deal architect

Opening Closed Business Models is Hard Work

Two examples of how companies with legacy software models often struggle even as they make commitments to Open Source licensing. Read more at TechSpend.

The Tofflers are back

Alvin and Heidi of Future Shock fame are back with Revolutionary Wealth, a much more positive book than the future they foretold in the 70s. Lots of implications for blogging, open source etc.

"In their earlier work, the Tofflers coined the word “prosumer” for people who consume what they themselves produce. In Revolutionary Wealth they expand the concept to reveal how many of our activities—whether parenting or volunteering, blogging, painting our house, improving our diet, organizing a neighborhood council or even “mashing” music—pump “free lunch” from the “hidden” non-money economy into the money economy that economists track. Prosuming, they forecast, is about to explode and compel radical changes in the way we measure, make and manipulate wealth."

A NY Times review is here.

Booz Allen's bad advice on software

Courtesy of Sadagopan I saw this analysis of the software industry by Booz Allen consultants.

"Looking solely at the economics, software buyers will be the short-term losers from this merger activity. With fewer companies vying for sales, the industry’s traditional 80 percent discounts, which large companies can count on for volume purchases, will be a thing of the past. More commonplace will be 50 percent off list price."

Their analysis is based on the following high level industry data

"Five years ago, 11 companies controlled 90 percent of the database market; now only six do. In business applications, the trend is even more pronounced: Seventy percent of the market is now controlled by just 35 companies, compared with more than 120 companies in 2000."

I disagree. They are ignoring 5 disruptive trends I have written about in numerous areas on my blog

a) The Buy v/s Build economics are already off. Less discounting will only accentuate the disconnect and further reduce demand for packaged software.
b) There are growing SaaS vendors in many application categories
c) There are increasing BPO options in many business process application areas
d) There are growing Open Source vendors in many infrastructure categories
e) There are a number of third party maintenance options around the leading software vendors

I am certainly not going to let my clients just accept 50% discounts (unless list prices are themselves significantly revised downwards).

Booz Allen clients - feel free to call us.

Software sold your way. Not.

In his opening keynote at Software 2006, Ray Lane of Kleiner Perkins (who assembled one of the best sales engines in the industry while he was at Oracle) referred to the CA cardboard figure, unresponsive software salesperson as icon of the industry. CA has been running an ad campaign around “software sold your way”.

Sometimes, it hits you a few days later. I was reflecting on Ray’s comments and some of the exchanges I saw and heard this week at Software 2006. Buyers tend to complain in private. Vendors tend to be far less publicly accepting there are deep problems in the industry. But last week, it was quite in the open – and Ray’s shot was just the beginning.

Continue reading more at the TechSpend site

Announcing TechSpend

I am excited to announce the unveiling of a new IT buyer’s resource called TechSpend that I am actively involved with.  Several ex-Gartner and CMP/Ziff-Davis folks are involved in the development of a wide range of knowledge products to help buyers with their technology - software, services, hardware  and telecom - spend and vendor management.   The media platform, as it rolls out will include: downloadable tools for evaluation and technology management; ASP services; advisory reports, consultations and document reviews; annual conference and online seminars; and news, features, white papers, newsletters and blogs.

We’ll slog around the ‘mud and muck’ of SLAs, RFIs, RFPs, proposals, procurement policies and procedures in order to give IT buyers guidelines, tools and techniques for rooting out the best contract terms and conditions, the best prices and the best service levels from IT vendors. TechSpend members will be able to tap into the years of experience we have negotiating billions of dollars worth of IT procurement.Membership in the community is tiered. Some of the content is free; the rest available on a membership basis or by the drink.  Hopefully buyers will find the price/value equation a steal. I will be posting most of my sourcing, negotiation, vendor management posts on the TechSpend blog going forward. I will continue to post on innovation and other globalization topics here. So, please patronize both sources.

One request for my Deal Architect readers - if you have any ideas for Techspend news, products and feature stories, please reach out to Maryann Jones Thompson, Editor (who I have worked with on a number of sandhill.com articles and blogs I have written in past), at maryann@techspend.com.  We’re always looking for great ideas.

Is Larry Ellison conflicted?

Zoli points to a discussion about Larry Ellison's investment in SaaS vendor NetSuite which is about to go IPO. My view - there are enough checks and balances in Oracle's corporate governance, not to mention in the scrutiny the Feds and States put on his financial transactions to make it a non-issue.

I have always believed if Larry had invested in every one of Oracle's alums, he would be a far richer man than Bill Gates.

What is more interesting is to see NetSuite and salesforce.com (another of his investments) blaze a trail where Oracle On-Demand (or indeed Siebel, SAP and others) has not been able to do much. Maybe Larry should similarly invest in Open Source, Third Party Maintenance, BPO, Search, Web services start-ups. They represent the growth and the innovation in the market, not the company he founded.

Un-consolidation!

In keeping with the un-conference and un-computer meme, time for another un-modest "I told you so" about software market consolidation.

Bill Gates, according to this InfoWorld article, has sent out another urgent once-a-decade internal email - this time about software as a service.

While Bill may be particularly thinking of Google, it is staggering how many "services" have been spawned in the last year or so, as these 2 posts by Bob Stumpel here and here show. I quit counting at 400. I had previously written about growing SaaS ecosystems being formed around salesforce.com, Netsuite and others.

Next, The Economist talks about Open Source. Also, Tom Berquist who recently left Wall Street to join Ingres, writes about the Open Source opportunity in this sandhill column.

In his recent earnings press release Oracle CEO Larry Ellison is quoted as saying "Over the last several weeks we announced our internally developed Secure Enterprise Search technology, and the completion of the Siebel acquisition. As a result, Oracle now has strong product offerings in both Search and Software as a Service. These two markets are red hot and will be engines for growth for Oracle and the entire software industry for years to come."

Larry acknowledging " the entire software industry" and not just writing it off as "features"? Sure sign of industry un-consolidation...

Software VC Outlook

Interesting article by Matt Miller on software investing economics.

Form a buyer's perspective, two heartening observations - one about development costs, the other about sales and marketing costs

"..software companies have become more "capital efficient." It used to cost $7 - $10 million to build a product. You started with a blank slate and built it all - the tools, the middleware, the databases - with languages and no pre-built components.

Today, software companies can leverage open source components and offshore development to decrease development budgets significantly. A decent piece of enterprise software can be built for $5 million or even less."

and sales and marketing costs

"On the marketing side, significant cost-effective methods have also emerged. During the Dotcom Era, a software company would spend 10%-15% of its gross revenues on "big-blast," brand marketing aimed at building awareness through advertising. That would be coupled with a big-budget, BMW-driving salesforce.

Today, software companies have fewer highly-paid salespeople. And when was the last time you saw a software ad on TV? Software companies "pay per click" for qualified leads from Web ads. They are leveraging online, "viral" methods such as marketing through developers, word-of-mouth and pass along - especially true for open source companies who can simply give the product away for free."

So, the question is are more established software companies similarly reducing their R&D and SGA costs. If they are not, why not? And if they are, why are they not passing them along?

IBM's Research Juggling Act

ZDNet presents an interview with Paul Horn, director of IBM Research about its $ 6 billion R&D budget.

While some of the research he describes in hardware like blade servers and power management reflect the traditions of "Big Blue", I was less impressed with what he calls "R&D" in software and services.

a) Microsoft R&D

"We have a very different corporate culture and corporate focus than Microsoft....Microsoft is sort of where we were at 15 or 20 years ago. They are manically focused on how they will build their next generation of their application suites and how they will maintain the Wintel duopoly and how they will maintain Windows position."

CIOs pay IBM twice as much for software as they do SAP. They want IBM to be just as maniacal in its R&D as Microsoft or SAP. Most of IBM's software innovations have come from the wide range of acquisitions it has made, not from its labs.

b) Open source

"We have over a billion dollars a year of bottom line profit from licensing intellectual property and yet we're embracing open source because we know it's going to be completely disruptive."

Where are Open Source principles being aggressively applied in IBM's proprietary software stack and where are Open Source communities being leveraged to cannibalize their expensive consulting resources? IBM is THE "cathedral" to the "bazaar" that is Open Source.

c) Automation of services delivery

"...technology hasn't been applied to IT services delivery. So there is more opportunity for automation, and the surface is barely getting scratched."

Paul, we have been waiting for a while for this as I wrote in Systems Integration v/s Management Complexity

d) Process Improvement

"Just think of the gross domestic product of the world with all these companies operating in some inefficient manner. If you could squeeze a little inefficiency out by detailed analysis and modeling of how a company operates--there are huge opportunities there."

IBM's $ 50 billion services unit is itself a huge opportunity for process efficiencies as I wrote in Frederick Taylor and Technology Services. For many clients re-engineering their IBM (and in fairness, their Accenture or EDS or TCS) contract is one of their biggest improvement opportunities given the inefficiencies in services today.

Paul seems like a sincere guy. But the old IBM salesman and the more recent PwC consultant in the blue suits now just outmuscle the engineer in the blue jeans.  I know R&D spend does not directly correlate to innovation, but IBM now spends 4X on SG&A as it does on R&D. To me, the icon of US technology innovation is dying. And that is a reason to feel blue.

Update : Jeff Nolan posts about IBM's SOA hub in India. My comments there say I view it more as a marketing than an R&D investment - till I can see tangible labor productivity improvement.

Innovation Free v. Care Free

Marc Benioff of salesforce.com calls SAP "innovation free"

Jeff Nolan of SAP asks Google to be more like Microsoft - not just create new products but also mature them.

There has to be a happy medium.

You have larger software firms stuck in neutral with too heavy, control oriented mindsets and billions in R&D. Yes they are using social networks internally and in many ways showing signs of re-engineering, but their output in products is awfully slow and still do not focus enough on their customer constraints - their budgets. What I call Utility spend.

And then you may have free wheeling Google and web 2.0, SaaS ecosystems and open source communities. They have their creativity, speed and economics but also look at their scalability, business model and other issues. Innovation vendors.

As I wrote last year in The Giant Crunching Sound

"Utility vendors - work with CIOs or prepare to get crunched. Innovation vendors - build your economics around dynamic products and controlled risk, not "lock-in" relationships. And yes, IBM, SAP, Oracle, Accenture...you can be both types of vendors if you just try..."

Shambala and SLAs - need both.