind it.  They can then become a platform for delivering services from other Fintechs.  I think that's what you see.  Santander, BBVA, Credit Agricole and other banks are going down the same path.

You'll see Fintech massively consolidate.  Either a few guys will become huge because they start to go out of their niche or everything else will be delivered by the banks.  Remember, this happened -- I was around for this in capital markets.  Twenty years ago, when you started to get the proliferation of trading venues in equities, all sorts of new places to trade and massive price reductions in the cost of trading. Ultimately, the exchanges and the big banks consolidated everything and brought it all back.  Capital markets went back to the large players with a few survivors

In Part 2 tomorrow, Mike will talk about the China influence on Fintech, Blockchain and other disruptive trends

Vendors and Analysts: Influence v. Intelligence

Readers know my favorite vendor event is a summit - a day or two long analyst-centric event. Not that I mind going to user focused events but feel like I intrude on customer time there.

In the last year, I have seen analyst meetings get more nuanced and frankly more enjoyable with richer content

• Plex, which pioneered and continues to take analysts to customer plant tours, invited a few analysts to a Customer Advisory Board meeting. That took some courage but the interaction of their executives, their customers and analysts allowed for far more authentic back and forth. 
• SAP invited analysts and reps from ASUG (the N. American user group) to a licensing day event. Usually vendors are loathe to discuss pricing, trade-ins, audits.   That took even more courage as we were not shy in providing feedback. 
• Zoho invited a global set of employees, not just execs, to join in their analyst day. It accented the reality that Zoho's is blazing a dramatically different global path as I wrote here
• I recently had a chance to present to a group of consultants at Cognizant in India about my new book, SAP Nation 3.0. Instead of just listening to me, we turned it into a much more interactive session where we discussed other platforms, vertical solutions as well. I learned as much as they hopefully did - we could have gone on for a few more hours.

Even the evening gatherings are becoming more creative

• Workfront hosted a few analysts and customers at celebrity chef Heston Blumenthal's restaurant in London. Few things impress a tech analyst more than when you ask for a scoop of simple vanilla ice-cream and they drag in an elaborate contraption and make it in front of your eyes using liquid nitrogen.
• Workday chartered the California Spirit and took customer execs and analysts on a pretty sunset across the bay in San Francisco. Talk about ensuring a captive audience :)

It's not about elaborate settings. Frankly, I am more impressed that one CEO has started to host small dinners with analysts ( I missed the first one, but in an email he told me he looks forward to the opportunity to more sessions and to "listen and learn") and another CEO has similarly promised to make more time for one on ones.

All this contrasts to certain vendors who have not had an analyst summit in years (or ever) and many others where your only interaction with the CEO is via Q&A in a large press conference. It's their prerogative but certainly different from the share, listen and learn approach some of their competitors are taking.

Analysts can be used for influence or market intelligence - the ideal combination involves both.

Cloud Applications - A long, winding road dotted with Bystanders

Frank Scavo's Computer Economics has a nice post about the the long, winding road - the slow customer march to cloud applications. Bill Kutik pointed to similar slow movement more specific to HCM cloud applications in a recent LinkedIn post.

My recent book and my advisory work provide an additional perspective to their data. I identified a large group of what I called Bystanders in the SAP customer base. They have not taken advantage of its growing portfolio of new products - S/4, C/4, cloud properties, SCP, SAC, Qualtrics etc. They continue to stay with ECC, BOBJ, B1 and other 20-25 year old products. I did not call them laggards or anything else pejorative for reasons that will become clear as you read further. I estimated 60% of SAP's 400+K customers are in that group, especially those in Europe. If anything SAP is ahead of its on-prem peers. S/4 is maturing nicely and its coverage in functional and geographic areas is much wider. The competitors have even more Bystanders in their customer base.

There are three big gating factors for their lack of movement

Not enough functionality

I have heard from countless customers they do not see enough from individual vendors in the cloud, and they are afraid to add to their patchwork of already too many vendors. After 20 years of cloud applications, we have too little global or industry coverage. So, you have vendors like NetSuite brag they have users in 200+ countries and they support over 190 currencies, but their own site shows detailed functionality for less than 20 countries. You have vendors who claim to "do ERP" but have zero shop floor or warehouse or operational capabilities in the cloud. I got a nasty note from a vendor executive asking why I considered "back office" functionality "boring". I responded "I was trained as a CPA so boring is a strong term but I am amazed the industry talks so little about operational systems and vertical functionality compared to all the talk of hcm, crm and core accounting."

Too expensive and risky a migration

A number of customers have tested the waters and many have been shocked by the proposals they have seen from SIs. Many SIs are behaving like it's 1999. Just because the S/4 or Workday software is relatively new, it does not justify a premium in consultant rates. The functionality is not dramatically different. Also, SI delivery models have not evolved much. Just not enough automation in data conversion, testing and other phases of projects they do over and over at clients. Finally, there is their age old FUD of  "oh, there is so much change management". And yes, they still cannot show predictable outcomes. The muscle memory of the overruns and failures of the last wave of ERP and CRM remains with too many customers for them to sign up. I was actually pleased to catalog many case studies of ECC to S/4 migrations in my book which minimized the organizational change and the SI role - they stuck with SAP GUI, stayed on-prem etc.  They are postponing innovations, but frankly reducing exposure to the "change management" and other SI premiums.  

Cloud economics are just not as attractive

In wave 1 of the cloud, the economics were compelling. The cloud collapsed 4 contracts from on-prem world - the software, the hosting, the AMS and that of SIs who did frequent upgrades. Multi-tenancy and simplified contracting explained why it was so attractive to look at a Salesforce or a SuccessFactors relationship. But in the last decade, reality has set in. I have heard from a number of customers their incumbent infrastructure is fully amortized - the cloud only adds to that cost layer. I have heard from others who have sharpened their pencils, that buying their infrastructure is still cheaper than subscribing in the cloud when it is annualized. Then there is the expectation that comes from their outsourcing experiences - when you hand someone a 3 or 5 year contract you have the right to expect CMM Level 5 or Six Sigma continuous improvements. Instead, too many SaaS renewals are turning into unpleasant head-butting experiences - no improvements, just massive cost increases. 

Most customers I have talked to would love to modernize. Many, in fact are frustrated with the status quo. ABAP or Peoplecode are not exactly recruiting assets any more. Their significant customizations and technical debt are growing compliance and security risks. They realize they cannot leverage multi-tenancy, machine learning and other advances with their current set-up. But they are nervous. They want lots more operational functionality, and they want better economics and predictable results.

In the book, I called on SAP  to "tilt its bell curve" and jar the Bystanders into action. Other on-prem vendors need to do that even more in their customer bases. Pure cloud vendors continue to have the opportunity to replace incumbent vendors. But they need to tackle the three big issues I highlight above.

Just calling the Bystanders "laggards" or something else demeaning is to ignore the reality of the state of cloud applications.

Tim Cook - Book Review

I read the Leander Kahney book on Tim Cook on the long Emirates flights to and from India. In India, I had a conversation with an Apple consumer like me (not really that knowledgeable about the operations of the company). His point was India should require Apple make massive investments in return for access to their large market. I asked him if the US should expect the same of TCS, Infosys, other Indian outsourcing firms for similar access to their largest market? He ignored my question. Then we got into Apple needing to diversify production away from China given recent trade tensions. I asked him how India would improve its infrastructure to support Apple's finely tuned supply chain. Again, no good answers. Raise our amateur conversation a few levels of abstraction higher. It would highlight how Tim Cook is one of the most geopolitically influential executives in the world these days.

And if rumors of the Apple Car are true, Germany, Japan, S. Korea are just as interested in what he is going to do. So I thought it was odd that Leander's book does not look much at these global crosscurrents in his new book. Instead, I thought Kahney spends way too much time on race relations in Alabama where Cook was born and raised, and his sexual orientation. In that sense, I had the same reaction as I did to Walter Isaacson's book on Steve Jobs - bit too much focus on personal background and idiosyncrasies, less on the gears and timing belts of the Apple juggernaut.

Unlike Isaacson, Kahney did not have appear to have direct access to the subject. However, from the citations he did have access to a handful of Apple executives, and with his long time blog The Cult of Mac he has a slew of contacts in the Apple ecosystem. I find when I write books, I have to take off my blogger hat and not focus so much on newsy, gossipy stuff and focus instead on complex issues that corporate executives are interested in. I don't think Kahney does enough of that. So much of the book is actually cut and paste of lots of historical reporting about Apple. I wish he had spent time in China crawling through Foxconn, Fedex and various component vendors that make the remarkable Apple supply chain work. How it is orchestrated with last minute design changes, how it is mostly kept secret etc. 

I do like that Kahney addresses the silly notion that Cook is not innovative. By launching Apple Pay and Watch he has bought Apple a toehold in massive emerging digital payment/commerce markets and wearables/healthcare markets. And if Car becomes a reality, he should do  the same in rapidly changing mobility markets. Just wish Kahney had explored those a lot more about how those products are bought to life, and how their complex supply chains are choreographed.

You will likely understand Tim Cook a bit better as a human after you read the book. I found it did not really add that much to my understanding of him as a business executive or that of Apple's operations.

Deja Vu all over again

I was in India last week and visited with a couple of outsourcing firms. In my travels, I got reminders of several due diligence visits I had helped clients with from 2003 to 2010. The Renaissance in Powai reminded me I had stayed there with a client during a visit to TCS. A Cognizant executive reminded me of visit with another client to Chennai. A drive-by the Hinjewadi building of Persistent reminded me of a visit with yet another client.

A bit of deja vu, all over again.

My firm, Deal Architect has helped a number of clients evaluate SIs, negotiate hosting and AMS contracts. Before that I had a marketplace startup which helped customers develop digital services RFPs and evaluate responses. Prior to that at Gartner, I helped a number of clients with their ERP SI evaluations. India and E. Europe have actually been a small part of the landscape across which we have helped clients with services procurements for a couple of decades.

The time is right to help clients with their new wave of services procurements - as they move to S/4HANA, as they evaluate cloud infrastructures, as they look for post implementation support around their cloud apps.

It's a new world - not sure vendors have evolved enough in skills, methods or automation.

Clients need a deja vu to avoid some of the mistakes we all made in the last wave. Look forward to helping several of them.

SAP Nation 3.0: Excerpt Chapter 12 - Manifest Destiny?

I excerpt 10% from every book in a series of blog posts. I posted several on SAP Nation 3.0 in April, then took a break after the Sapphire event. This is the final batch I am excerpting. The book is available to purchase on Amazon in print and eBook format here

"In the start of the book, we shared that in his inaugural address in 1801, U.S. President Thomas Jefferson had talked about a nation “with room enough for our descendants to the hundredth and thousandth generation.” A couple of years later, Jefferson instructed Lewis and Clark as they began their pioneering westward trek: “Those who come after us will fill up the canvas we begin ….”

Jefferson was an optimist and helped fire up a country’s imagination for a massive westward expansion. SAP needs a similar call to action."

"McDermott, himself, after announcing the large Qualtrics acquisition, said, “Very few people are aware of the implications of courageous decisions. Especially not if they’re hit unexpectedly …. Looking back in a few years, SAP will have reached a whole new level with the Qualtrics deal. We dream and fulfill dreams. That’s the wow factor that distinguishes an average company from a great company.”

"Of course, SAP is not the only vendor who sees this second wave opportunity. Dave Vellante of SiliconANGLE Media paraphrased IBM CEO Ginni Rometty’s message at her Think conference in February 2019. “Chapter two is about the hard stuff. It’s about scaling AI and creating hybrid clouds. It’s about bringing the cloud operating model to all those mission-critical apps and enabling customers to manage data, workloads, and apps and move them between multiple clouds. This is a trillion dollar opportunity and IBM intends to be #1.”

"McDermott has a best selling book titled “Winners Dream”. On Facebook, he periodically posts inspirational quotes such as “My parents gave me permission to dream big. Do the same for those around you”.

So, how bold can SAP’s and McDermott’s dreams be? Are they ready to issue the Manifest Destiny clarion call to go from “sea to shining sea”?

The continent of enterprise computing is waiting to be tamed."