deal architect

“Defending” Maintenance Pricing

Paul Willis comments on Frank Scavo’s blog

“To take up your point about maintenance, I’m surprised that yet again a representative of a large enterprise software vendor doesn’t take the opportunity to more forcefully defend the company.”

Then he blogs more extensively about it here – it is a bit SAP centric but he could be speaking for most legacy, on-premise software vendors

First let me me say it is ironic that Paul and Frank and I and others on our free blogs are debating the value of maintenance when software vendors spend 20, 30, 40% of their revenues in high-powered sales and marketing and corporations spend enough (though somewhat less than vendors) on IT, procurement and attorneys to manage that budget line item.

We are the dumb ones for charging nothing for analyzing those tens of billions in annual maintenance. While Paul and I ponder how to twist our business models, though, let me disagree with some of the points he makes on his blog:

a) SAP’s move to 22% is justified

It is opportunistic for SAP to say “we are getting on par with Oracle’s 22%”. SAP’s maintenance is typically calculated on a much higher application license cost base than Oracle’s  - its 17% in many cases, normalized for comparable functionality is in dollar terms already higher than the 20% customers pay Lawson or 22% they pay Oracle.  The belly aching about SAP costs we have heard for two decades is not just about project overruns. The base cost and shelfware is itself pretty pricey. So maintenance increase from 17 to 22% on that base just adds straw on the camel’s back.

b) Accept the vendor’s development plans – slow as they may seem

Hmmm. Let’s pick on one area - vertical applications. Remember all the exotic licensing metrics SAP and other software vendors dreamed up for vertical modules – number of students for higher education, number of meters read etc.  Remember the “wall-to-wall” coverage promises? There are still huge chunks missing. So if software vendors want to get miserly on spending those maintenance dollars they collected on the incremental licenses let’s reset the clocks. Let’s refund the vertical licenses.

c) Support is insurance policy

I can see this argument. But then software vendors should be prepared to pay out for claims when their software does not work as promised. Even if it costs tens of millions. Game?

d) Don’t expect pricing based on components of support

All I can say is be glad you are not a major supplier to Walmart. They would tear down components and hand it back in a heap and tell you what you can expect to get for it. Oh, and btw tell you to share hotel rooms when you go to Bentonville. Since when did suppliers expect to keep savings from efficiencies and not pass them along? 

I could go on and on. Somehow doing it for free when discussing 90% + margin maintenance just gnaws at me :)  

More Innovation

On the New Florence blog

US Patent Problems

Gallery of User Interfaces

Make your web search more visual

Kiva Warehouse Robots

L-aw-shucks-on Software

Lawson invited a handful of bloggers to their CUE conference. First time they have invited bloggers and they did a nice job and allowed us access to their execs, customers and partners. It was especially thoughtful they did not participate in the customer sessions. Sign of confidence when you let a blogger unfiltered access to your customers.

And the customer feedback was refreshingly positive. In a world where value of enterprise software is increasingly questionable and customers are looking at re-negotiations, SaaS, third party maintenance, open source - anything to reduce their software burden, the Lawson customers I talked to seemed reasonably content. Lawson is showing tangible reduction in time to response and other customer service metrics, and they are offering a premium plan at an additional 2% to allow for more personalized service.

But I walked away with the same question as I do every time I have met with Lawson since I started dealing with them at PwC in early 90s and then at Gartner - what holds them from breaking out? Why do they not aggressively showcase their differences from two application leaders growing in customer unpopularity?

And the answer is functionally in many areas Lawson is not that different. They are in some Intentia focused verticals like Fashion, but in most others they are not substantially so. And they are mired in the same mentality as the leaders: margin at any cost (the lame excuse from one of their executives was "the best thing we can do for our customers is stay healthy". Compared to their fashion and local government customers who survive on much thinner margins/tighter budgets, Lawson looks too healthy - pudgy, in fact). Which means roughly only 5% goes towards new product R&D (more in tweaks and re-platform). Spread that around a growing vertical pallet (Lawson announced a move to organize on vertical lines) and you end up features like Smart Office 3 years after SAP introduced Duet (which I had already called late since it should have come out a decade earlier along with a much earlier version of Excel)

So you have focus verticals like healthcare where the foot print is primarily in administrative areas, when the dollars accelerated by some recent stimulus programs are going into clinical areas where Lawson does not play. As one healthcare customer told us - "I wish maintenance was lower, but even better I would love to see them use my dollars to make acquisitions to expand their foot print". Yes, use that pile of $ 300 million in cash to do so. And by the way, there is no rule book which says you cannot invest 10, 15, 20% of every revenue dollar in new R&D. Get away from the margin at any cost disease which has taken over the leaders.

The other area they behave like the other legacy vendors is their seeming indifference to aggressively managing customer TCO. They talk about the foundation leveraging IBM Websphere when they should be aggressively moving to a much cheaper (to customers) open source platform. When I asked them whether they had looked at integration with Google Apps or Zoho as part of the Office integration the response was "but we are trying to leverage our customer's investment in MS Office". Investment or Microsoft's lock-in? Same thing with hosting and other services around their products.

In that sense, Lawson is exposed compared to the next generation of SaaS vendors or even legacy vendors who start leveraging cloud computing platforms - and whose TCO will make Lawson's look just as bloated as Oracle's or SAP's.

Likable vendor, content customers, good enough technology. Still the "aw-shucks" vendor after all these years...

Update: Posts from other bloggers who were at CUE - Frank Scavo and Mike Krigsman

The "Cloud Pioneers" : Laef Olson

When the Open Cloud Manifesto was unveiled recently by IBM et al I wrote "The (Cloud) Bastards say, Welcome"

And I invited several cloud pioneers who have been at it - delivering cloud based products and services or helping evaluate and nurture them for several years - to discuss the manifesto and what they have learned in Cloud Computing over the last few years.

This time it is Laef Olson, CIO at RightNow. Before that he was Group VP of technology operations at Travelport and Orbitz Worldwide and CTO for cars.com. Here he tackles the issue of security around cloud computing.

"I’m always amused by vendors’ attempts to co-opt terminology or industry buzz to suit particular ends.  It isn’t surprising given the collective incentive for profit and market growth, and we all do it to some extent.  Now we don’t just have the ‘Cloud.’  We have the ‘Open Cloud.’  It is hard to disagree with much in the Open Cloud Manifesto; thoughts on the importance of security, monitoring, and data interoperability are like advocating things like baseball, motherhood, and apple pie.  But there also isn’t much there that is particularly relevant or interesting to me.  At RightNow, we aren’t dedicated to making sure the cloud is open, we are dedicated to making sure the cloud is effective.

I am both a purveyor and buyer of cloud based services.  Over the past several years, I’ve seen objection after objection to cloud-based computing crumble in the face of determined innovation.  In fact, one of the really great things about working in the cloud space is that it isn’t just figuring out how to deliver the building blocks outlined in IBM’s Open Cloud Manifesto, it is about moving on to real innovation that is transforming how our model provides value to our customers.

For years I’ve heard that SaaS is only for the private sector, that public sector certification and security demands forced them into an expensive on-premise model.  This is a classic example of what we do to make the cloud more effective for our growing customer base.  RightNow has been doing business with the US government for more than ten years and has over 155 public sector clients, including nearly every US cabinet level agency, Army, Marines, and Air Force.  Last week we took the lead across the SaaS/on-demand/cloud computing space in delivering a full SaaS solution for our government clients, meeting stringent security and compliance standards within Federal Agencies and the DoD. Sure, state and local governments have gotten pretty familiar with the on demand model over the years. What’s different here though is our solution has achieved the certification required on a Federal level – really and truly bringing the highest levels of government into the cloud for the first time ever.  If we can do this for the US Census and the US Army, we can do it for your company.  It may be new, it may be different…but it can be done.  As is usually the case when you are out there innovating, being the first is never a small undertaking.  We have worked on this project for over a year, plowing our own ground.

So why did we do it?  It is a good product and service given our existing client base.  But we are also rabid advocates of the SaaS / Cloud Computing model, and it is exciting knocking down these barriers; the public sector marketplace is no exception.  In an era where terms like efficiency, transparency, and collaboration are not just goals, but mandates under the Obama administration, DoD and civilian agencies can now support huge numbers of constituents or war-fighters, while taking advantage of SaaS benefits like rapid speed of deployment, scalability, efficiency, lower cost of ownership and our reputation for operational excellence.  The fact that we can help our defense and civilian agency clients show amazing ROI and improved citizen experience is not only good news for them as they work to fulfill their mission, it is good for you and I as taxpayers as well.

RightNow isn’t the only company out there innovating in the cloud computing space.  I see plenty of my colleagues providing examples here as well.  As another one of those cloud "bastards", I also say “Welcome…but please stay out of my way.  I’m busy delivering value.”

Lawson CUE: First impressions

I am in San Diego at Lawson's user conference. This is the first time they have invited bloggers (Michael Krigsman, Frank Scavo and I in person - others like Dennis Howlett virtually). I will have impressions on content over next couple of days, but the logistics, customer and executive access have been very well organized.

No big name bands or entertainers at this conference, but both CEO Harry Debes and SVP Dean Hager have filled in well with props from Hollywood. Harry played game show host and Dean simulated Extreme Makeover of his spartan fish house in deep freeze Minnesota as he presented. While they evoked slum-dog themes, the hospitality at the new Hilton next to the conference center has been anything but. Combined with the usual mid-western friendliness in their executives.

In return us bloggers have been well behaved. No moves yet to get the CEO to yell out 4 letter words.

Not yet anyways:)

Oh, and BTW - I have already recruited 6 more folks here to write in the Technology and my Hobby series. Not bad for a day's work!

Do the red corpuscles get a new chance at Oracle?

Oracle is buying Sun.

While the major reason may be Java, it makes Oracle a major hardware player - an "applications to disk" player.

That was Larry Ellison's vision 10 years ago, if you read Timothy Chou's column in my Cloud Pioneer series. But, as he puts it, Oracle's "white corpuscles" have fought that integration (and other innovation) even as Ellison-funded salesforce and NetSuite have shown that integrated offering is attractive to customers.

Scott McNealy, if he has a serious role, could bring radiation to the leukemia that the excess of white corpuscles have spread at Oracle.

But I am not optimistic. Oracle's numerous acquisitions over the last few years have not been rationalized and there has been little new or innovative stuff coming out of Oracle (ironically, one of the few is Exadata, a joint development with HP, which will need to be re-evaluated with this acquisition) while the executives continue to brag about the margins they squeeze by consolidating SG&A from the acquisitions.

As I wrote in February "Its top executives are deal makers, not technology visionaries. Worse, when it comes to their acquisitions, they cannot retain or easily replace the entrepreneurial talent."

It is a sad commentary on the state of the industry that Sun's only other home would have been IBM, which in its own way has also become a graveyard for once innovative technology companies.

John Chambers is probably chuckling this morning that his move into servers was well timed.

The "Cloud Pioneers" : Bob Warfield

When the Open Cloud Manifesto was unveiled recently by IBM et al I wrote "The (Cloud) Bastards say, Welcome"

And I invited several cloud pioneers who have been at it - delivering cloud based products and services or helping evaluate and nurture them for several years - to discuss the manifesto and what they have learned in Cloud Computing over the last few years.

This time it is Bob Warfield, EVP of products at Helpstream, which delivers SaaS community-based customer service solutions,  Bob has been with SaaS companies for the last 8 years and blogs extensively about cloud computing, SaaS, Web 2.0 and other software topics on the Helpstream and SmoothSpan blogs. Here he writes about a fundamental building block of SaaS: Multi-Tenancy

“Every philosophy has some bedrock principles. The way I was raised, multi-tenancy is that principle in SaaS. Recently, I have seen industry discussions on single-tenancy - tenancy – just virtualize and get the same benefits. Heresy if you ask me. Or at least sub-optimal to SaaS economics. Why make it less compelling?

But before I get away with my passion about what most readers may not even have heard about…Multi-tenancy is a software architecture that allows multiple tenants to be hosted on a single box (or cluster of boxes) just as easily and economically as a single tenant could be hosted on the same configuration.

If a single box has enough horsepower to run multiple customers for your app, the argument for single-tenant is completely (pardon my near-pun) untenable.

Salesforce runs 55,000 customers on 1,000 commodity servers.  You just aren’t going to be able to do that with a single tenant architecture no matter how much virtualization you choose to run.  If nothing else, virtualization runs afoul of a fixed cost/variable cost phenomenon very quickly.  A lot of the basic system software allocates fixed overhead, whether we’re talking about your DB server, your app server, your web server, or whatever.  Virtualization does not share the resources required for the fixed overhead, only the the variable costs.  Multitenant shares the fixed overhead too.  Those variable costs put an upper limit on the number of tenants you can shove onto a single box, no matter how small the tenant’s needs may be.

Some argue that the “Cloud” fixes all this through the magic of elasticity.  Really?  That’s hogwash.  The Cloud at best and if you really architected your app to take full advantage of elasticity may help a little bit.  But most of the problem is database, and elasticity and databases so far remain a very hard technical problem to solve.  Try dynamically varying your partitioning and/or federation scheme to really scale up and down in real time in the Cloud.  It’s hard enough to get apps to scale to arbitrary Enterprise needs at all.  Try doing that in real time so you get multitenant cost savings?  Good luck!

So if you can’t run an average of 55 customers on each of 1000 servers like Salesforce, how many can you run without multitenant?  3?  5?  10?  What does that do to your cost versus true multitenant?  What does that do to the overhead of maintaining the servers?  What does that do to your cost of delivering the service and to the resultant cost model you have to saddle you customers with? 

Others talk about the advantages of being able to customize these multiple instances.  Frankly, that scares me too, because the whole SaaS model really starts to break apart there when you decide to radically customize each instance.  It may be a value add, but it is a radically different value add than SaaS.  In fact, at that point, it’s a hosted ASP model, not SaaS.  Useful for some organizations, but there is a reason that model never achieved broad market appeal. 

BTW, the multi-tenancy imperative gets stronger constantly as we approach the limits to Moore’s Law.  We may no longer get faster cpus (i.e. faster clock speeds) every 18 months.  Instead, we will get twice as many cores.  The easiest way to take advantage of more cores?  You guessed it: stack more tenants into the same box.

For more, read Michael Dunham’s excellent post over on Haut Tec. In the meantime, call me a SaaS purist, a heretic. I prefer to be called in Vinnie’s words, a SaaS pioneer. Keep the faith.”

More New Renaissance

On the innovation blog

Maybe your iPhone can help cook breakfast

Your airline wants to get to know you

On a rainy day you can see for hundreds of miles…

GE, Intel and Home Health Care

The art of seeing things differently

Weekend Stuff: Our spoiled rotten “fur children”

The New Honda Element - designed for dogs

Doga: Yoga for Dogs

Treats and more

Posh Dog Hotel

Dogs at Harvard

may be, just maybe, our beagle, Peanuts is actually deprived compared to these pampered dogs..

Weekend Stuff: Life after accounting

Good friend Dennis Howlett admits sheepishly in this video he used to be an accountant.

Some old friends of his shared with me a tape of his youthful accountant days.

Apparently he took the workmen's comp and retired from accounting :)