deal architect

NetSuite under Oracle: a progress report

I have seen way too many large vendors under-leverage their acquisitions. They mostly benefit from the incremental revenues but lose talent and value of the acquired IP. The week prior, I was impressed by how Rob Enslin has started to coalesce SAP’s cloud acquisitions like Ariba and SuccessFactors, and how that group of business unit leaders leverages each other and the “bigger SAP” as one called it. It has taken SAP years to get there, so I was curious how Oracle is doing with NetSuite a year into the purchase as I went to SuiteWorld in Las Vegas. But I did not have to pry much. NetSuite and Oracle executives were eager to share how the integration is going. It is going well enough for Phil Wainewright to call it a love affair.

Here is my analysis:

Positioning

After the acquisition was announced last year, Oracle co-CEO Mark Hurd suggested a demarcation of customers with less than 1,000 employees as the likely NetSuite “sweet spot”. SuiteWorld reflected that tighter focus at NetSuite. 81% of companies represented at the event had less than 1,000 employees. Unlike in prior years,  there were few large Qualcomms or Shaw Industries (the world’s largest carpet manufacturer) on stage. There were few large SIs in the partner pavilion (one exception – Deloitte was a “Titanium” sponsor)

The theme of the conference was Growth which is a hot button for most SME executives. The keyword showed up everywhere at the event, even on seat cushions! In several slides in EVP Jim McGeever’s keynote NetSuite associated itself with fast-growing companies.

I have a feeling the demarcation will be increasingly blurred. In certain global markets, the NetSuite brand will actually play better even with larger customers than Oracle’s cloud applications. In other markets, the NetSuite offering is far better integrated than Oracle apps which are more positioned along market categories like HCM and SCM.  How Oracle handles the boundaries for NetSuite will be interesting to watch. The good news for now is in the current sweet spot, NetSuite can easily become the 800 pound gorilla in the SME market.

Globalization

Significant growth in global footprint is the biggest boost NetSuite has seen from its new parent. While NetSuite execs proudly bandied the fact that customers have deployed their product in 199 countries (even though NetSuite only has offices in 15), to me the progress they are making in China and other emerging markets is far more encouraging. Another is NetSuite’s ability to leverage Oracle’s growing cloud infrastructure, as they plan to with a German data center this year.

What I would like to see more is around “two-tier” deployments. Many MNCs would like to deploy a lighter package like NetSuite in their smaller markets, with necessary integration with their Oracle (or SAP) at regional and global headquarters. Today, they have to do the plumbing on their own. Oracle and NetSuite could potentially make that a no-brainer with some investment on their part. 

Verticals

This is an area where NetSuite has been cautious to not match Oracle’s reach. Oracle with its databases and infrastructure touches every vertical under the sun.

I had a one-on-one with Paul Farrell, VP Product Marketing to discuss the industry focus at NetSuite. He re-affirmed industries NetSuite has previously committed to including software, services, advertising and media publishing, not-for profit, manufacturing and wholesale distribution. He also said “We have an industry that we call general business where we primarily sell financials. But these can also be incubator industries.”

What was more interesting was his comments on “micro-verticals” – deeper in or adjacent to the sectors above. He called it “a bowling pin approach”. Pins knocked down increase coverage, and often help knock each other down. So, the move in retail into health and beauty shops leverages traceability features from process industries. But the micro-vertical coverage is gradual. Paul, told me in manufacturing they focus on high-tech not “oily” sectors. About aerospace he said they did not see enough of an OEM market. I cannot fault NetSuite for being disciplined for now – as EVP of Development Evan Goldberg told me “we have barely penetrated even 5% of the markets we are focused on”.

The reality is the verticals NetSuite and its cloud ERP and CRM peers have developed “books of record” for leave massive sectors such as utilities, insurance, hospitality and healthcare mostly untouched. That’s a lot of white space for new entrants to target.  

Infrastructure

NetSuite has data from 40,000 customers in the cloud, while most of Oracle’s application data is scattered around on-prem locations of its customers. On the other hand, Oracle has a growing cloud infrastructure around the world and an impressive stable of data scientists and machine learning experts. Towards the end of his keynote, Evan showed the promise of the best of NetSuite and Oracle coming together in unique use cases like "Searchandizing"

 

They have to play the party line and they did say the right things about Oracle Cloud Infrastructure (OCI) , but NetSuite execs have to be a bit wary that Amazon, Microsoft, even Google, IBM and Alibaba have more traction than Oracle in the IaaS market. Not much they can do about it, other than leverage the infrastructure to their much larger cloud customer base.

During a Q&A, Mark Hurd was asked where he would invest his life savings – in quantum computing, an Elon Musk type Mars colonization expedition or to reverse aging. He smartly, and with a fine sense of comedic timing, deadpanned he would invest in Oracle stock. I would venture to say if another NetSuite came along he would likely consider investing in it.

This has been fruitful and educational relationship so far. Ok, maybe even a love affair. 

SAP: Past, Present and Future

Readers know my favorite vendor event format is the analyst summit. User conferences are fine, but I always feel we intrude there on customer time. In the past, SAP has done such summits in silos – focused on a products like Ariba or industries. So, I was glad it convened one across its wide portfolio in New York this week.  Most of the day and half was under NDA. That annoyed some analysts but it actually allowed for more back and forth. The U shaped format of the room and the volleys between SAP executives and analysts, and the many one-on-ones reminded me of the electric first summit Workday had convened 9 years ago. Of course in 2018, we got to use Taiden infrared wireless microphones and watch presentations on crisp, giant Prysm interactive displays.

The setting was stimulating  between the Langham hotel and the SAP offices in the Hudson Yards development. The recently redone hotel with is distinctive Alex Katz art and proximity to NYC icons like the Empire State Building, the Public Library and Grand Central station is a great place to feel the vibrancy of the city. SAP’s offices are breathtaking with a 360 degree vantage of Manhattan and views of train yards, helipads, countless buses, taxis and Uber cars which make the city hum. (I also got to visit a friend at BCG a few floors below whose office is cool in its own way with workout rooms and cafes and a bit further away,  Cognizant's Collaboratory)

I was very encouraged that most of the conversations were focused on process, industry and geography. This used to be SAP’s strength and it is good to hear Board members and a new generation of executives who lead its cloud properties like hybris and Ariba talk fluently about trends in talent management, shop floor, customer facing areas and be able to bring in nuances from different verticals and global regions. Every so often the company gets consumed with platforms and tools like NetWeaver and HANA and forgets it is an application software vendor. There was mandatory technology talk and buzzwords in this session but I felt good about SAP’s present and future after spending time with these executives.

I felt less sure about SAP’s past which was on display in a non-NDA session (as it had already been announced couple of weeks ago - see my reaction then) on its Indirect Access related initiative. SAP is saying the right things that it is contrite and wants to win back customer trust. But going back to each customer and asking them to consider moving from user to document-based pricing is going to take an enormous amount of energy. That is especially so since SAP does not seem to want to recognize that value is moving away from transaction processing to analytics and intelligence. Value is moving away from back-end processes to the front-end digital capture, automation and customer facing activities. That the cloud has already commoditized on-prem processes. That if you want customers to re-open contracts that are 15-20-30 years ago, you cannot just focus on what you want to focus on, but also revisit pricing across industry specific engine pricing and cloud functionality. I hope SAP lets each customer decide if they want to consider changes to their old contracts. They have done dumb things before like raise maintenance rates in the middle of a deep recession so can only hope they don’t not push too hard on this new format.

Overall, though, it was a very enjoyable and educational couple of days. I am hoping to have plenty of material for my blogs and SAP Nation 3.0 from the conversations I hope to continue from these meetings.

Rob Enslin, President, Cloud Business Group who along with Bernd Leukert, who leads Products and Innovation hosted us. Rob told me later he would consider moving the summit to an annual cycle and even expanding it to two full days. That’s great news.

Photo above from SAP’s Hudson Yards office,  below of the art in my hotel room –kept expecting the ladies to start playing Robert Palmer’s Addicted to Love.

Workday: The relentless pursuit of excellence

I am a big fan of Tom Peters’ classic. He has a new book out on excellence and I will get to that but this week at the Workday analyst summit I found I was reading a live case study on excellence. Between taking notes and photos of slides, I kept going back to my posts from the 8 previous summits, including the electric first one which has set the bar for similar analyst events by other vendors. When I am talking excellence I don’t just mean financial performance – there are plenty of Wall Street analysts who can tell you about Workday’s track record where they have grown to support over 30 million users. I am talking about how it has scaled its talent, how it has evolved its technology and how it keeps getting more and more customers to be early adopters for new features in a notoriously cautious enterprise software market.

Talent:

There was a segment of the day when 8 female Workday and customer execs, many with accents, presented one after another. When asked how Workday can handle diversity so easily, CEO Aneel Bhusri somewhat casually said “It’s in our DNA”. No, it is not, they work hard at it. They have an executive, Greg Pryor focused on Leadership and Organizational Effectiveness. He presented about it on the day. As I looked at previous year notes, I saw how Leighanne Levensaler has transitioned from her role as VP, HCM products to SVP of Corporate Strategy, Erin Yang has matured in her role from defining their Platform Strategy to now rolling it out. Joe Korngiebel has gone from quartermaster (Q to James Bond fans with toys all us geeks salivate over) to CTO and Petros Dermetzis has returned from a sabbatical. Stan Swete, early architect of the Workday cloud, has taken on many roles over the years and told me he is particularly proud how Workday has grown talent pools in Dublin, Ireland (growing the acquisition of Cape Clear) and Boulder, CO (leveraging the GridCraft acquisition) while keeping the culture similar to that in California. It helps that execs like David Clarke go back to the old country with that muscle memory.

Rinse, Repeat

I have long maintained Gartner defined “technical debt” too narrowly – its not just about customers who do not upgrade for years, its also about vendors who don’t refresh their technology on a regular basis. As I looked at my notes over the past few years, I saw a different focus each year - resilience in 2014, Prism and other analytics last year. Each year, they reiterated what they had told us and what they ended up doing. This year, the focus was more on natural workspaces leveraging UX driven by various personas and their Canvas Design standards,  what’s next for the analytics and the platform, and Machine Learning applied to various financial and hr scenarios.

Customer adoption

Under NDA, Workday shared early adopters of Prism Analytics, data as a service (their benchmarking offering), the Platform, the mid market initiative, the Skills cloud and a few other initiatives - most launched less than a year ago.

Each one of the slides had big brand names, and many had large counts. What makes customers so comfortable to repeatedly sign up for Workday technology and functionality while adopting other enterprise tech at snail’s pace?

The last point brings me to an area that has always perplexed me. Customers keep asking Workday to move into new functional areas, especially vertical ones. But Workday has been content and disciplined, other than in the education sector, to stick to financials and HCM.

I have become so predictable asking about vertical functionality that Aneel surprised me this time with an acknowledgement that they may be ready to expand.

“We’ve been a services oriented company — education, government and healthcare were the early ones, financial services (insurance, banking) will be the next big push for us in terms of industry. That’s where I’d hope we’ll find some interesting products to build in.”

He could have also mentioned retail. Amazon AND Walmart. (who said they disagree about everything?) Lowes, Target, Kohl’s – the customer list there is long.

And therein lies Workday’s challenge. They keep executing so well that people keep clamoring for them to do more and expand wide. That, to borrow Tom’s new title – is their Excellence Dividend.

But they have been real careful not to splurge. 

Oracle MCX: We're not in Kansas anymore

I did not get much notice for the Oracle MCX event in Chicago this week, so could only spend a day there, but even in that short timeframe I got the vibe over and over that things are finally humming in the CRM marketplace, or as Oracle calls it the Modern Customer Experience space. We have been talking about so many of the technologies and trends for so long that it is good to finally see use cases confidently being presented on stage.

a) If you work at a liquor store you get asked for wine pairing recommendations all day long. At Total Wine, a self-service solution was to encourage customers to use a recommendation kiosk. John Jordan, Chief Customer Officer, told me after his presentation at MCX he had expected life of such a kiosk would be a couple of years but they are still going after seven. The refresh will be in the form of mobile, machine learning and commerce technology. A customer sends a text about an upcoming party and asks for wine recommendations. Machines parse the text and hand over initial recommendations to a human agent who calls the customer and gathers more information – how many invited, help with grape categories, desired price range etc. and machines help the agent suggest some recommendations. Next the agent takes the order and arranges for shipment. The Total Wine variety, expertise and friendliness for the digital age. 

There was the City of Albuquerque talking about how citizens are using Alexa to report missed trash pickup, request clean up of graffiti or ask for opening hours of parks or museums. Then there was the old-faithful Elgin Pelican Street Sweeper. Now over a century old, it has sensors like so many machines in our Internet of Things, and maintenance these days could involve a remote service agent with an augmented reality headset (photo below of what an agent might see – superimposed on the MCX audience in Chicago)

b) In 2009, I wrote about Digital Body Language, a book by Steven Woods, co-founder of eloqua. Steven was slightly ahead of his time. Here on stage Oracle was finally presenting that vision of being able to capture and analyze the digital gestures and finger prints we are constantly leaving behind. Its Audience product which allows for integration of first and third party data assets and Infinity product which promises “Real time, all the time” got plenty of play. And as a backdrop to MCX, Mark Zuckerberg of Facebook was being grilled on Capitol Hill. What more validation could you want that our digital body language is being intently watched?

c) There was Aaron Shidler of Oracle probably anticipating my impatience that enterprise software has been slow to verticalize solutions (see my note on Uptake for more on that). He presented in an analyst breakout session about “hyper-personalized digital guest experiences” in hospitality, and “integrated onboarding, underwriting and claims” in insurance. I have asked for a follow up conversation to understand how Oracle is leveraging all its industry assets like Retek in retail, i-flex in banking and BRM in telecoms to its CRM offerings.

d) As an innovation author, I have written hundreds of case studies on interesting products, people and places. My style is in the third person – my subjects get 90% of the words. It could be the political environment, but many more of us are expressing ourselves in the first person and marketers are noticing and allowing interesting individuals to loudly tell their stories. At MCX there was Sheryl Strayed who described her remarkable 1,100 mile trek through the rugged Pacific Crest Trail (superbly moderated by a very respectful Christina Cavanna of Oracle)  As a reviewer of the movie, Wild adapted from her book said “she’s the latest in a line of protagonists dating back hundreds if not thousands of years — people who embark on long wilderness walks to cleanse themselves of the accretions of civilization, terrible sin, or grief.” but what makes her stand out is “Women, however, weren’t always allowed to set off on epic journeys — they generally ended up in convents, taking the veil.”  There was Casey Neistat, a YouTube personality and vlogger, two job descriptions which did exist a few years ago talking (very humbly I thought) about his astonishing journey from trailer park and a dishwasher job to a personality sought-after by brands like Nike.  

e) Finally there was a dinner with Denis Pombriant and Michael Krigsman. As fellow Enterprise Irregulars we connect on a regular basis. What was different was we were invited by Alex Shapiro who has taken on a role dealing with us “independent analysts”. The term in Oracle lingo has more to do with procurement-centric independent contractor status. Of all the vendors, Oracle has probably struggled the most adjusting to the emergence of bloggers as influencers. It still issues way too many press releases and still treats established analysts firms like Gartner differently.  Alex spending time getting to know us and his responsiveness to our very different requests is very encouraging.  The fact that Denis and I write books and blogs on a wide variety of subjects, the fact that I advise a number of corporate clients and Michael has a popular videocast service with high-profile executives as subjects reflects the “omni-channel in the analyst business”. It’s a whole new world.

Yes, Toto we are not in Kansas anymore. Wish I could have stayed longer.

SAP’s new ERP pricing model: Quick analysis

SAP pre-briefed me on the new ERP pricing they announced this morning. It is meant to dampen the angst in the customer base about high-profile Indirect Access disputes which have become public in the last year. CEO Bill McDermott had announced an initiative to tackle the concerns at SapphireNow last May.

Three items of note in the announcement:

a) A move away (at the customer’s choice) from user based licensing to that based on document counts.

b) An organizational realignment that separates license sales departments and procedures from auditing and compliance groups and procedures.

c) Mechanisms for license exchanges and contract conversions to move to the new construct.

Here is my quick reaction. SAP will be briefing a few analysts next week in more detail, and over the next few weeks I hope to get reaction from customers as I continue my research for volume 3 of SAP Nation.

What I like about the announcement:

• The fact that they had used the “Trust Equation” as a guiding principle in their initiative. You can snicker when a corporation uses terms like “intimacy” but it reflects some humility that SAP feels the need to regain trust of its customers.
• The licensing metrics are more aligned with a world in which surround-systems, machines and sensors more than humans interact with core ERP processes. The friction over having to pay SAP for users who just accessed data in its tables should subside. By moving to document-based compensation, SAP is agreeing to get paid for “work” its software actually does – calculations, validations etc.
• I like the organizational shift where initiation of audits will be done outside of sales. So the hope is they are more likely to be driven by breaches of compliance rather than by revenue quota drivers.
• I like the initial validation they have had from involving several of the global user groups and customers (they told me they estimated they had talked to 200) across a wide section of industries and countries 

I left, however, with several questions, which I hope get answered in the next few weeks.

- For a project which was meant to simplify pricing, most customers will have to go through a rigorous analysis of their likely document count exposure. The matrix of 9 document types (sales, time management, material etc.)– some priced on a line item basis – may not be appealing to many customers (think for example of a customer with each user processing orders each with hundreds of line items)

- For the ten months it has taken, I would have liked to have seen more rationalization of Industry Engine pricing, and that across processes which touch both on-premise and cloud SAP offerings

- While the new compliance group will initiate any reviews, the business resolution will still be done in the field. I want to see how strong is the Chinese Wall between the two groups.

- In addition to Trust, I wish this team had also been given Realism as a target. As I pointed out in my recent note on Uptake, value in software has been moving away from transaction processing to intelligence and analytics. Not sure the exchange/conversion values reflect the fact that ERP functionality pricing should have steadily declined over the last few decades. In a world where machines are doing more of the work at the front end of so many processes, improving quality of data etc. why should you continue to pay for (often duplicative) work by your ERP system at the back end of that process at the same rate you did a while ago?

- For customers who choose to stay with current contracts based on user counts or more recent order counts, there does not appear to be much protection from Indirect Access reviews. SAP says it will not seek back maintenance but there could still be license exposure.

- The elephant in the room I think that SAP continues to ignore, is customers did not surround SAP just for the fun of it. In the 1990s when SAP took off, the CIO had most of the technology budget in organizations. Today the VP of Products, the CMO, Owners of Industrial Assets and other C level executives have their own technology budgets. They want functionality or cloud flavors SAP could not offer. Many invited SAP to compete for their business and SAP could not win. ECC has not evolved much, and S/4 is only gradually replicating ECC (and small amounts of IS) functionality, and there mostly in on-premise deployments. Putting customers through lots of rethinking from user to document counts would make a lot more sense if SAP could offer a much bigger function point footprint. Hopefully the focus at SapphireNow coming up in June will be on how SAP plans to significantly grow functionality. 

Verticals, the Uptake way

Readers know I have lamented for a while that enterprise software has paid lip service to verticals. Two decades of cloud and in-memory computing and still most of the available functionality is around horizontal areas - accounting, HCM and CRM. In the meantime, customers continue with client/server and older architectures around utility billing, retail merchandising, electronic health records, insurance claims processing, hospitality reservations and countless other “books of record”.  And even in verticals they have kept investing in, functionality has not kept up with changing trends. So, in manufacturing which many ERP vendors have supported for decades the functionality seems oblivious to growing digital capture via wearables on the shop floor, growing automation in the form of robotics and 3D printing and other contemporary practices.

So, I was a pig in mud this week visiting with Uptake in Chicago and hearing them talk about failure prediction, fuel management and label correction around complex industrial assets like locomotives and wind turbines in industries like railroads, mining and energy. These are industries with complex, expensive, mission-critical assets.  Connecting such assets is allowing for predictive maintenance, better asset performance monitoring and much more sophisticated field service.

Uptake is the brainchild of Brad Keywell and fellow serial entrepreneurs who have transformed Chicago’s tech landscape – see my post here.

The concept of having assets talk to us about how they are feeling is not new. In The New Polymath I described how as far back as 2004, BP was deploying motes, sensors, RFID tags in its tankers and in refineries in what it called a “sensory network”. In later books and blogs, I have extensively covered GE and its vision of the Industrial Internet.  Over the last couple of decades, our knowledge of complex assets, their components and failure rates and root causes of failures has exploded. Sophisticated companies now routinely make decisions about trade off between cost of unplanned maintenance versus cost of downtime.

Enterprise software vendors should have been all over this opportunity but most still just glibly talk about the “internet of things”. Uptake’s platform built atop cloud infrastructure from Google, Amazon and Alibaba ingests gobs of asset sensor data, applies machine learning to separate signal from noise, supplements traditional physical models and leverages a growing army of of domain-aware data scientists. It has lined up a group of demanding customers – 50+ so far in its 4 year history. Its platform can increasingly support a wide range of industries as it can apply its libraries horizontally to an expanding portfolio of use cases.

Uptake will not magically make up for lack of updated transactional capability from software vendors. As an example, most asset management software in the market still focuses on depreciation accounting and planned, not predictive, maintenance. Some continue to call their modules “fixed assets” and their last innovation was reading bar codes to track asset location.  Uptake should allow customers to continue to leverage such older transactional software, move them to cheaper third party maintenance and other “coping strategies” I described in SAP Nation.

In that sense, Uptake is showing that the value is moving away from process and transactional capability to intelligence and analytics.  Enterprise software vendors will attempt to do the same or at least talk a good game. Which is why Uptake’s most recent executive recruit, its President Ganesh Bell, ex JD Edwards, PeopleSoft and SAP is a timely one.

Can Uptake go even further and adjust to the world of outcome based economics? OEMs like GE who make such assets are trying to move away from the business model of one-time asset sales to multi-year contracts based on uptime and other outcome metrics. Buyers are skittish about such value contracts because they cannot precisely tie payback to product functionality. Still others view ML algorithms as voodoo science. Then there is the growing battleground about who exactly owns the data and how best to secure it.

Uptake is today a small player surrounded by giant OEM makers and sophisticated utilities and railroad customers. Again here, Ganesh’s recent stint at GE Digital should help.

It’s investment in understanding complex assets and OT (as different from IT) should make it a key player for the next several years as we evolve field service (factoid – the Bureau of Labor Statistics says wind turbine techs were the fastest growing job in 2017) and move to outcome-based contracting.

In the meantime, through his portfolio of other companies, Brad and his colleagues have their fingers in consumer markets, logistics, healthcare, advertising and other sectors. When it comes to verticals  I have a feeling they have already contributed more and and we will see more from them than we have from many enterprise vendors.