deal architect

ERP: Moving Fast and Yet So Slow

A guest post from Ton Dobbe, Chief Inspiration Officer, Value Inspiration

"Every week I interview entrepreneurs and experts from around the world to share their big idea about new forms of value creation and the potential we can unlock when technology augments the unique strengths of people to deliver remarkable impact.

I got inspired by the release of the book SAP Nation 3.0, hence I invited its author, Vinnie Mirchandani to my podcast. We explored the changes in the ERP landscape over the last 5 years, in particular amongst the big 3 – SAP, Oracle and Workday. We also explored why after 20 years of ERP in the cloud today there’s still not enough traction.

The thing that triggered me most from my interview with Vinnie : "Cloud ERP has been around for 20 years now. But after 20 years, both the customers and the vendors are just not moving quick enough. Something's not right."

Vinnie’s conclusion is so true. If you compare the transformation in the ERP industry with other enterprise software categories, it’s transforming fast, but too slow. He outlined a range of reasons for that:

1)         Lack of functional coverage: ‘If you plot functional coverage by global world region, by industry, by business process only about 20% is filled. So after +20 years, the vendor community hasn’t delivered enough.’

2)         Not enough shift in value: ‘Data is one of the biggest selling points of cloud, you know, we are gathering a lot of data. That should allow us to do some really unique things that we couldn't do before. That’s simply not happening yet’

3)        The partner community is holding things up: ‘Partners are selling mostly private cloud or on-premise solutions. Partners want to continue to do what they always did: implementations, upgrades, application management.’

4)         Buyer fear. ‘The memory of the last implementation is still holding back a large number of buyers. Many of them just customized the heck out of their old ERP system and they're worried that they will lose the customizations if the functionality in the new product isn’t rich enough.’

So, it’s a chicken and egg dilemma that’s needs a breakthrough. And the breakthrough won’t come from continuing to move traditional solutions to the cloud to continue to do their traditional thing. From my perspective, there’s a large-scale opportunity in the market for any of the vendors – established or new – to shake things up but taking a fresh perspective on ERP.

We discussed a number of opportunities to unlock the status quo, here’s a summary:

1)         ‘Don't just modernize the technology, modernize the business processes.’

2)         Verticalize – what is wrong with offering claims processing or retail merchandising, or insurance billing, or utility asset management and so on. Those industries are screaming for cloud and in memory solutions for that.

3)         Get systems integrators to apply machine learning and automation to their own business. It's amazing how many systems integrators still sell bodies, when over the last 30 years they've done millions of ERP projects and millions of CRM projects. Why aren't we training machines to do configuration. Why aren't we doing automated data conversion.

In all three examples it’s data that’s the magic ingredient to unlock a large-scale and untapped opportunity to create a shift in value. As Vinnie quoted: ‘Up to now a lot of the machine learning that is showing up in the ERP space has come from the work vendors like Amazon and Google have done with image recognition, and voice recognition and so on. To me, the big, big, big payback will come when we can take enterprise data. Our own productivity, our process productivity needs to dramatically improve. It's not about it's not about replacing humans; it's making them into super workers. ‘

Listen to our interview about the evolution of the ERP space, and the large scale opportunity this leaves to creates shifts in value in a world that’s progressing, but not quite fast enough."

Drama in enterprise computing

Ray Lane, a top-notch tech executive and investor over decades, said this about my new book

"Don't be fooled by the title—the book is not just about SAP. It's about drama in enterprise computing."

I then used "drama" in the title of my recent ZDNet guest column.

Drama? That's what you get in Augusta in April. Isn't enterprise tech boring and glacially slow?

You be the judge.

My book catalogs the product launch machine SAP has become and the fact that its customer base has grown 50% in the last five years. It was on the ropes, the competition could have delivered a knockout punch but it has bounced back impressively. 

Of course,  SAP is also generating a lot of interest and emotion with its recent layoffs and executive moves. From an investor point of view, CEO Bill McDermott has created excitement by promising to double its market cap in four years

Marc Benioff of Salesforce told Jim Cramer of CNBC a few weeks ago " I see $30 billion right around the corner. In fact, we initiated a 4-year guidance today, Jim, of $26 [billion] to $28 billion."

How can that not make your heart beat faster?

Last week, in his coming-out party since he joined Google several months ago, Thomas Kurian made quite an impression.

Also last week, at a SAP Analytics event, mostly under NDA, I expected to hear plenty about coopetition with Google, Oracle and IBM. Instead I kept hearing about Microsoft with its Power BI, Surface, Azure ML, Office 365 and other products.

Oracle and IBM were similarly snubbed by the DoD as it shortlisted vendors for its $ 10 billion JEDI cloud contract. One contract should not mean that much but the twists and protests in that one certainly count as drama.

When a case ends up at the Supreme Court of the US, it usually makes for some some oohs and aahs. When all 9 justices vote unanimously on something, it certainly perks you up. That's what recently happened to Oracle in its long running litigation with Rimini Street.

One of the nice things about the Amazon Kindle is a feature called "Popular Highlights". Amazon combines the highlights marked by all Kindle customers and identifies the passages with the most highlights. For my book, this statement by Mark Hurd has already qualified for that honor. "In October 2018, Oracle co-CEO Hurd predicted that 80% of business applications would be in the cloud by 2025."

That para goes on to say "Today, even after two decades of cloud computing, industry and geographic coverage is spotty — by my estimate, less than 20%. For Hurd’s prediction to prove accurate, it will take massive new investments in upgrading industry functionality." Will Hurd's own products grow rapidly and get a lion share of his projected 80%? In January 2006, Oracle had confidently declared they were "Halfway to Fusion". 13 years later, Oracle still mostly talks finance, HCM and CRM. NetSuite, even after 20 years, has limited global coverage as Phil Wainewright points out here or industry coverage as I point out here.   

In the meantime, in China, Kai-Fu Lee, who has been called the “Oracle of AI” has funded nearly 150 AI start-ups. At Davos earlier this year, the theme was Globalization 4.0 which shows that Industrie 4.0/IoT concepts are spreading worldwide. Holger Mueller of Constellation opines about platforms "Why Open Source has won and will keep … winning.”

Augusta generates drama for 4 days. Enterprise tech takes a bit longer. But it has its share of comebacks and black horses. I will have a front row seat as I start planning for SAP Nation 4.0.

Or may be it will be titled Oracle Nation 1.0 or Workday Nation 1.0. That right there is plenty of drama.

SuiteWorld Redux

Oracle sent me the video of the product session at SuiteWorld which could not be webcast live when I wrote the post Unfair to NetSuite?

Of the 7 webcast keynotes I watched at Oracle MBX/MCX and at SuiteWorld this was the most relevant to me as an analyst. Gary Wiessinger,  EVP Products did a nice job covering a wide range of product topics.

Here are some thoughts after watching this session

- Oracle has a nice early testbed for its OCI and autonomous database. 3 years from now NetSuite will look unique in a market where most other application vendors are being platformed on Amazon, Microsoft, Google, Alibaba and other clouds. Time will tell whether that flavor of "unique" is something to celebrate.

- Oracle is also helping NetSuite become more global. However, I found the global metrics NetSuite shared a bit confusing. At last year's SuiteWorld they said they had users in 199 countries, this year is was up to 212 countries. Their web site still says 110 countries. Much more important is how many countries they support with functionality, languages and local presence. They said they added 21 new countries with local functionality. Their web site says they support 20 languages. All good progress but would be nice to see how many two-tier implementations they have sold with Oracle apps at HQ. How deep is the local functionality - most countries have provinces,  unique nuances.

- Where Oracle does not appear to be helping NetSuite is in verticalization. I saw a slide from SuiteWorld which showed NetSuite supporting 7 verticals - Retail, Wholesale Distribution, Manufacturing, Software, Services, Agencies and Nonpofits. At the last SuiteWorld, Paul Farrell shared with me they were moving into micro-verticals. What Gary showed this year went the other way. They would qualify as two "macro-verticals" - Products and Services. At that level of abstraction, the functionality is largely horizontal. To me, commitment to verticals means showing 2-3 unique operational systems of record in an industry - claims processing in insurance, clinical systems in healthcare etc. -  not just a couple of features.

One thing I definitely appreciated - even though it was a bit corny, the beginning of the session had a nice tribute to founder Evan Goldberg, one of the original cloud pioneers who continues to be a nice, approachable executive.

Making features/functions sexy again

I got excited this week when Workday sent analysts a hour-long video (sorry - don't have permission to share the video) which summarizes 500+ new features and 300+ new brainstorms in release 32.  That release was delivered on March 9. Workday used to do this on a regular basis - indeed I wrote last year "I miss Stan Swete’s updates every time Workday had a new release (they are up to release 31). He would crisply march through new features and also give a quick update on the state of the company." So, glad to see them start doing this again.

Excited about features and functions? I must lead a really boring life, eh?

No, if you look at what application vendors have talking about last few years - its been mostly about their technology - UX this, ML that. Often it's not even their technology - they are leveraging what Apple. Amazon, Google, Microsoft are pioneering and scaling. Business process and functionality have taken a back seat.

No wonder enterprise applications are evolving at snail's pace - in business process, in industry and geographic coverage. We desperately need a refocus and reinvestment in application functionality.

Here is what I told M.R. Rangaswami of Sand Hill in an interview about SAP Nation 3.0

"While enterprise vendors have superb technology visionaries like Larry Ellison and Satya Nadella, they have not groomed a similar breed of business process visionaries. If you want inspiration for the factory, warehouse, store or hospital of the future customers don’t turn to Oracle or Infor. That has to change. Application software has, in the end, to continually evolve business processes and enterprise data. Instead of inspiring customers to look to them, too many vendors are offering platforms and expecting someone else – their partners, their customers – to build applications. It’s the equivalent of your favorite restaurant saying our renowned chef is gone, however, we will open up our kitchen. Come use our appliances. No, customers continue to want tasty, healthy, affordable cooked meals."

Thanks, Workday -  I want to see starting with release 33 you talking about verticals beyond higher education and about more geographical coverage beyond the 34 countries you are supporting today:)

Unfair to NetSuite?

For a fleeting moment I felt guilty I am not at SuiteWorld. Mark Hurd was talking about shipments from Shanghai and inventory allocations while in transit. I perked up at the webstream. But just as quickly he was talking about recruiting. And his comments were from a decade ago when he was at HP. I went "here we go again - like at Oracle MBX/MCX couple of weeks ago, finance and HCM seem to be Oracle's comfort zone. They are allergic to talking operational applications in the cloud".

The next session I was told to watch was about NetSuite products but the stream did not work. I can see from Albert Pang's tweet they are talking operations  "Allison Auclair, VP Product Mgmt of Oracle NetSuite, outlines what it takes to do next-gen manufacturing & retailing, covering everything from sourcing to online selling and from ordering to warehousing in its stepped-up effort to improve commerce & CRM experiences." Just my luck. I will try and watch a replay.

This is the first SuiteWorld I have missed in years. I much prefer analyst summits but NetSuite has never held one - I have asked multiple times. Oracle has moved away from them. I feel I am intruding on customer time when I go to user conferences. When I do go, I like a schedule which has plenty of customer and executive time. Oracle has not been able to deliver that so I have been watching their events from afar. Sorry, NetSuite.

I hope Oracle and NetSuite convene an analyst summit like I requested here. Every one of their competitors does one and they keep getting better each year.

I WILL show up for such a summit. If I am invited, and if the agenda does have operational and vertical functionality.  

Bruce Cleveland: Part 1- Traversing the Traction Gap

Bruce Cleveland, who many readers may remember from his Siebel days is now an investor and has a new book out, Traversing the Traction Gap. I had a long ranging conversation with him about the book and also about trends he sees in today's enterprise software industry. In this part we focus on the book, in Part 2 tomorrow he will discuss partnering and how to go after white spaces in the market.

How did the book come about?

Many people have asked, "How long did it take you to write the book?"  It took about a year of nights and weekends and a bunch of rewrites with others helping along the way. Not writing the book – I did that - but performing the interviews, creating graphics, getting legal sign off to use the quotes we collected, and that type of thing.  I learned it really does take a village to get a book out - at least something that's meaningful. More importantly, it took me 35 years of experience to accumulate the knowledge to write it. It required 10 or 12 years on the venture side and 25 years on the operating side.  

I was fortunate to work for and with some of the most amazing technology CEOs and leaders in the Valley.  Luminaries such as Larry Ellison and Tom Siebel were - and still are - the visionaries who created massive markets and incredibly successful technology companies.  Tom's new company, C3, is doing exceptionally well.  I had the advantage of a ringside seat observing the decisions they made and helping to execute them. Over the course of ten years as a venture investor, I met with and listened to presentations from at least 1,000 teams. I learned from those experiences as well. Finally, for the book, we interviewed dozens of successful founders and CEOs to better understand what led to their success.  So, the Traction Gap Framework is something that I developed but the ideas came from the cumulative knowledge and experience of many smart and talented people. 

Over time, patterns began to emerge as I began to see what tended to cause startup failure: 80% for enterprise or B2B oriented startups. B2C -- 90% to 95% failure rates.  CPG -- 98% failure rates. I realized that there are a lot of great ideas and very talented teams, yet many make mistakes that are avoidable. 

So, I started to unpack all of this.  When I joined two other people to create a new venture firm, Wildcat Venture Partners, I brought those ideas with me based upon the patterns I had observed. The most common cause of failure? Many phenomenal product teams stumble when it comes time to take their products to market. While they may have great product engineering skills, most teams lack “market engineering” skills – a term I came up with to represent category creation/redefinition, thought leadership content, market validation processes, pricing models, etc. I decided to double-click on this. 

All early stage startups – and new products inside an existing company – must go through 3 phases: go-to-product, go-to-market, and go-to-scale. There is a lot of help from angel investors, incubators and accelerators for the go-to-product phase. There is also a lot of help in the go-to-scale phase from groups such as Bain, McKinsey, etc. However, there is very little help for that murky go-to-market period. And, the evidence – 80% failure rates and higher – shows us that this is the most challenging phase for startups.  One of my partners is Geoffrey Moore, author of “Crossing the Chasm”. That book has taught millions of entrepreneurs how to think about markets. 

Most of the groups we invest in come out of great colleges or great companies, be it Salesforce, Google, Facebook, or wherever. There, they have learned how to develop a product. However, many of those groups have never experienced bringing a product to market. And, there has been virtually nothing written with respect to how to do it successfully.  There are no prescriptive guides.  There aren't’ guardrails or guideposts for startup teams to follow. I decided that, based upon my personal operating experience taking an early stage startup from an idea to a billion-dollar outcome and investing in multiple early stage startups that went on to become billion dollar outcomes, that I would share my experience and the experience of others who had succeeded.

The Traction Gap Framework

We don’t need more acronyms introduced into the technology landscape. I decided to adopt Minimum Viable Product – MVP -  a term that Steve Blank, Eric Ries, and Marc Andreessen propagated, and derived the names of the value inflection points for the framework from that term. It may be debatable about what constitutes an MVP, but it's something that people are familiar with.  In my experience, if you can explain new ideas in terms people already understand, then they can quickly pick up on those ideas. 

I adopted the “minimum viable” format and applied it to the value inflection points associated with the framework.  The reason that I call them value inflection points is that as you reach each successive point, your company increases in value because you have diminished risk in the eyes of the investor community. In fact, it’s a step function change in value, not a smooth curve.

The first value inflection point of the Traction Gap Framework is called minimum viable category or MVC.  Creating a category, or redefining an existing category, is critical market engineering work.  You must to this early, while you are in the process of deciding whether the product has a viable market. You need to define/redefine your category because the current “category king” defines the “rules” – the attributes - of the existing category and you will be compared against them. This is not a battle you can win – well, at least not very easily.

The next value inflection point is called initial product release or IPR.  This is the first time that you make your product available publicly.  It can be an alpha or beta version, but it's basically the time at which you first place it in front of people, and they tell you whether it's great or it sucks.  Based upon the feedback during this period, you polish it up and, eventually, you reach what you declare to be a minimum viable product or MVP; something that you can begin to actively market. 

The next value inflection point is minimum viable repeatability or MVR. This is the point where you have successfully built and released multiple versions of the product, hired multiple people, experimented with and hardened pricing models, and are now beginning to build the systems such as sales, marketing and governance processes that you need to scale your company.

Then, finally, if you can scale for 12 to 18 successive months - growing quarter over quarter - you will reach this theoretical point called minimum viable traction or MVT. There are actual metrics associated with each value inflection point, including MVT.  But, to provide you with a visual image; you know you’re at MVT when you travel to “Sand Hill Road in Menlo Park” (Venture Capital Row – although SF has become far more popular for VCs over the past few years), meet with the venture capitalists located there, and they begin to sell you why you should take their $ vs. you selling them.

In addition to the value inflection points, the Traction Gap Framework consists of four architectural pillars: product, revenue, team, and systems.  These pillars are present from the moment of ideation and last in perpetuity, as long as there is a company. 

At the various value inflection points, the Traction Gap Framework architectural pillars take different points of prominence.  In the go-to product phase, product and team take center stage. From MVP to MVR or minimum viable repeatability, revenue architecture comes to the fore. Then, finally, as you reach MVR on your way to minimum viable traction, systems finally become important as you prepare to scale. 

The Traction Gap Framework breaks down this very murky time where there is very little data. It provides startup teams and investors with some guard rails and milestones they can target.

During this time, most startups are what I call “PowerPoint companies” -- they don't have a lot of market or customer data to prove that their products will succeed or feedback regarding what it will take to generate success. The challenge for startups at this stage is to get to a point where they become a “Spreadsheet company”; a company with performance data —metrics - that the team and investors can react against. Most venture firms are not comfortable investing in early stage startups that are still in “PowerPoint” mode.  Some will – like the Pre-Seed/Seed firms. And, even the best-known firms will invest early if they know the CEO and/or have strong conviction about the market opportunity. But, most teams will find that the venture community is hesitant to invest until they see tangible traction. 

Understanding what constitutes traction has been elusive for entrepreneurs because there's typically not a lot of feedback given to them by the venture community. And, most venture investors haven’t personally built a company from startup to scale, so there is little expert counsel they can provide based upon personal experience.  I wanted to expose some of the metrics venture investors associate with traction (e.g., capital raised, net burn rate, revenue growth, and usage rates) and how to achieve them. 

That's the background on the framework, the reason I developed it, the terminology I created, and the overall rationale for it.

How portable is the Traction Gap Framework?

I sat down with Geoffrey Moore and asked him, "When you were thinking about publishing ‘Crossing the Chasm’, were you worried that you didn’t have enough proof of concept?  At the time, your ideas were quite nascent, right?”  Geoff said that he wasn’t really worried about that. Geoff said he published it and subsequently augmented and supplemented his original thoughts as needed. So, that gave me the confidence to put my framework out there.

I use variable names for the value inflection points of the framework so that it can support a variety of different business models.  In fact, I treated very lightly - in this book - the B2C business model.  The reason is that most of the investments I make use a B2B or B2B2C business model. 

But, I gave considerable thought to the framework’s applicability and adaptability to other business models and other industries.  We've now accumulated metrics for B2C and we can swap in those metrics at their appropriate value inflection points.  Over time, I can see us doing something similar by industry verticals.  So far, it seems to hunt well.  I suspect it will readily work with other business models.

And, for the most part, I believe the framework is flexible and adaptable enough to scale to other geographies and cultures.

In Part 2 tomorrow we will cover Bruce's thoughts about the current enterprise market. 

Oracle: How about an Application Analyst summit?

It's no secret. I have written in several posts that to me the highest value vendor event is an analyst summit. I feel like I am intruding on customer time at user conferences and similar events.

Workday started off the trend with its first analyst summit almost a decade ago. Since then, the quality of such summits has kept improving. Plex often combines them with customer plant visits or allows us to mingle in a Customer Advisory Board meeting. SAP recently combined their analyst summit with the Qualtrics X4 event. Other vendors have their interesting twists - lots of access to executives, customer presence, often an interesting social activity.

I raved about a cloud summit Oracle hosted four years ago. For some reason, Oracle has moved away from such summits - it has short 3-4 hour ones which seem hurried. In fairness, they may hosted longer ones I have not been invited to. Unlike other vendors, Oracle persists with a "caste system" and has different agendas for those they consider "independent analysts" versus those from my former employer, Gartner or other bigger firms.

So most of my Oracle exposure has come from OOW or its thematic events.  It would be nice if they would facilitate connecting us with customers, executives and partners at such events. That has not happened much in recent years.

As a result, I have not traveled to Oracle events in the last year. In retrospect, looking at the agenda, I should have gone to MBX/MCX events last week. Oracle suggested I at least watch 4 streamed keynotes. 6 hours is an investment I will gladly make especially if I don't have to put up the wear and tear of travel.

So, I watch the first MCX keynote here.  First 25 minutes are marching bands and cute Ann Handley talk. Then come buzzwords about the "Experience Economy". Finally after 50 minutes, there's a customer on stage. Judy Sims, CMO of Oracle does a nice job interviewing Jennifer Storms, CMO of NBC Sports Group for about 20 minutes. Then more announcements. No product demos. Not a strong start I say. My grade for this segment = C. Without the NBC Sports customer segment it would have been be a D. 

On to the next keynote - this time from the MBX track. Marching band again and introductory comments for first 15 minutes. Charlene Li of Altimeter then talks about "Disruption". She is very good on other topics, but was a bit flat here. When I hear disruption, I expect example after example a la Clayton Christensen. Around 40.00, Steve Miranda of Oracle takes over. He spend a few minutes on history of change in enterprise tech. Starts demo around 50.00 - does a credible job, but focuses mostly on digital assistants and ML. Around 60.00, Steve interviews an executive from Caesars Entertainment. Around 75.00, an Accenture partner discusses some jargon - mercifully for a consultant, he does not have 80 slides in tow. He then interviews an exec from Willis Towers Watson. Most of the focus in the session has been on hcm and financial processes. Nothing on SCM or operational processes. My score for this session = B

On to the next MCX keynote - to me, the best of the four keynotes I watched. I enjoyed the tap dancing and hand jiving that kicks it off. Around 15.00,there is some product focus with Oracle thoughts on Design. Then, it gets better. Co-CEO Mark Hurd talks about sales and marketing trends at Oracle, the 80 customer "touches" it takes to sell enterprise applications, his efforts to recruit salespeople straight from campus. He was initially mocked for the idea but Oracle has persisted and now has 10,000 such recruits, many in inside selling. That is followed by an interview with Andrew Sinclair of Motorola Solutions. Very impressive description of how the company supports emergency services around the world.

My score for this session = A-. Would have been higher with more Oracle product exposure

Finally, the second MBX keynote. At around 10.00 Willis Sparks of Eurasia Group covers geopolitical trends. He is very good. At 40.00, Mark takes over. He presents his view on the industry. Nice if you have not heard him - but I have heard many variations of this from Mark. Around 70.00 he brings customer executives on stage - Hormel Foods, Adventist Health for 10 minutes each. Again more focus on financial and hr processes. Finally, a half-hour session on digital trends by Deloitte.

My score for this session = B- . It would be even lower without the Willis Sparks segment.  

4 webcasts - little over 6 hours. Not enough product or customer exposure, a little too much time given to partners. I listen to Jon Reed and Brian Sommer's podcast and read Bob Ferrari's posts from the event. They do not appear to have picked up on much new functionality in Oracle products. Brian comments the event was "crawling with chatbots"

After my research for SAP Nation 3.0, I believe SAP's competitors need to step up. In Oracle's case I would love to see it showcase much more intensely how its applications are growing in function points across geographies, industries and processes. Mark keeps predicting 80% of production apps will be in the cloud by 2025. After 15 years of Fusion and countless acquisitions, Oracle still mostly showcases CRM, HR and financial apps. Unless this changes, it will have a very small share of what Mark is projecting for the 2025 cloud enterprise apps market.    

Oracle, how about a 2 day analyst summit focused on your applications? Focus on SCM, operational, vertical applications you are working on. Allow us to spend some time with your application visionaries and customers who are pushing the boundaries of your applications. Entertainment and partner sessions, optional. 

I will gladly travel for that. How about it, Oracle?   

Update: someone just reminded me Oracle NDAs and admin processes can be pretty onerous. I suspect even if Oracle decides to host a summit I request above, there may need to be some negotiations before analysts decide to show.

Oracle Applications: a new chapter?

Steve Miranda, EVP, Applications Product Development at Oracle briefed analysts about this week's co-located Modern Business Experience (MBX) and Modern Customer Experience (MCX) in Las Vegas. He also blogged about it: "we are bringing together marketing, sales, and service with HR, finance, and supply chain, because we are seeing more and more similarities between each area."

On the earnings call last week, Mark Hurd, co-CEO of Oracle glowed about the applications business

"Fusion Apps, 35% up, Fusion ERP revenue was up 47% organically. NetSuite revenue was up 28%."

Steve is one of the nicest guys in the software industry. He is also one of the smartest application architects in the industry. Mark has run some of the most sophisticated supply chains and salesforces in the tech industry. I have talked to him about complex business processes and applications. I know they know business applications cold.  

And yet when I was researching my new book, SAP Nation 3.0, I repeatedly saw Oracle miss out over the last two decades on opportunity after opportunity to become the dominant enterprise application vendor.

"Oracle continues to dominate the database market. By many measures, Oracle should also by now be the undisputed leader in enterprise applications....Starting with the PeopleSoft acquisition in 2004, Oracle went on its own binge, claiming it was time for "industry consolidation." They made significant acquisitions: PeopleSoft for US$10.3 billion, NetSuite for US$9.3 billion, Siebel for US$5.6 billion, Micros for US$5.3 billion and Hyperion for US$3.3 billion. Other investments like i-flex, Portal, Primavera and Retek brought them banking, telecom, complex project and retail functionality, respectively.  By 2006, they were loudly celebrating that they were "halfway there" in developing their own next-gen Fusion cloud applications....For all that, Oracle has done just OK. It has seemed more intent in going after Amazon for the cloud infrastructure and platform markets ...Around business applications, Oracle has focused more on Workday and Salesforce with HCM and CRM functionality, and not so much in manufacturing or other verticals where SAP has greater presence.....While it has launched an exciting autonomous version of its database—which it calls "self-driving"—it has not brought a similar level of automation to enterprise applications. "

Mark explained during the q&a during the earnings call that he is not that concerned that his on-prem customer base is not moving to the cloud. He said "our user base actually knows our cloud roadmap. They actually have confidence in our R&D, they know we’re going to be there to migrate them when they want to be there. They actually have less of a sense of urgency in many cases to move than the (competitors like Deltek and Lawson) you’re describing, Brad, because they’re in much more desperate situations without a roadmap, without knowing how they’re going to get from here to there, knowing their competitors are beginning to move."

In the book, I  point out that after two decades of cloud applications (Netsuite was founded in 1998), we actually now have an industry crisis. CIOs are reporting it is increasingly difficult to recruit talent to their on-prem environments. The customizations and technical debt around those applications are increasingly a security and compliance risk. And they have little hope of seeing the benefits of better UX, multi-tenancy, machine learning or IoT any time soon. 

In this post I called for SAP, Oracle, Infor, Microsoft and other on-prem apps vendors to "tilt the bell curve". Of their own customers - not worry about those of competitors.

Mark also said "Our vertical revenue was up 38% and our annualized revenue in the verticals is now over $800 million." I would love to see details - to me vertical applications do operational stuff - merchandising in retail, claims processing in insurance, net metering in utilities, support robotics and wearables on the shop floor etc. If it has those, why is Oracle not aggressively showcasing these capabilities? I like the fact that they are bringing marketing and hcm executives under the same tent in Vegas, but why not operational executives in various industries? I asked Steve and he basically said the risk was the agenda would become unwieldy. On the other hand, that would hugely differentiate them from what Workday, Salesforce, SAP and others can offer today or in the foreseeable future. Also, in the last wave of ERP and CRM projects customers mostly implemented back office functionality and showed poor payback. This time around many want to start with operational areas.

Under NDA, Steve described exciting new features in the horizontal applications they will showcase in Vegas this week. Every time I listen to Steve and Mark, I get excited about Oracle's application future. 

But when I step away and look at what could have been, I turn cautious.  The industry could use a much more focused and vibrant Oracle applications business. Are we seeing the start of a new chapter with the new event format in Vegas? I hope they can turn my caution to enthusiasm.

The third decade at Salesforce

Congrats to Marc Benioff and team for twenty glorious years. $1 billion in annual revenues by end of first decade, $ 16 billion forecast bt the end of the second - what a rocket ship!  He is also one heck of a generous, big hug kind of leader. I have enjoyed cataloging him and the company in many of my books and blogs

Someone asked me recently about how I saw Salesforce's third decade. I started with its history and I told them their biggest innovation was collapsing what used to be four contracts.  You used to buy software from one vendor.  You would get hosting from a data center vendor.  You would get application management from an offshore firm.  You'd do upgrades with the help of systems integrators. Salesforce and other SaaS vendors packaged all that into one buy and delivered SLAs across those previously disparate contracts. That was a massive leap forward for the software industry.

I then told them how Salesforce and other SaaS vendor need to evolve. When you give a vendor a five-year contract, you are entitled to see continuous improvement.  It's called Six Sigma benchmarking. In the auto, aerospace and other industries, they're constantly expecting 2%, 5% improvements a year from their suppliers.  In outsourcing, we have seen CMM Level 5 performances. That is something SaaS vendors will increasingly be expected to deliver.

I recently 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.  I also talked about Amazon pricing. Prime started off free 2 day shipping, then added free movies and has since bundled countless new features. Amazon Web Services has delivered 60+ price cuts in its first decade.

I see an opportunity for Salesforce to lead the industry again with this continuous improvement mindset.

I also pointed out the SaaS model is increasingly looking like the on-premise model as large systems integrators burden customer costs with their implementation and on-going budgets.  In its first decade, the Salesforce ecosystem had many of the smaller "born in the cloud" SIs like Appirio and Model Metrics. It still has a few like Slalom, but the bigger SIs have muscled in. Nothing wrong with that, if Salesforce can make them bring plenty of automation, remote delivery and other innovations. . Between their costs and that of the Trailblazer community, Salesforce has to increasingly focus on customer economics. It cannot just talk impactful low code tools; it has to show their impact in the outcomes. 

Finally, I mentioned I would like to see the Force.com platform start to deliver significant new functionality. After a decade, it has shown nowhere near the vibrancy of marketplaces like the Amazon iOS store or Amazon Fulfillment launched at the same time. The SaaS model desperately needs variety. If you draw a grid with country-by-country availability and industry-by-industry availability of applications, it's shocking how little is available in the cloud - only about 20% on that grid. There are plenty of customers who say they are "cloud first" but are frustrated because while they can find plenty of CX, accounting and HCM functionality there is very little in the way of operational functionality. And even in the CX and HCM spaces there are plenty of holes when it comes to regional coverage around the world.  In my new book, I profile case studies across 20 industries in over 10 countries discussing a wide range of business processes. Across its over 400,000 customers, SAP is gradually filling up the white spaces in that grid. Oracle and others will do the same over the next few years. You can continue to sell point solutions, but suites often have an unfair advantage.

Look forward to the third decade. I hope to see Salesforce mature into an even more impactful industry player.

Bruce Cleveland - Part 2 - thoughts on current enterprise market

In Part 1 yesterday, Bruce Cleveland talked about the framework in his new book, Traversing the Traction Gap. Here we talk about partnering and white spaces in the market.

Most enterprise vendors now offer their own platforms. Could they use your framework to develop a vibrant network of startups on their platforms?

At Siebel, we used partners to dominate – I know the word is overused— the industry.  We grew from initial product release to $2 billion in revenue in 4.5 years. In 1999, Deloitte named Siebel the “fastest growing company in the US” with a staggering CAGR of more than 750,000%.  We only accomplished this because we (by “we” I mean Tom Siebel) put significant resources (personnel and capital) into building a technical platform and a robust ecosystem to support it. 

Tom knew he had to “remove the constraints on the growth of the business.” We needed systems integrators who were trained and certified on Siebel implementations. We needed to our applications tuned to run optimally on various hardware systems. And, we needed numerous third-party applications that could interface and interoperate with our application suite.

Consequently, Tom charged me with building the Siebel Alliance Program. Tom had created our first systems integration partnership with Andersen (now Accenture).  He also had created our first hardware relationship with Compaq and our first software partnership with Microsoft.

I simply took Tom’s initial ideas and those partnerships and developed a scalable partner program from them.  We began the Siebel Alliance Program with Accenture, Compaq and Microsoft and over the course of three years we accumulated a total of 750 partners. These partners generated about a $B of additional annual license revenue for Siebel and helped us ensure that those licenses were implemented successfully. By partners, I don't mean they were reselling Siebel applications.  I mean we partnered with them to market, sell, and implement our joint solutions. We were compensated on our products/services and they were compensated on their products/services.

So, as you might imagine, I am a huge fan of partnerships. We won the Forbes award for the most innovative partnering program in the technology industry at the time and every technology company knew how powerful it was. It wasn’t a secret.  I find it interesting – with all the success we had with the Siebel Alliance Program - that none of the incumbent technology companies have replicated its form or function.

I believe the current technology platform leaders have a tremendous opportunity to develop a similar program. Sure, they all have partner programs, but those programs don’t really put a lot of skin in the game. By that, I mean, they don’t obligate the leaders to do much or to invest in their partners beyond providing basic access to some technology and lightweight market awareness.

For our program, we actively recruited and hired hundreds of MBAs from the top universities as well as industry professionals and chartered them to create joint business plans with our partners, advocate for our partners with our product and sales organizations, and held the Siebel Alliance organization accountable for helping our partners achieve their revenue and market share objectives. We built specific marketing programs – brand and demand gen – that partners could sponsor to generate leads for themselves. We put skin in the game.  

The program was so successful that Harvard Business School wrote a business case study about it. So, I'm pretty proud of it.

Today, though, for the most part, the large technology platform companies offer what I call “paper partnerships”.  Those partnership don’t obligate either party to much of anything.  They're not “skin in the game” partnerships so they are anemic, at best. 

Most startup teams have little experience partnering with these large technology providers. And, even if they do, they have found that those companies offer little that their startup can benefit from. There's little provided by the large company that is likely to generate significant market awareness or revenue for the startup. For example, startups need to know who, from the partner’s organization, wakes up every morning worried about helping the startup to succeed; where are the demand gen programs they can co-invest in to generate awareness and interest in the startup’s products?  Which teams inside the large company are held accountable for achieving the market share and revenue objectives of the startups in their partner community? The answer? None. Those partner programs are essentially worthless – at least as far as the startup community is concerned. 

Salesforce built an App Store and prospective customers can certainly search for and find add-on applications and products for the Salesforce ecosystem there. However, that's a pretty lightweight endorsement for startups. Who is held accountable within the four walls of Salesforce to wake up every morning, ensuring that a particular partner has the leads it needs, generating a robust pipeline, and helping the startup to convert that pipeline into revenue?

I don’t mean to call out Salesforce. At least they developed an innovative approach and put a lot of energy behind it. And, they have done some advanced partnering with Vlocity. Vlocity was founded by some of my former Siebel colleagues.  What's Vlocity doing?  They're building vertical applications on top of the force.com platform. 

Salesforce saw a need to have much deeper vertical versions of their platform.  That's what we did at Siebel (create vertical solutions of Siebel) and David Schmaier led that initiative as the executive VP. David is the founder and CEO of Vlocity. David and his team are replicating what we did at Siebel for Salesforce and it's going very well. 

I'm an investor in Vlocity, and, to your point about partnering, it's an example of what can – and I think should - be done between technology platform providers and the startup ecosystem.  As this example shows, it's not just about partnering with systems integrators. 

If you want these partnerships to amount to anything there needs to be alignment and shared objectives. For example, if you want to garner the attention of the partner’s sales organization, there is nothing like making partner revenue a part of the sales rep’s quota.

The truth is that partner programs as conceived and implemented by the current technology platform leaders just don’t do much for startups – in terms of market share and revenue - and therefore it shouldn’t be surprising that those programs aren’t valued by startups.

Apple has done well in its ecosystem – with the App Store - but the consumer world doesn’t require face-to-face interactions. In the B2B world, people's work reputations are on the line when they make a buy decision. And, in almost all cases, there are multiple decision makers who must be convinced.  For B2B, startups need brand credibility from the platform provider. This happens when they implicitly endorse the startup by working closely with them. 

In the consumer world, a startup can “borrow” the brand of Apple because if their application is admitted into the Apple App Store, it tells consumers, "Look, we vetted this product. It adheres to our rules."     

Conversely, I don’t think that Salesforce’s App Store does a lot for startups. It’s essentially a digital catalog with some ratings/rankings. That’s not enough for most businesses to make a buy decision. If you speak with startups about the Salesforce App Store and ask them if it is a significant source of revenue for them, I think you will find that for most, it isn’t.

Startups lack credibility.  They lack access to prospective customers.  And, they lack sufficient marketing dollars.  This is where the enterprise vendors could really help startups.

I had hoped that the technology leaders would have adopted at least some of the best practices we had created with the Siebel Alliance Program. Tom Siebel and his new company, C3, are developing a similar program to what we had at Siebel Systems. So, I believe the principles are as valid today as they were back then.

When you look at the cloud apps market there are so many white spaces - major geographies, industry verticals etc - and they do not seem to be targeted by established vendors or even by startups. How are investors like you guiding them through these white spaces?

Cloud computing with its subscription business model - and delivery and usage model -has democratized business application software. Prior to cloud computing, it was prohibitively expensive for smaller companies to acquire and implement enterprise-class applications.

But, by dramatically dropping the cost of these solutions, I suspect it has constrained the application providers’ ability to support smaller geographies and industry verticals.  Going after smaller markets that require significant translation and support infrastructure at much lower price points isn’t practical. 

Even with traditional (re: higher priced) enterprise software, it was always challenging to create localized versions of products for a specific market.  Most US companies started out with the English speaking markets and then typically moved to countries such as Germany, Spain, and France with relatively large populations.  But, when they were asked to support a Dutch or Finnish version, it was seldom worth the upfront and ongoing cost.

For a large company to continue to grow at a significant rate, it needs to acquire or build new solutions that add significant revenue streams – quickly. In that context, let's talk about SAP and Salesforce.  One is a classic enterprise technology company with primarily a perpetual license business model.  The other is the "modern" cloud computing company with a subscription business model. 

The challenge with both of those organizations is that to grow meaningfully they have to build or acquire something of meaningful size.  Moving into a small geography requires the same resources or at least the same FTE costs that might be invested in something else and could generate a much larger impact.  So, it should be little surprise why we are seeing these large companies look to make large acquisitions and avoid niche industries and geographical markets. 

To your point, one might think, “Hey, if these market leaders are not seeing a lot of companies growing fast enough to make a measurable impact on their top line why aren't they helping smaller companies to grow so that they can eventually acquire them?”

Technology leaders may want to look at making investments in smaller technology companies where they see strategic value. These leaders can protect their interests by exchanging an equity investment and access to their channels with a Right of First Refusal (ROFR) that allows the leader to acquire the smaller company when it reaches a certain revenue threshold, at some predetermined price based upon a number of factors such as the acquirer’s stock multiple at the time. 

With the respect to investing in and expanding the number of verticals supported, there may be a dearth of deep domain expertise inside some of the larger technology companies to do that well. I don't know whether these companies have initiatives to try to hire subject matter experts from industry to help them drive their product management.  They may and I'm just not privy to it. 

I do know that Salesforce took a run at creating vertical solutions and it wasn't as effective as they had hoped, at least not at the time. This is one of the reasons that led to their investment in Vlocity.  I think this makes the case that the technology leaders, at least those in the B2B markets and not normally inclined to partnering, could really benefit by embracing partnerships. 

Instead, it looks like the majority of them sit back and wait to see which startups “make it”, without their help, and then acquire the few that do. This seems rather silly because by doing that they have to then compete in the open market – and pay a premium - to keep them out of the hands of competitors.

What is going on right now in the enterprise space that you think is interesting?

Roughly every ten years, new technology is introduced that dramatically changes our work and personal lives.  In the 60s it was mainframe computing. In the 70s it was minicomputers. In the 80s it was PCs. In the 90s it was client/server computing and in the 2000s, it was largely cloud and mobile computing which spawned “digital transformation”, beginning in the consumer markets with companies such as Amazon, Apple, Facebook, NetFlix, Google, etc. Digital transformation has now moved full speed into the enterprise markets.

I believe digital transformation - digital disruption - is such a big transition it will require multiple decades.  I think it has a chance to undo a lot of the current market leaders in every industry.  To your point, maybe vertical providers will emerge and dominate the markets due to digital transformation issues.

The emerging opportunity in the enterprise is in systems of intelligence. This is where I think vertical solutions can dominate.  Systems of intelligence use the data generated and captured by systems of record and systems of engagement to enable companies to derive better business insights, faster and far more accurately than ever before.  I mean real-time insights and real-time responses, without humans involved, that can be triggered via key business events and moments of value. 

Here is an example in the retail space. Let’s say I'm walking through PetSmart and I'm a repeat PetSmart customer. I’m a member of the PetSmart loyalty program. If PetSmart has implemented a system of intelligence and placed beacons throughout the store, I have PetSmart’s loyalty application on my phone, and I provide my permission to send me offers, PetSmart can enable brands to generate contextually-relevant real-time offers to me as I walk through the store.  An offer could be from a brand I don’t normally buy for my dog. The system of intelligence has access to POS data from my prior store purchases. PetSmart makes $ by serving up the competitive offer and if/when I decide to redeem the offer in a coupon that could be set to expire if I walk out of the store without making the purchase. Powering this type of application requires a different type of computer and systems architecture. 

The biggest opportunity may come from vertical systems of intelligence built on top of the older systems of record and systems of engagement.  In my PetSmart example, it means that you've got to be able to interface with an existing point of sale system, not replace it. This is where I would advise B2B application startups to focus. Trying to replace the existing systems of record and engagement is tough to do. 

Trying to rip and replace technology is hard to do.  Building next-generation systems of intelligence that utilize the existing systems of record and engagement is far easier.  That's what a lot of the startups we work with are doing.