In 1989, Francis Fukuyama, then deputy director of the State Department's Policy Planning Staff (he has since taught at Johns Hopkins and Stanford among other institutions) predicted the fall of Communism and the world beyond in an article titled “The end of history”. In 1992 he elaborated his thoughts in a book. His view was optimistic – that Western democracy had prevailed and would survive as the “final form of human government”
Margaret Thatcher, one of the major contributors to the Fall of communism, and conservative herself is said to have reacted to Fukuyama’s article thus “The end of history? The beginning of nonsense….” No doubt, history marched on – there were wars in the Middle East, the EU and China both emerged as major global powers, Russia has not exactly disappeared.
Cloud computing is entering its third decade (NetSuite was founded in 1998, Salesforce a year later) and in many ways we can say it has won out over on-premise computing. And we can like Fukuyama say it is the end of cloud history, but how will the next decade and beyond play out?
Based on my research and consulting the last few months, we could see at least five scenarios emerge:
a) Next-gen enterprise apps continue from current market leaders
The current crop of leaders – Workday, Salesforce, Oracle may continue to go from strength to strength. To SAP’s credit it has through its cloud acquisitions managed to survive the onslaught of those three and others and is poised to lead again. As I wrote a few weeks ago, it will take a next generation of apps with changing UX of voice interfaces and digital assistants, a lot more integration of automation like drones, robots, wearables and functionality which reflects today’s business practices not those brought forward from client/server world. This is a challenge for the incumbents. They want to keep selling what they have versus developing their next-gen of apps, and may give SAP a chance to get to leadership again. Having said that. in the last couple of decades, SAP has missed out on several trillion dollar markets as I wrote here. All these vendors are somewhat myopic – they keep looking at each other as competition and ignoring the white space around them.
b) A verticals led market
In the first two decades of cloud apps we mostly saw financials, hcm and crm functionality – horizontal across industries. Major chunks of functionality – utility billing, insurance claims processing, electronic medical records, retail merchandising, manufacturing execution and countless others have stayed in client/server and prior architectures. By my estimate that leaves 80% of the market uncovered and opens opportunity for a new set of vendors (or outsoucers like Accenture) to come at enterprises with industry functionality partnered with horizontal functionality available in the market today. In other industries, large customers may themselves port their legacy industry applications to micro-services architectures.
c) Portfolio of technologies from multiple vendors
My colleague, Brian Sommer and I have looked at several business processes which the current apps leaders offer, and even there there are enough SMAC – social, mobile, analytical and cloud components you can use to craft far better purchase to pay or recruiting or shop floor capabilities. Customers prefer to buy versus build but many are finding they can combine components from multiple software, hardware, sensor and other vendors and create far more relevant and cost efficient processes.
d) A data led world
A radical new way to think of applications may be emerging. As John Wookey explained “And rather than ask people to type data into a system and then spit it back at them, {which is honestly what most applications do) ...ask for data and then give it back to you…you start with the idea of, here's the business objective, AND there's all the data in the world. What kind of an application would you build? The analogy I always use is Waze, which is to me, like the application that showed the best value or the best shift that will happen. When you go from a world in which you have an app that shows you red lines, yellow lines and green lines on a hard to read Google Maps, which is kind of what used to be in the traffic apps, if you remember them. To Waze. No one cares what the traffic is like in that area. What they care about is finding the best route to get home. How do I get from A to B as quickly, easily as possible. And tell me my options in doing that. And then feed me, turn by turn what I should be doing.”
We are starting to see vendors talk about machine learning – but those are in context of their current flows. Workday has Prism analytics which bring data together from multiple sources, SAP is talking about intelligent apps, but a new wave of business applications which works backwards from goals and objectives may be emerging. It could be data centric vendors like Google and others like IBM with Watson type capabilities which lead in this market
e) An infrastructure led world
The fastest growing segment of the cloud market today is that around IaaS. Amazon and Microsoft with their massive data center footprint and platform ecosystems could start through acquisitions and partnerships start to redefine the application landscape.
The problem with infrastructure led vendors is usually they think in speeds and feeds not features and functions or business outcomes. As an example, Oracle could have run away with the cloud apps market in the last decade, especially with SAP’s issues. They could have replaced hosting in tens of thousands of their PeopleSoft, JD Edwards, EBS and other customer bases with their IaaS. They have chosen to chase after Amazon. They could have listened to their legacy customer base which went to third party maintenance. These customers consistently ask for support of their customizations and improvements in ticket resolution. Oracle responds with “ours is more trusted – secure”. It’s ships passing in the night.
Yes, we are approaching a pivot in the cloud apps market. This is where the geopolitics were in 1989. The next decade and beyond will be tumultuous – exciting for some, disrupting to others.
In 1991, I was assigned a team at PwC to build something called “2O to 3O”. Dun and Bradstreet Software, especially its McCormack and Dodge (M&D) unit, was an important practice area for PwC. M&D had released a new General Ledger 3.0, a product with a multi-dimensional code block and a number of other new features. They did not, however offer 2.X customers any upgrade software to get to 3.0. The thinking was the new product was so different, customers would re-implement. At PwC, we sensed an opportunity to develop a mostly automated solution - we ended up with a PC based configurator, a set of mainframe migration programs and a consulting package.
My team was surrounded by cynicism. Feedback from M&D was it would be too difficult, we were wasting our time. Feedback within PwC was why are we cannibalizing our service opportunity? Anyways we got it done (the master and transaction files were relatively straightforward, the control file where you stored allocation, report writer and other specs far more complex) but in the mean time, the market had moved. Clients did not want to migrate to another mainframe product. Indeed D&B itself has announced its Smartstream client/server product and that froze customer interest in 3.0. Ironically, having shown we could build a migration product, D&B called us a short while later and asked us to help them build migration tools to Smartstream. That is another story but I have always wondered why software vendors do not think of automated migrations when they design next-gen products.
So it was nice to see Larry Ellison present last week a modern day version of an automated upgrade that my team had developed. Its called Oracle Soar (to the Cloud) and the components are in the graph below.
The Soar functional scope is much wider than the General Ledger we focused on, it is going from a client/server to a cloud platform, and there are lots more client/server customizations to sunset – so it is several times more complex.
And I love the marketing pitch – it is the “last” upgrade customers will need to spend much time on. Later upgrades in cloud settings are handled by Oracle, in background.
My questions
- why did it take Oracle so long to develop this?
- why are other vendors not writing these for their products, and even those around legacy products of competitors?
- why are systems integrators, while bragging about automation projects at customers, not building these?
I know the answer to the last one. The SaaS model has shrunk hosting, application management and upgrade services that were lucrative in on-premise world. Implementations remain labor intensive and are good for business if you want to continue to sell rate-card based services.
The reality, as I showed in multiple case studies in Silicon Collar, is automation makes your workers smarter, speedier and safer. Automated migrations are clearly speedier. They also allow your consultants to focus on smarter, more creative work. And they are safer – at least in that they give you an advantage over competition which continues with hand to hand combat.
So, I hope other software vendors and outsourcers follow the Oracle lead here.
BTW, spend the 40 minutes Larry Ellison, Beth Boettcher and Steve Miranda spend discussing Soar – worth your time even if you are not an Oracle customer.
Many companies make acquisitions to diversify into new markets. Others do it to acquire revenues and customer bases. Workday has been consistent in the last few years to acquire analytical capabilities and talent especially in its back office focus areas – finance and HR.
So, its announcement today to acquire Adaptive Insights (and Rallyteam last week) does not surprise me. It follows the trajectory of its acquiring Platfora, Gridcraft, Identified and others to keep strengthening its analytical portfolio. It has also played footsy with Anaplan, Tidemark and others along the way.
Now you could ask why so many analytical tools? For as long as I have been in the industry, there has been a “holy grail” search for the ultimate “report writer”. But we have always had matrix reports a la spreadsheets, transaction reports, balance reports, queries and cubes of all sorts. In recent years we have seen an explosion in data, master data management, visualization tools, now using data to train machines. The journey continues. And nobody – not Oracle, not Microsoft, not SAP has come up with that unicorn of a single fountain of intelligence.
The price for Adaptive (which had recently filed to go IPO) at $ 1.55 billion is steep. Personally, I have been clamoring for Workday to invest more in verticalizing. After seeing SAP’s industry plans at SapphireNow last week, I am even more convinced Workday should invest more there. For now, Workday is doubling down on its back office focus. And continuing on the analytical holy grail.
During a break in his concert at SapphireNow, Justin Timberlake took a tray full of shot glasses to every one on stage. It took him a while to hand them out as he said – “we have as many of on stage as there are in the audience”. Those are his Tennessee Kids, a wide range of instrumentalists, singers and dancers. For 90 minutes, the show was frenetic as eyes and cameras tried to keep up with JT’s lips as he sang and his legs as he danced and his fingers as he played keyboards and guitar, and even more as everyone twerked and crisscrossed on stage. Lots of generations of songs from his four solo albums but alas none from his NSYNC days when I started funding his career
From where I was sitting the show seemed chaotic and a bit too loud but everyone, especially the ladies in the audience were standing and swaying, and a good time was being had by all. As I tend to do to make sure my initial reaction is not too harsh, I came home and watched Jonathan Demme’s Netflix documentary on the band during its last tour in 2016. I watched it on the biggest TV at home and at a modest volume, and I enjoyed it much more. There is definite control in that group chaos. Lots of discipline, hard work and creativity.
In many ways, the concert summarized the three days of SapphireNow – lots and lots of products representing several generations of evolution. Somehow there was control in that chaos. And definite swagger on stage. I have lots to follow up from the event (and will have some in my blog next week, and much more in SAP Nation 3.0), but the initial conclusion: SAP is back and confidently so.
There was a breakout with Dr. Hasso Plattner. It has taken an inordinate amount of time, but he is feeling vindicated people can see how over-engineered relational databases are with their rows, columns, indices and DBA effort (and we blame Germans for over-engineering!). Why we should not be storing aggregates when today’s memory allows for calculations on the fly. How HANA 2.0 and Intel’s Optane persistent memory should turbo-charge in-memory computing. HANA can boast 23,000 customers now. I am convinced it would have many more if customers were not worried about giving SAP lock-in on their IT infrastructure in addition to that over their applications portfolio.
SAP has survived the point solution cloud onslaught from Oracle, Workday, Salesforce over the last 5 years. It has a competent set of point solutions for the back office as I wrote after the briefing in New York by Rob Enslin and his team a few weeks ago. As I wrote earlier this week, I am even optimistic about the opportunity C/4HANA has in a changing CRM market.
There was a session with Sven Denecken, Ivo Totev and others on S/4HANA in the cloud. Analysts peppered them with questions on how the public cloud version is maturing, multi-tenancy issues, why more incumbent customers have not migrated. They handled the questions well, and in the end can point to fact that 8,700 customers have signed up and 1,800 are live with at least some functionality.
I have been screaming for a while that after 20 years of cloud and in-memory computing, 80% of enterprise apps, especially industry books of record remain in client/server and prior architectures. Without industry processes, customers are finding they can only attempt small d – digital transformations around their back office, horizontal processes. So, I was pleased to see SAP announce that it is
“.. is working closely with Accenture, Capgemini and Deloitte to help customers in the process manufacturing, discrete manufacturing and service industries become intelligent enterprises by implementing support for a new generation of business processes,” Franck Cohen, president, Digital Core and Industry Solutions, summarized the heightened expectations “With a user experience that no longer requires a keyboard, and manual processes that are automated with the help of artificial intelligence, our customers will be empowered to reimagine their business models while keeping cost to a minimum.”
It’s going to be a long haul to move all the legacy IS solutions to the modern world and I am not convinced SAP needs its larger SI partners for this effort. It has some of the smartest customers in each industry it can directly tap into, but I am glad to see SAP (finally) start the verticalization journey for S/4HANA. Amazingly, it can easily outrun many of its competitors who have so far paid lip service to such verticalization.
There was a lively session with Helen Arnold, who heads the SAP Data Network which helps customers create new revenue streams and new business models from data. Its Data Hub is a recognition that till they have more robust vertical processes in the cloud, only a fraction of critical data these days comes from SAP transactional engines and customers need help integrating and interpreting data from sensory, customer sentiment and hundreds of other sources.
We got a nice show floor tour of Leonardo and its cluster of emerging technologies including machine learning, blockchain, and IOT concepts. The use cases were somewhat basic (my colleague Brian Sommer and I were particularly animated with our questions), but the competition cannot do much better and it allows SAP to be “buzzword-compliant” in the interim.
There was a nice update from Rainer Zinow about Business One and Business ByDesign. Rainer toils away from the limelight with these SME focused products, but with the dedicated channels quietly keeps growing these customer bases – over 60,000 and 4,000 respectively.
I spoke to several SAP Mentors who said they felt after years, their input is being valued again. And most are still interested in ECC, BW, MII, landscapes and previous generation of SAP products and keeping the lights on. I was particularly happy to see Jim Spath’s write-up of the sessions he attended at Sapphire.
SAP generously organized a very diverse set of customers for us to talk to. I spoke to customers from Australia, Spain, Sweden and elsewhere from healthcare, sports, government and other sectors. The diversity was impressive.
CEO Bill McDermott finished his keynote with his “Top 10” list of what SAP offers customers today. That segment is in the video below. It is salesy, as you may expect from Bill, but a nice summary of the broad product portfolio SAP keeps growing.
Back to JT and the Tennessee Kids. I hope SAP takes some lessons from them.
The reality in music is there are often only 2-3 hits from every album. That does not mean your customers don’t love you if they don’t like everything you offer. With so much going well, I am hopeful SAP will be more mature about customers who have moved to third party maintenance and those it has chased for Indirect Access charges. It can offer its customers so much more as I wrote here – that is a much better way to rack up revenues than from being mean to those who go with other vendors for some components of their portfolio.
I also want SAP to behave like the quarterback JT is on stage. He prays with the Tennessee Kids before they take the stage but he is demanding of them and expects a lot. I want SAP to expect similar of its partners. I have written books about how they have enjoyed the party without contributing enough.
By all accounts, at SapphireNow this week, CRM will be a major focus. And the bullseye will be on Salesforce. Ho hum? Oracle, Microsoft, Adobe, Zoho and many others have been targeting Salesforce for a while. So, join the chase.
No, the biggest threat to Salesforce comes from within. Here are three angles
Economics
Several years ago, an exec at a Fortune 50 company told me he would never buy from Salesforce. “Every dollar they earn they spend 2/3 on SG&A. How exactly does that help me?” The SG&A is somewhat lower now but in some ways the perception is even worse. I have heard its customers ask in recent months about its massive new HQ, the big parties at Davos and SXSW, the big celebration that is the annual Dreamforce event. The tone is usually “how much did that cost?”
Many of its customers are in their 5th, 10th, 15th year of relationship. What is concerning is they have not seen productivity which should come from multi-year contracting. We live in a world of Six Sigma and CMM and continuous improvement. If anything customers report, the more stickiness you provide to Salesforce and partners on its platform, the more contentious are the periodic renewal negotiations.
Finally, the ecosystem around Salesforce is starting to show in bulging TCO. Salesforce has been bragging it is helping create millions of new jobs and takes credit for hoping to generate $ 859bn in GDP impact by 2022. Service partners drool about Salesforce like it is the SAP of old. Guess who will be paying for all this labor? Customers.
Product
Economics would be less of an issue if the functional footprint kept growing. In my book, The New Polymath, CEO Marc Benioff was quoted as saying “Every time someone buys a server, a switch or a data center, I have failed”. The reality is clouds have only penetrated 20% of the enterprise apps world when you add in industry applications and geographic reach. And the coverage of Salesforce and its platform partners is significantly smaller than that. Is it unreasonable to expect much more from the leading cloud apps vendors? Focus is usually commendable but you run a risk of commoditization when a whole slew of big competitors also start targeting that same, narrow space.
Social Activism
Personally I have always admired CEO Marc Benioff’s colorful personality and his zest for music, gastronomy, and other good things of life. There are a number of people who admire his repeated stands on diversity in employment. A number of publications have the company on their most “admired” lists.
Its 2018 annual report leads off with “Salesforce is a different kind of company.”
It has a whole section on some of the company’s social activism initiatives including
“We believe the business of business is improving the state of the world for all of our stakeholders, including our stockholders, customers, employees, community, environment and society. We are committed to creating a sustainable, low-carbon future by delivering a carbon neutral cloud, operating as a net-zero greenhouse gas emissions company and by working to achieve our goal of 100 percent renewable energy for our global operations. In addition, we have spearheaded initiatives to drive equality in four key areas: equal rights, equal pay, equal education and equal opportunity. We also pioneered and have inspired other companies to adopt our 1-1-1 integrated philanthropy model, which leverages 1 percent of a company's equity, employee time and product to help improve communities around the world.”
Prof. Brayden King at Northwestern School of Management has studied trends in corporate activism for a while. Activism enhances your reputation in certain consumer demographics, but it can just as easily backfire, especially in executive settings. In today’s highly charged political environment, you can come across opportunistic or even threatening depending on your politics. Often, people tune you out if they know you are going to add to all the political talk around us.
I am seeing other tech companies talk about their “purpose” and “values” but Salesforce is clearly an outlier. Personally, I think it is vulnerable to see its product messages get conflated with its social ones.
So, yes, I expect Salesforce will be paying close attention to what is announced at SapphireNow this week, but honestly it needs to look much closer to home.
Us analysts like to ask vendors: what next? I am constantly asking them to verticalize. Very few vendors actually do that but transaction processing vendors are constantly claiming to add analytical capabilities. Analysts also love to create new market categories. Gartner has two Corporate performance management (CPM) magic quadrants – one strategic, one focused on the finance function. Why? I am not sure.
My reality check comes when I consult with clients. Most are frustrated with all the shelfware they bought in the last couple of decades and are wary that today’s vendors are still trying to sell them portfolios when they are looking for individual components to modernize specific areas.
So it was refreshing to spend a day this week at Host Analytics Perform 2018 conference in Dallas. Here is a vendor which is unabashedly focused on the CFO, and even more narrowly just on planning activities – budgeting, forecasting etc. And customers and prospects I met were happily chattering about planning cubes and break backs.
I also had several déjà vu flashbacks that day. One of my first research notes at Gartner in 1995 (yes!) was titled “Budgeting: The painful annual ritual”. A quarter century later most companies still use spreadsheets and make basic adjustments to previous actual and estimates. Or they still use tools like Hyperion It is still a hugely political process to agree on budgets. Even the large forecast misses during the last recession have not done much to shake this ritual or dramatically reshape planning processes.
That’s big enough market for CEO Dave Kellogg and his team. They want to make the monthly, quarterly, yearly rituals less painful and more effective. Offering functionality in the cloud is a giant step forward (beyond the lowered TCO of not needing to invest in infrastructure, application management and upgrades) to allow for more real-time and collaborative planning. A focus on the budget owner allows for UX in the form of MyPlan, dashboard and mobile features and targeted functionality – over 200 new features in the last year. They include Spotlight which integrates visualization capabilities of Microsoft Office with the data at Host, integration with several Workiva for external statutory and compliance reporting, with Floqast to streamline closing processes, with ASC606 Revenue Recognition from the accounting firm, RSM (formerly McGladrey) and several others such as support in data loads for Asian (double byte) data characters and NetSuite connectors
Is Finance too narrow a focus? Dave’s view is the CFO, his prime sponsor in organizations, should take their planning capabilities into other parts of the organization, be in sales and operations planning or production planning. In that he may be borrowing a page from ServiceNow’s book. ServiceNow has seen its CIO base take its ticketing and workflow capabilities into HR shared service and customer service areas. If Host can deliver extensions which allow for easier planning of common scenarios – launch a new product, enter a new country, reorganize sales territories – it would go a long way towards helping the CFO sell it internally and help them deliver to their mantra of Continuous, Connected and Collaborative planning.
Dave is also borrowing a page from his previous employer, Salesforce. In his keynote, he spent a fair amount of time on “Trust” – the promise of uptime, secure infrastructure, the ability to deliver promised features. He reinforced the last point by saying in his view cloud contract renewals should not commit a customer longer than the buying executive’s tenure. That’s refreshing to hear in a world of so much vendor lock-in.
A couple of other observations from the event:
- Host had an analyst breakout during the day. As happens often, that agenda fell by the way side, and the session turned interactive. I was impressed by how Dave handled the analyst questions and parceled them out to his direct reports. I have seen too many vendor execs fall apart when they have to go off script. It showed his maturity as an exec. It also shows his media savvy, helped by his own regular blogging (he is also a fellow Enterprise Irregular).
- He was followed on stage by Bert Jacobs, who along with his brother founded and run Life is Good, best known for its optimistic T-shirts and hats. Their story of rags to riches is impressive enough – the personal stories he told from the Good Kids Foundation ( they donate 10% of profits to improving children's lives through that foundation) was even more so. When I was writing Silicon Collar I saw all the pessimistic memes that get propagated – machines will take all our jobs, our middle class is dead, our manufacturing is dead etc, and so it is nice to see optimists like Bert show us that things and people are actually pretty good. I have asked Host permission to embed video of the session on the New Florence blog - I found it that inspiring.
All in all, a refreshingly focused day. Life felt good.
I spent a couple of days at Knowledge 18, ServiceNow’s user conference. It was good to get a deeper dive into the product and meet the executives re-shaping the company. Couple of positive areas and couple of potentially problematic areas I picked up.
ServiceNow is a “blue-collar” company whose platform first found a niche in the bowels of IT shops. Its case management tools allowed companies to build knowledge bases of problems and resolutions, and encourage users to self-serve solutions and use its community to share tips and tricks. Its workflow engine allowed for more efficient, seamless routing of tasks and approvals. Its growing set of virtual agents allowed human agents to move up-market away from routine Tier 1 tasks. Importantly, all this was in the cloud when competition was still on-premise and clumsy. Co-founder Fred Luddy has been quoted as saying "The IT industry deserves a tool that just works. We're going to give it to them."
ServiceNow built a loyal following which rewarded it with explosive growth. Annual revenues skyrocketed from $13m in 2007 to $ 244m in 2o12 and from there $ 1.93bn five years later
Customers then introduced the tool to other parts of the enterprise beyond IT, particularly in customer service and HCM (in HCM, the big adoptions have been in shared service settings and in onboarding steps across a wide range of benefits, security and other applications- so as a connective tissue across disparate books of record).
Internally, ServiceNow has also deployed its technology for its financial close process. The good news was this customer extension beyond IT was organic, with little selling needed from ServiceNow. Now the Customer Service and HCM buying centers are being proactively targeted though the bread and butter still comes from the IT organization. Also, during the time I was there, I heard mostly positive talk about Salesforce and Workday – at least for now ServiceNow wants to be an orchestration and user engagement play, not a book of record.
John Donahoe joined as CEO last year, to shepherd the company through the next phase, hopefully as explosive, of growth. He came after transitioning eBay and PayPal through the deep recession, the move to mobile platforms and shielded it from activist investor Carl Icahn’s distractions. A former Bain consultant with this consumer tech experience I found he had a refreshing pov on the next stage for ServiceNow. Not all my analyst colleagues approved, but I quite liked the non-product emphasis in a keynote and in a presentation to analysts. He talked about “purpose” for the company, the executive talent he has been bringing in (ServiceNow had an engineering culture and does not appear to have invested much in structure around people and organization), the branding investment he has been making to allow ServiceNow to expand beyond the IT sweet spot, Customer Success metrics (like some in graph he presented below) and the fact that as with Pierre Omidyar at eBay, he believes founders continue to add value much later in a tech company’s evolution. Luddy is now Chairman and was quite prominent at the conference.
Which brings me to two things that caused pause. For a $ 2 bn vendor, the expo hall was awfully large, filled mostly by system integrators. The analyst area was at the back of the hall, so the noise and the foot traffic in the hall was unmistakable. I spoke to a few of these partners and they fall into two camps. One is the blue-collar, ITSM-type implementer. The other is the slick “digital transformation” spouting consultant. ServiceNow needs to be evolved beyond the first, but needs infrastructure to manage the hype and scope of the latter.
If anything, ServiceNow is itself using their jargon like digital transformation and “future of work”. Here’s my pov – internal process digitization is to small ‘d”. Big D and truly impactful transformation comes from smart products, significantly rethought business models, channels, industrial assets and logistics. At least with its current footprint, ServiceNow only facilitates small “d”. Its alignment with the CIO actually may hurt in some companies where IT is considered tactical, slow and back office focused. About future of work, I kept thinking about all the man/machine combinations I heard and wrote about in Silicon Collar. I don’t see ServiceNow helping BP with its robotic crawlers and inspection drones, or KPMG as it rethinks audits and impact of cognitive computing, or plants investing in Industrie 4.0 technologies and many of the other use cases I profiled. The Bureau of Labor Statistics tracks 800+ occupations. I doubt ServiceNow touches more than 50 in its current reach.
That is actually a major opportunity. Most cloud vendors have shortchanged vertical processes as I have written here and many other places. By extending its platform into vertical processes and through some targeted acquisitions, ServiceNow could open up coverage of a lot of white space. For now, horizontal processes offer plenty of runway.
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.
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.
I spent a few hours at Anaplan’s annual Hub conference in Vegas. It is my first time at an Anaplan event and I sensed the buzz of a vendor going through a phase of rapid growth and having to manage expectations when you are tagged as a ‘unicorn” based on your valuation. The executives seemed irked at the number of times analysts asked them about how they would scale to the Rule of 40 for healthy SaaS companies and when they would go IPO.
The fundamentals look good – the company says its “addressable market” is $ 21 billion a year, Europe is ramping up nicely and Asia is poised to kick in. The company’s tagline of “connected planning” has allowed for use cases for its in-memory “HyperBlock” to crunch datasets across many parts of the enterprise. This was good to see when way too many analytical and ERP vendors focus mostly on the finance function.
Two things stood out for me in the brief time I spent there:
One is the vertical applications of the tool that I am not sure even Anaplan fully understands. I spent some time with Kevin Collins who is head of Revenue Growth Management at Beam Suntory. He described how they simulate price elasticity in their category of premium spirits. It was fascinating to hear him talk about weather, seasonality, competitive moves as they model pricing and other market signals. What they have learned can also apply to marketing spend and sales promotion incentive funds (SPIFs) in their regulated markets. At the event, Walmart presented on how they had moved from spreadsheets to Anaplan for their open-to-buy inventory planning. Coca-Cola described how the tools help in their supply chain planning across their complex network of franchises. In a conversation with the new Chief Revenue Officer, Steve Birdsall I heard of next-gen opportunities around Smart Cities and verticals with IoT applications.
Second is how machines are poised to revolutionize planning and analytics. Frank Calderoni, CEO announced “Planning as we know it is dead”. Machines are increasingly easier to train with the gobs of data and computing capacity we now have. I was more intrigued with how Anaplan is starting to look at how machines will help infer drivers and other nuances in analytical models and how they will facilitate ingestion of streaming, real-time data.
I look forward to spending more time with Anaplan, but even more with its customers and learning more innovative ways they simulate their businesses while getting away from the over-dependence on spreadsheets and old school business intelligence tools they find themselves mired in.
The end of Cloud history?
In 1989, Francis Fukuyama, then deputy director of the State Department's Policy Planning Staff (he has since taught at Johns Hopkins and Stanford among other institutions) predicted the fall of Communism and the world beyond in an article titled “The end of history”. In 1992 he elaborated his thoughts in a book. His view was optimistic – that Western democracy had prevailed and would survive as the “final form of human government”
Margaret Thatcher, one of the major contributors to the Fall of communism, and conservative herself is said to have reacted to Fukuyama’s article thus “The end of history? The beginning of nonsense….” No doubt, history marched on – there were wars in the Middle East, the EU and China both emerged as major global powers, Russia has not exactly disappeared.
Cloud computing is entering its third decade (NetSuite was founded in 1998, Salesforce a year later) and in many ways we can say it has won out over on-premise computing. And we can like Fukuyama say it is the end of cloud history, but how will the next decade and beyond play out?
Based on my research and consulting the last few months, we could see at least five scenarios emerge:
a) Next-gen enterprise apps continue from current market leaders
The current crop of leaders – Workday, Salesforce, Oracle may continue to go from strength to strength. To SAP’s credit it has through its cloud acquisitions managed to survive the onslaught of those three and others and is poised to lead again. As I wrote a few weeks ago, it will take a next generation of apps with changing UX of voice interfaces and digital assistants, a lot more integration of automation like drones, robots, wearables and functionality which reflects today’s business practices not those brought forward from client/server world. This is a challenge for the incumbents. They want to keep selling what they have versus developing their next-gen of apps, and may give SAP a chance to get to leadership again. Having said that. in the last couple of decades, SAP has missed out on several trillion dollar markets as I wrote here. All these vendors are somewhat myopic – they keep looking at each other as competition and ignoring the white space around them.
b) A verticals led market
In the first two decades of cloud apps we mostly saw financials, hcm and crm functionality – horizontal across industries. Major chunks of functionality – utility billing, insurance claims processing, electronic medical records, retail merchandising, manufacturing execution and countless others have stayed in client/server and prior architectures. By my estimate that leaves 80% of the market uncovered and opens opportunity for a new set of vendors (or outsoucers like Accenture) to come at enterprises with industry functionality partnered with horizontal functionality available in the market today. In other industries, large customers may themselves port their legacy industry applications to micro-services architectures.
c) Portfolio of technologies from multiple vendors
My colleague, Brian Sommer and I have looked at several business processes which the current apps leaders offer, and even there there are enough SMAC – social, mobile, analytical and cloud components you can use to craft far better purchase to pay or recruiting or shop floor capabilities. Customers prefer to buy versus build but many are finding they can combine components from multiple software, hardware, sensor and other vendors and create far more relevant and cost efficient processes.
d) A data led world
A radical new way to think of applications may be emerging. As John Wookey explained “And rather than ask people to type data into a system and then spit it back at them, {which is honestly what most applications do) ...ask for data and then give it back to you…you start with the idea of, here's the business objective, AND there's all the data in the world. What kind of an application would you build? The analogy I always use is Waze, which is to me, like the application that showed the best value or the best shift that will happen. When you go from a world in which you have an app that shows you red lines, yellow lines and green lines on a hard to read Google Maps, which is kind of what used to be in the traffic apps, if you remember them. To Waze. No one cares what the traffic is like in that area. What they care about is finding the best route to get home. How do I get from A to B as quickly, easily as possible. And tell me my options in doing that. And then feed me, turn by turn what I should be doing.”
We are starting to see vendors talk about machine learning – but those are in context of their current flows. Workday has Prism analytics which bring data together from multiple sources, SAP is talking about intelligent apps, but a new wave of business applications which works backwards from goals and objectives may be emerging. It could be data centric vendors like Google and others like IBM with Watson type capabilities which lead in this market
e) An infrastructure led world
The fastest growing segment of the cloud market today is that around IaaS. Amazon and Microsoft with their massive data center footprint and platform ecosystems could start through acquisitions and partnerships start to redefine the application landscape.
The problem with infrastructure led vendors is usually they think in speeds and feeds not features and functions or business outcomes. As an example, Oracle could have run away with the cloud apps market in the last decade, especially with SAP’s issues. They could have replaced hosting in tens of thousands of their PeopleSoft, JD Edwards, EBS and other customer bases with their IaaS. They have chosen to chase after Amazon. They could have listened to their legacy customer base which went to third party maintenance. These customers consistently ask for support of their customizations and improvements in ticket resolution. Oracle responds with “ours is more trusted – secure”. It’s ships passing in the night.
Yes, we are approaching a pivot in the cloud apps market. This is where the geopolitics were in 1989. The next decade and beyond will be tumultuous – exciting for some, disrupting to others.
It is the end of cloud apps 1.0.
July 16, 2018 in Cloud Computing, SaaS, Industry Commentary | Permalink | Comments (0)