deal architect

Who put OUR data in THEIR data centers?

A character in the upcoming book I am co-authoring titled The AI Analyst (due in November) says

“Patrick, did you know I was in the Service? Spent a fair amount of time in the Middle East. I used to hear the expression often, ‘Who put OUR oil under THEIR sand?’ Sounded funny most of the time. Idle talk, but sometimes it sounded ominously hostile.  We are going through something similar in the technology world: ‘Who put OUR data in THEIR data centers?’ There is zero respect for customer data. There’s a land grab happening.”

Our book is in the fiction, thriller genre, but I am already seeing it in the real world. Corporations have unique customer, product and operational data and related domain expertise. Most vendors have plenty of data and domain expertise, but it is usually not that unique – it tends to be back office, horizontal, country specific. Essential data, but not at premium commanding prices.

There is plenty of unique customer data which will likely never find its way into a vendor cloud – seismic survey data at oil companies, drug molecular data at pharma companies, pixel metadata at satellite imagery companies and plenty more. And even mundane IoT, patent detail, medical records, customer contract data is elusive – as it should be for privacy and IP protection reasons.

And when vendors have useful data, they tend to be very protective and put all kinds of restrictions if other vendors try to access it. A BI vendor recently recounted the issues they face when their tools try to access customer data in other vendor’s databases. They only get access to high level, summarized data. The other vendors have excuses like  “you cannot understand the detailed data better than we do. So why do you want it in the first place?” It’s their customers data but they behave as if it theirs.

We are seeing a backlash from customers. You see the pendulum starting to swing from public clouds back to private clouds. Much of that is due to the economics of public clouds, or in some industries because they prefer capex v opex spend for their infrastructure, but increasingly the unspoken agenda is also to protect their unique data and the potential to monetize that on their own.

And you are seeing vendors trying to beg, borrow, steal unique customer data so they can feed their machines for differentiated AI use cases. That’s necessary, but not sufficient. They also need domain expertise talent to understand nuances in the data and to come up with compelling use cases.

You often hear the expression “Data is the new Oil”. Exploring for oil has always has always been high risk and required complex equipment and expensive engineering talent. The same is happening around differentiated data. Wars will be fought in the quest for such data. We are at the beginning, idle envy stages. But as we have seen with consumer data, there will be much uglier behavior by rogue vendors.   

“Who put our oil under their sand?” -  in a few weeks you will be able to read more about that character and about criminal behavior in the tech sector in our fiction book.   

 

 

Technical Debt – the iceberg under the software vendor waterline

We are all familiar with the term “technical debt”. Most vendors and analysts define it to imply customers not keeping up with the latest software release. However, that definition is narrow and similar to what is visible in an iceberg – the portion above the waterline. In the case of some icebergs, the invisible mass under water can be 7 times as large as that above the waterline.  

The “invisible” technical debt portion very few vendors acknowledge is that they have not kept up with business changes – driven by innovative customers who are redefining their industries, those by smart governments around the world which are forcing new reporting and other requirements and those by co-opetition with non-software technology sectors.

I hosted Whynde Kuehn of S2E Transformation last month to discuss the critical role of Business Architects, alongside those of Enterprise Architects as she launched her new book The Execution Challenge: Delivering Great Strategy at Scale. You can watch the whole conversation here.

I have excerpted below a 6 minute segment where I said we use the term “innovation” very loosely. Much of it is really “catch-up” with years of vendors not keeping up with the accelerated rate of today’s business change. I talk about vertical applications which have become viable, even essential over the last few years. Then, I talk about localization – adapting to governments which are introducing new forms of taxes, eInvoicing, new payment formats etc. Next, I talk about how robotics, drones, satellites, sensors are allowing us to fundamentally rethink many processes. There is a fourth one I have covered elsewhere - ecosystems which think “automation first” during implementations and upgrades are raising the bar for last-gen ones very dependent on labor intensive partners.

Too many vendors have grown the “under water” part of technical debt by not keeping up with all those changes and they (and their customers) are paying the price in 4 ways

Customers continue with legacy versions

In SAP Nation 2.0 in 2015, I described customer migrations to next-gen applications in SAP, Oracle, Microsoft and Infor world. I predicted customer migrations from ECC to S/4HANA would take a decade. Now it looks like by 2025, only about half will have completed their journey. And SAP has done better than the rest of the industry. In the book, I described an Oracle event in early 2006 where it celebrated “Half Way to Fusion”. Its customers moves to Fusion are considerably slower than those in SAP world. Too many next-gen software products reflect new technology like cloud architectures, but not much in functional improvements. They also don’t come with automated migration tools. End result – pretty low ROI from the move.

Clean, but Tiny, Core

I coined the term “ring-fence” around 2009 when I saw customers were adopting Salesforce, Workday and other SaaS applications around their core ERP, CRM and other books of record applications. In my wildest dreams I could not imagine customers would end up with 30, 50, 70 applications that make up the ring, but here we are because their books of record have not evolved with the business world. I honestly cringe these days when I hear vendors talk about the benefits of “clean core”. To me, the term reminds customers how small a footprint of the enterprise their major vendors are supporting – and how much that share has shrunk in the last decade.

More Custom development

I like to tell young folks in the industry when I started my career it took a lot of effort to convince customers to buy v build enterprise applications. With DevOps productivity shaping up as one the most promising GenAI use case,  we may find ourselves in the same predicament again in a few years where customers build way more than they buy

 Wall Street penalties

As I wrote here,  enterprise software vendors were Wall Street darlings in the late 90s. 30 years later their relative lack of ambition has allowed hyperscalers, chip makers to become the stars and we have “Mag 7 envy” as a result.  

Talking about icebergs, It’s trite to bring up the sinking of the Titanic, but the reality is as an industry we may be headed to that fate. That’s unless we significantly increase the business architect ratios in our staffing and start to deliver much more business functionality for a dramatically different world.

The eye of Hurricane GenAI – the calm surrounded by destruction

Margaret and I drove through Hurricane Debby on Monday because of flight cancellations from Charlotte, and it reminded me of conversations with folks at the National Hurricane Center. While storms are extremely disruptive, the 20-30 mile wide eye of most hurricanes is relatively calm.

It is a good metaphor for what is happening in GenAI markets

Larry Dignan at Constellation analyzes recent earnings calls at Microsoft, Alphabet and others and summarizes what he calls a “halo narrative” around GenAI.

“Enterprise software vendors haven't been thrilled about the narrative that they aren't directly monetizing generative AI so the narrative is subtly being flipped”  and

“GenAI is just software so don't go looking for direct revenue impacts.”

Larry and I had recorded a Burning Platform episode last November which presaged many of the trends which have led to this predicament and you can revisit them here

I would not scoff at any revenues, so don’t want to dismiss the halo effect explanation. However, to me it also highlights a lack of imagination at many vendors and the lack of appropriate data to create compelling GenAI use cases. I find Wall Street tends to often be myopic about CapEx spend at software and services firms, but in this case, we are throwing massive GPU and LLM resources at the problem, and it is not unreasonable to ask “where’s the beef?”   

Developer productivity is showing up as a compelling GenAI use case for many vendors. They have plenty of previous written code in their own software, at their customers and at their partners to train their machines and at least generate a first draft of new code. SIs and outsourcers have plenty of data in 000s of proposals, custom code, test routines, data conversion, training modules and other assets and if they could get over their labor intensive mind set they could also deliver significant productivity with GenAI.

Vendors also have plenty of what Malcolm Frank calls SGA (sales, general and administrative) data to generate attractive (but not necessarily premium priced) GenAI use cases - watch this Burning Platform episode where we talked about raising the bar for AI. However, most vendors don’t have much COGS (Cost of Goods Sold) or Revenue or Balance Sheet data. They also don’t have many practitioners with depth in those areas. Operations and business models tend to be very different by industry and country and without that data and talent you cannot imagine or offer compelling AI use cases.

The chickens have finally come home to roost. I have said often that even after 25 years of SaaS applications, 75% of business processes across countries and industries do not have much vendor application choice. Vendors were content to keep selling basic ERP and CRM functionality, and there mostly for English speaking countries. If anything, the hype from GenAI caused a pause in expanding their transactional functionality.

Even SAP which has the broadest reach of customers, functionality and talent across industries and countries has been cautious in the reach of its GenAI offerings

The good news is the market is wide open for incumbent vendors and new entrants to build transactional functionality for so many unexplored markets. They can build their talent and data, and GenAI use cases for several niches. Many of these markets should be highly differentiated and command premiums which Wall Street expects to pay for NVIDIA GPUs and hyperscaler pricing.

There is one big caveat to all this. With the excitement around GenAI over the last couple of years, I have seen customers wake up to the realization that they themselves have the relevant practitioners and they also have the operational and revenue data. Why should they share that intellectual property with vendors and additionally need to pay for the privilege? Many customers are learning how to monetize that data. They will share such IP at very different price points. 

The tech customers of yesterday could become tech vendors of tomorrow. Indeed that is a sub plot in my upcoming fiction thriller titled the ’The AI Analyst’ which is expected to be released by Thanksgiving.

Now that is fiction,  but even in real life, data is the new oil and battles are already being fought where data is being stolen and traded 

Gen AI is real. Finding use cases that justify the computing cost and talent are still elusive. It will take a new vendor mindset and business model to get use cases which justify pricing premiums that pay for the AI CapEx and practitioners.  

But you need to get to the calm eye of the GenAI hurricane. The eyewall is way too turbulent. Even better get to terra firma. Driving through the relentless rain from Debby this week, we were glad we weren't flying through it.

My 10 asks of the next POTUS

For 35 years, I have helped clients make complex technology decisions – and do so objectively and quantitatively. The process involves spreadsheets with evaluation criteria, scores and weights. 90% of weight tends to be related to functionality, architecture, economics, ecosystem etc. Rest tends to be driven by soft factors like vendor charities, social good etc. I encourage vendors to be innovative in their responses and I advise clients to penalize vendors who sell negatively about the competition rather than showcase their own capabilities. 

I use a similar process every 4 years for my Presidential vote. I am a registered Independent – technically, NPA (No Political Affiliation) - in my state. And honestly, with just 3 months left to Election Day, I worry the candidates are not talking enough about our burning issues. The Democrats want to continue to prosecute Trump. Trump wants to keep calling Kamala names. Poor Robert cannot get even a few words in the mix.

I want them to start articulating how they will address my ten issues and earn my vote and that of many other voters who think like me

1. Reduce National Debt

Both Republican and Democratic administrations have run up massive debt in the last 8 years. I want them to articulate how they will reverse course. Don’t laugh. A Democrat, Bill Clinton showed budget surpluses are doable. My Republican state Governor, Ron DeSantis is delivering them even in today’s environment. I want to see it done at the Federal level. Servicing that debt at current interest rates is insane.

2. Deliver trade surpluses

The US has been running trade deficits for decades. Trade deficits mean we keep exporting good jobs. We are chumps who continue to believe in ‘free trade” while China, Germany, India and so many countries continue to take advantage of our openness. Trump tried with tariffs on imports. We need much more. We need foreign companies to make and hire more right here at home. In turn, we also need to encourage more US companies to urgently adopt an export mindset. We are the biggest single market in the world. We should use that as negotiation leverage.

3. Make the US an energy innovator

US greenhouse gases have stayed level for over 3 decades while our GDP has gone up 5X largely because our utilities moved from coal to natural gas. We need to quit feeling guilty about our gas usage – it is pretty damn clean. Additionally, we need to encourage investments in carbon capture and storage so the methane from the gas can be mined for hydrogen as next-gen industrial fuel. We need to invest much more in modular nuclear, next-gen geothermal, and next-gen solar and wind, not keep hoping the current solutions will magically work for us.

4. Get serious about “affordable” healthcare

It is shameful that we spend 20% of our GDP on healthcare, have miserable outcomes and yet our politicians continue to use terms like “affordable”. Time to lock up payer and  provider executives and tort attorneys in a room till they can agree on reducing our spend and delivering quantitative improvements in patient outcomes.

5. Tie immigration to our talent needs

The Bureau of Labor Statistics tracks trends in over 800 occupations – white, blue collar, trade jobs etc. Let’s align immigration with our needs by occupation. Many immigrants like me went through a labor certification process, FBI and other checks, a formal naturalization process before we were allowed to vote. We do have a WORKING process. Let’s get back to that - not the open border we have tried in the last few years.

6. Take care of our aging baby boomers

Quit eyeing Social Security and Medicare as “banks” to be raided. They are not entitlements – Baby Boomers and their employers funded them. Also, Baby Boomers were expected to self-fund retirements with 401Ks and IRA funding. Protect those nest eggs from the IRS and financial advisers who can easily take a 25 to 50% bite over the retirement years. Finally, question DEI hypocrisy which only applies to gender and ethnicity, but not to aging workers who want to continue in the workforce.  

7. Quit spilling our young blood in faraway places

And funding 2/3 of NATO’s budget and guarding the world’s naval trade routes for free. We have helped create middle classes around the world. They can afford to provide their own defenses and compensate us for our support. Let’s instead use our young men and women to refresh our own physical and digital infrastructure.

8. Be fluent in STEM

I want the US to lead in space, oceanography, anti-aging and other health areas, AI, robotics, next-gen financial instruments, crop genomics, GPUs, energy and more. I want the next POTUS to present an annual STEM State of the Union, be articulate and passionate about our leadership and get our young excited about our opportunities.     

9. Celebrate the nuclear family

The “Population pyramid’ is real in many developed societies with aging populations and insufficient young workers to drive production and consumption. We have brought it upon ourselves with over 100 million abortions. Fixing that with reckless immigration only worsens the problem. We can chuckle about childless cat ladies, but let’s get a leader who celebrates vibrant families with boisterous kids and plenty of cats and dogs.

10. Re-prioritize common sense

In recent times we have let activists and ideologues drive our policy. Germany has tried for 5 decades and spent trillions of euros to run its economy on wind and solar, and it is still heavily dependent on foreign gas and its lignite. Why do we think other countries will do better and quicker with that path? For decades, we have depended on natural immunity as protection against various diseases. During COVID we appeared to forget that lesson. Many more examples where we should we asking lots of questions, not just going along with what is being proposed by so-called experts.

I want to end this with a request. Don’t let single litmus issues decide your vote. Don’t let your favorite media source influence you too much.  Instead, draw up your own list of major issues. Do your own primary research. Talk to practitioners in various fields. And bombard candidate campaigns and your media sources for position papers and proof points.

Make the candidates earn your vote. And penalize them for every negative comment about their competition. Make them focus instead on solutions to your issues.

Make the next three months count.