deal architect

Industry Tea Leaves – Executives, Earnings and Events

It was a rough week for tech stocks on Wall Street. And with the uncertainty around US interest rates and elections for another 2 months who knows what other whiplash effects we will encounter.

I usually take a narrower pov - how will this affect enterprise software and services? And in the last two weeks have had several interesting conversations, and will have more at upcoming industry events in the next few weeks.    

Is SAP in trouble?

I heard from a couple of folks

“Three board members gone in less than two months”

“This is a lot of executive talent to replace on short order”

Is Salesforce taking SAP’s place as a vertical leader?

Marc Benioff was in fine form as he reported an impressive quarter on Jim Cramer’s Mad Money and importantly talked about AI use cases from several industries including Wiley (publishing), Kaiser (healthcare), ADP (services), Wyndham and Open Table (hospitality)

Are we in the Gartner trough of disillusionment when it comes to Gen AI?

Dreamforce, Workday Rising, SuiteWorld should give a better perspective on the trajectory of the industry and I have heard about product announcements from Zoho and others under NDA

When are we going to see Gen AI impact on SI developer productivity? And that in common phases in most of their projects - data conversion, testing, end user training etc?

Many SIs will have large booths at the industry events and should allow a chance to ask them about Gen AI impact on their practices.

I also tend to take a long term view of the sector in line with enterprise customers. They buy solutions which serve them for 2 decades or more. They spend months evaluating options and negotiating contracts. Throw in vendor events and news and all these data points are tea leaves which help me in my tasseography. You have to drill down in to the small patterns, not jump to conclusions from the clusters

I also rely on history for macro clues. Hardware and telecom vendors have historically provided the groundwork for architectural shifts. The initial set of applications and services tend to be “safe” and under utilize the new processing power. It took Apple and Google nurturing mobile apps ecosystems to help grow sales of mobile devices. It took Amazon similar to build a massive ecommerce engine.

We are seeing the same when it comes to the power of GPUs and LLMs.  As I wrote here, the initial Gen AI use cases in the enterprise have not been very ambitious – especially when you consider the power of NVIDIA’s Blackwell platform. They have focused on SG&A, not on the much larger COGS and Revenue and Asset management opportunities on their customers’ P&L and Balance Sheets

I have said often that even after 25 years of SaaS applications, 75% of business processes across countries and industries do not have much vendor application choice. Vendors have been content to keep selling basic ERP and CRM functionality, and there mostly for English speaking countries. Those terms have been around 30 years – I helped coin some of them. If anything, the hype from GenAI has caused a pause in expanding their transactional functionality. Without the functionality they do not have data or the domain expertise to imagine ambitious AI use cases.

Even SAP which has the broadest reach of customers, functionality and talent across industries and countries has been cautious in the reach of its GenAI offerings. So about its exec departures, yes  it is somewhat concerning but I am more worried that SAP is not being more ambitious in its offerings and is mostly focused on an updated core ERP. As for Salesforce, I love Marc’s optimism but his use cases mostly focus on payback from customer service productivity. I would love to see in addition operational, vertical and geographic use cases.

And in turn this is a major opportunity for NVIDIA, other chip makers, LLM providers and hyperscalers to build a broader ecosystem of use cases and business cases. . Many of these markets should be highly differentiated and command premiums which Wall Street expects to pay for NVIDIA GPUs and hyperscaler pricing. It should be a virtuous cycle as it has turned for Apple, Amazon and Google in the last go around.

It is good to see Jensen Huang, Sam Altman, Thomas Kurian, Matt Garman make the industry rounds but I would love to see them drive more leadership and ambition in their enterprise ecosystems. As for me, I need to get an oversized coffee mug to read more tea leaves. As I wrote here, Wall Street’s definition of industry leadership has evolved over time from BOPS to FAANG to the Magnificent Seven. We cannot rely only on the current crop of application and services vendors for enterprise AI leadership.

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Burning Platform: Raise the bar for AI – aim at COGS, not just SG&A

For the 105th episode of Burning Platform we host Malcolm Frank, who is now CEO of TalentGenius and is active on several boards. I got to know Malcolm in strategy and marketing leadership roles and as President of Digital Business at Cognizant. He was part of the executive team that grew the company from 10,000 to over 300,000 employees. He is definitely one of the “Big Thinkers” of our industry and here we discuss his new AI startup and the massive changes he sees coming to IT Services providers, Digital Agencies and many other sectors.

We start with TalentGenius which he calls a “virtual talent agent”. “If you show us your resume, we can show you your entire future.” They promise to catalog your skills and show you exposure to likely AI impact on those skills. Their deliverables – What are the best jobs for you? What AI tools could help you in your journey? Who are peers who can help you in your journey? “There are hundreds, if not thousands, of doppelgangers who look a lot like you that are on the same path as you are”

Starting around 9.30 we discuss our respective perspectives on how AI is reshaping enterprise technology. He says the F500 are figuring out how to create their “AI core” and we will start to see “killer apps” from them in the next year or so. He has a fascinating observation – he thinks vendors are too focused on SG&A use cases when we should be looking at the much bigger COGS landscape. “The F500 collectively spends about $2 trillion on IT. But they spend $22 trillion in cost of goods sold.” He makes the points I have been making but much more eloquently - the AI value is less in the back office and exponentially greater in vertical operational areas and in unique data monetization.    

Around 22.00, we discuss the IT services sector and how it has fundamentally not evolved over the decades but now faces massive disruption. He uses historical analogies – how the development of refrigeration affected ice breaker traffic, how farming got so automated that from employing 40% of the US workforce it went down to 1% in a century, how trucking has done similar to horse-driven transport. In each case, we ended up with societal changes but a new generation of opportunities and jobs. He thinks IT services are similarly poised to see repetitive, low-level tasks get automated and commoditized and clients will spend the savings on a new set of projects. He expresses admiration for Accenture which continues to thrive as what he calls a “curve jumper” . There are plenty of “one-trick ponies” that do not navigate transitions well. He expects a new generation of AI-savvy firms like we saw with firms like Sapient, Cambridge Technology Partners, EPAM, Globant and others in previous tech transitions.

Around 29.00, we switch gears to discuss impact on the marketing function and on digital agencies. He talks about the recent screenwriter strike in Hollywood and the impact of AI on creative talent. He says a lot of basic stuff that drives CMOs nuts today and takes time and money with agencies will get optimized.

Finally around 33.00 we touch on the “future of work” and globalization. Hyperscalers have standardized DevOps around much of the world. He says he saw a trend which started during COVID, but has accelerated. Teams are becoming like recombinant DNA – being formed and dissolved all the time, many across borders. He also talks about the on-going impact on commercial real estate and traditional ways of working in offices.

He summarizes “It is going to be a really fun time. This is a Renaissance and, mid to long term, I think it's going to create entirely new markets. I think it's going to be a huge driver of productivity, which is going to be good for the economy. But where I get a little bit pessimistic is the impact on labor. Those who are able to think abstractly and think systemically will be rewarded. But those who don't have those abilities may be locked out of this new economy. So the faster that we can get out of our own way in terms of education, policy and funding the better. Because this is really taking off, and we're just at its dawn.”

You may not agree with everything Malcolm or I say, but there is plenty to chew on in this 40 minute episode.  

Burning Platform: A tour of enterprise software world in 30 minutes!

In the 96th episode of Burning Platform, we host John Wookey, a long time veteran of enterprise software world

John is one of the rare execs who has worked in a wide range of software and services companies which have defined the enterprise tech sector over the last few decades. He describes his role at Andersen (now Accenture), Ross Systems, Oracle, Salesforce and SAP. He has worked closely with some of the people who have shaped this industry including Larry Ellison, Marc Benioff, Hasso Plattner, Keith Block and Ken Ross. He has also had a chance to integrate and influence the trajectory of companies like Siebel and Concur after they were acquired.

So, it is not on overstatement to call John one of the best industry market analysts. It was an honor to have him on the show. We broadly cover 4 topics

1. How the next gen of applications will be “data-influenced” – Generative AI is giving vendors a chance to reimagine applications, but it is early days. We discuss challenges and adoption speed among other topics.
2. The verticalization opportunity for application vendors – he explains why vendors need to overcome their caution “ they feel it limits them. If you say you are going after financial services, then they're by default, not going after healthcare or retail. So in a way, I think they feel like by declaring that they actually are or in some ways limiting themselves in other markets. But you have to take that step for a couple of reasons. One is, I think your relevancy to customers in those industries grows tremendously. When you declare and you make that investment. Second, I think the even more important reason is, in order to build especially new types of products based on artificial intelligence and leveraging the data, you will not do that well if you don't have a deeper understanding of customers in those industries.”
3. The localization opportunity for applications. He describes his own experience helping Oracle prepare applications for the birth of the European Union early in the century. He also explains the balancing act “You may not have justification for (a country like Nigeria) as a standalone market. The question is, where the multinational companies you work with? What's their relative importance? And how much do you want to invest to make sure that they have the ability to operate in all the countries that are critical for them? So you're always kind of balancing those two things, the what is the organic (local) market? And then what's the support market you have from a multinational perspective?”
4. We discuss the service sector and why the business model is still so people dependent. John explains why it is so difficult to give up on existing business models. He cites the example of Concur. “At some point, the Singh brothers said, this isn't the future and their stock price took a hit for a couple of years. They made an incredibly courageous decision to shift to the cloud. And I think in the case of systems integrators, I think it will be the same thing. When someone new comes along and says we're going to be tied more to something more value based, something that's more objective outcome driven, as opposed to, you know, hours based, you know and think more about lifetime value of a customer. Until someone else does that and gets to scale, it'll be difficult for them to make that shift.”

Overall, I really enjoy John’s continued optimism and excitement for our sector

“We've always been trying to better approximate the businesses that we're supporting. How do we shape information in a way that makes them more successful. The job really hasn't changed in a lot of ways. It's continued to adapt and evolve, but ultimately, what we're really trying to do is help (customers) be more successful.”

Real honor to have John. I need to bring him back more often.

Watch the entire 30 minutes. He is a delightful font of wisdom. Decades of industry experience and close working with some of the industry’s best talent distilled into this conversation.

 

Burning Platform: Ecosystems Galore!

In the 50th episode of the series we have Tyler Prince, EVP Worldwide Alliances and Channels at Salesforce.

While most vendors have siloed groups to manage their SI partners, their platform ISVs and their developer communities, Tyler plays a role in all 3 in Salesforce world. That includes their SI ecosystem with a wide range of global, regional, and vertical specialists, that on their AppExchange platform and in the Trailblazer community.

That gives him a unique perspective on the cross-currents across these very different ecosystems and the vital role they will play to deliver to CEO Marc Benioff's ambition to get to revenues of $50 billion by fiscal 2026 (in FY 2021 they delivered $21 billion)

We also discuss the impact the pandemic had on the SI community and the move to virtual project delivery, how Salesforce has woven diversity and inclusion in its ecosystems and the growing role of Slack acquisition and the Success from Anywhere initiative as lockdowns continue around the world.

Refreshingly different perspective on ecosystems!

Burning Platform: Not your grandpa's Services economy

In the 48th episode of the series we have Peter Bendor-Samuel of Everest Group, a research firm focused on IT, business process, and engineering services since it was founded in 1991.

I enjoy catching up with Peter on a regular basis to get his perspective on trends in outsourcing and the broader IT, BPO, strategy services market.

He says the market is broadly strong - "rising tide raises all boats" - with the confluence of digital transformations, modernization projects/ related legacy outsourcing and pent up demand from projects slowed down or postponed in 2020.

What's different is the influence of hyperscalers like Google and Amazon and strategy firms like McKinsey, BCG and Bain. We also discuss the trend of "servitization" - where industrial and other sectors are generating more service revenues around their products and moving to "as a service" models with subscription revenues and outcome based models.

BTW, on the last point about servitization, I have been researching that trend in detail over the last few months. You will hear more from me on that in the next few weeks. In the meantime, enjoy this conversation.  

We cover wide ground, as is common with my conversations with Peter. I always learn something new from him.

Burning Platform: Workday Nation

In the 44th episode of the series  we have Webb Armentrout, Group VP, Global Partners at Workday.

Workday has historically done a better job managing its SI ecosystem than many other vendors including some I have written books about. They certify at the individual consultant level and require re-certifications with every new semi-annual release. They have also kept their partner count relatively small to allow for better collaboration and management at the firm level.

We discuss how the pandemic, related WFH and need for virtual implementations severely tested the SIs, and how they have collaborated with Workday, its customers and often with each other during the trying period. Emily McEvilly, Chief Customer Officer had given me a preview in our conversation in November. (Toward the end, Webb brings up meeting at Concourse B at Atlanta Hartsfield airport. We had spent a few minutes before the formal conversation discussing our respective admiration for Delta Airlines which is based there)

We also discuss the likely changes as Workday partners leverage its Extend development platform, as Workday evolves to more solution selling, more verticals and countries as it marches toward a major milestone of annual revenues of $10 billion. The addition of Chano Fernandez as Co-CEO, the promotion of Emily McEvilly and other executive moves reflect the increased scope Workday is taking on.

Clearly the ecosystem will need to step up, and I will keep pushing for more automation in their delivery but the Workday track record to date has been reassuring and bodes well for a smoother evolution.  

 

Burning Platform: Cloud Wars!

Brian Sommer and I have recorded 12 episodes in this series - see index here  Last few weeks, we have had several guests - Rob Kugel of Ventana, Josh Greenbaum of EA Consulting, Bonnie Tinder of Raven Intel, Frank Scavo of Avasant, Dennis Howlett of Diginomica, Cindy Jutras of Mint Jutras, Dave Hofferberth of SPI Research, Holger Mueller of Constellation Research, Tamas Hevizi of Automation Anywhere, Bob Ferrari of Supply Chain Matters, Sabrina Horn of Horn Strategy and Sandra Lo of Zoho

This has been the year of the cloud - unbelievable scaling of ecommerce, wfh etc - so nice that I can wrap up the year with an episode with Bob Evans who authors the Cloud Wars site. As you can see, both of us are basking in the sun - helps the mood at the end of this crazy year.

We cover a lot of ground - how the hyperscalers have picked up momentum as companies look at lifting and shifting on-premise, legacy apps to their clouds. Google, Oracle, Microsoft and AWS in particular get a fair amount of time during the session.

We discuss the increasing focus of both the infrastructure and application vendors on the platform layer and the likely turf wars there.

We cover recent public offerings from Snowflake, C3, Palantir and momentum of vertical players like Teladoc, Shopify, nCino and what that means for the incumbent players. 

Bob also talks about every company in every vertical becoming more of a software company and what that means to the industry as a whole. The SaaS, IaaS etc definitions of the last few years look increasingly dated. 

More episodes to come in the New Year!

Burning Platform: Project Management in the Age of COVID

Brian Sommer and I have recorded 12 episodes in this series - see index here 

For the next few episodes, I will be joined by guest analysts and industry observers. Last couple of weeks Rob Kugel of Ventana and Josh Greenbaum of EA Consulting have joined us.

This week, it is Bonnie Tinder, founder of Raven Intel which monitors project management trends and SI quality metrics.

We discuss how project management has undergone a major transformation during the pandemic. The accelerated clinical trials of the COVID-19 vaccines have certainly raised the bar. In IT projects, especially HR projects she tracks, the key word as she says is "shift". Some have been postponed, some shortened, a new category of projects has been fast tracked,

We also discuss how SIs have been doing during the pandemic. Many smaller and midsized SIs are being squeezed out by the larger SIs as bigger projects disappear.

She provides a nice Raven's - bird's eye - view of the state of project and program management.

Burning Platform: Mediocre, Myopic or Merry?

Brian Sommer and I have recorded 12 episodes in this series - see index here 

For the next few episodes, I will be joined by guest analysts and industry observers. Last week Rob Kugel of Ventana joined us.

This week, it is Josh Greenbaum of Enterprise Application Consulting.

We start off talking about a note he wrote a couple of years ago titled Mired in Mediocrity. I have written about vendor myopia - they have missed out on several large markets as I wrote here 

There have been several moves during the pandemic which make both of us a bit more positive about the industry  - and feel merry in keeping with the holiday season.

I have a great slate of analysts and industry observers lined up who will bring other nuanced perspectives on enterprise tech in the next few episodes

New Normal: A conversation with Phil Fersht of HFS Research

I have been doing video interviews with a number of CIOs, software executives and practitioners about acrobatics they have been seeing in various vertical sectors during the COVID-19 crisis and the "New normal" they can expect as the economy wakes up. Here is the index to all the interviews in this series.

This time it is Phil Fersht, Founder, CEO and Chief Analyst of HFS Research which covers global sourcing strategies.

He talks about acrobatics at Cognizant as they tackled the pandemic, a ransomware attack and are still delivering impressive results. He also mentions leadership and unique practices at Accenture, IBM, Infosys, Mphasis, Wipro and other firms.

He discusses practices around Digital Transformation, Cloud Computing and Automation.

We cover wide global ground - we discuss Brexit, the lockdown in India and Philippines, and of course England, where he is based.

Fascinating discussion of trends in a human intensive industry which has been significantly impacted by travel and work from home trends during the pandemic.