Reality Check | Ephraim Schwartz » TAG: Business

December 18, 2007 | Comments: (0)

The channel makes a comeback

TAGS: Business, Channel sales, IT strategy

Resurrected by enterprise vendors discovering the midmarket, the channel delivers high strategic value -- and confusion

For a while, it seemed as if indirect sales -- aka the channel -- went away, as e-commerce enabled vendors such as Cisco, Hewlett-Packard, and others, to manage coordinate, and sell their products directly.

Of course, the channel never really disappeared; it just ceased to be top-of-mind for strategic thinkers at large hardware and software vendors.

Watching with envy as Dell came out from a dorm room to become the largest purveyor of PCs in the world by going direct probably had something to do with that.

The channel bounces back

But now there is an obvious reversal of fortune. HP, for one, used its quarterly report to Wall Street analysts as a platform for reaffirming its commitment to the channel. SAP's entire midmarket push is through the channel, especially since its acquisition of BI vendor Business Objects.

Even Dell is getting in the game, having announced it will tap the channel as well.

And then we have Information Builders, one of the few remaining stand-alone BI vendors, appointing Tom Rydz, formally of Accenture, as its new vice president of channel.

“This is a focused, dedicated position. We have had internal people who managed the channel, but it was never a dedicated role,” says Michael Corcoran, vice president of corporate strategy and chief marketing officer at Information Builders.

If there is renewed recognition of the channel, why now, and what does it mean for IT?

The answer to the first question is simple. Corcoran, for example, told me that 75 percent of Information Builders' new business is coming from the midmarket.

To some degree, this is true across major vendor sales. Everyone is waking up to the enormous opportunity in the midmarket, says Josh Greenbaum, principal at Enterprise Applications Consulting.

“This is by definition a channel play,” says Greenbaum.

Simply because there is an exponential increase in face time and hand-holding pre- and post-sale in the SMB market and it is impossible to serve those customers without the channel, Corcoran adds.

At the same time, there is an interesting change taking place among channel partners.

Information Builders' Rydz told me that rather than selling and buying technology, as was the previous case in the channel, now customers are demanding strategic business solutions.

The problem is, there are a finite number of channel partners that possess those kinds of business skills.

In search of strategic channel solutions

Enterprise Applications' Greenbaum says the market is demanding simpler products to implement, with the result that channel revenue coming from dealing with the complexity of the product goes away. So how does the channel make its money?

“Volume,” says Greeenbaum.

So we have a fundamental contraction: How does the channel offer high strategic value and yet sell its products in high volume?

The answer is that vendors now need experienced channel partners that can go to a CEO in the midmarket and talk business, industry, and strategy.

Greenbaum sees a looming war among the major ISVs to grab the best channel partners.

“If you are in enterprise software, there is no better and more mature channel than Microsoft. If you are SAP or whomever, you want those guys,” Greenbaum tells me. I can’t see him over the phone, but I think Greenbaum is smiling now.

Everybody likes a good fight.

So, if you’re the customer, how does this play out?

Well, with everybody throwing everything they have into the midmarket, you will be visited, not by the ghosts of Christmas past, but by a confusing array of smaller companies representing larger vendors all selling similar products.

SAP, for example, has three different midmarket product lines.

“In the scramble to build these effective channels, there is a high probability that executives will peak out into the waiting room and see two or three different Microsoft channel partners all vying for the same business,” says Greenbaum.

Buyers should be careful not to settle for good product alone. That is only half the battle. Finding the right partner to work with is the secret.

In other words, while the products get simpler, the buying experience gets more complex. Imagine a large menu with column A listing the services and column B listing the products. Your job will be to choose the right combination.

Happy shopping.

Posted by Ephraim Schwartz on December 18, 2007 03:00 AM

October 23, 2007 | Comments: (0)

Banking on busted IT projects and dormant IP

TAGS: Business

Resourceful VCs can help you unearth treasure buried in your IT asset sheet

The news of the day is that Silicon Valley is awash once more in VC money. The dollars are rolling in. So why shouldn't your company get a piece of the pie?

According to Henry Chesbrough of the University of California at Berkeley Haas School of Business, 90 percent of corporate IT assets sit dormant inside the balance sheets. Where, you ask? In the form of untapped IP (intellectual property).

Managing Director George Hoyem's VC firm Blueprint Ventures specializes in what he calls "early stage" corporate spinouts -- ventures undertaken to capitalize on hidden IP.

"Early stage" refers to the fact that these spinouts are smaller than what typical buyout companies invest in. They are not full companies, and from their perspective, they don't have the upside potential they want. Blueprint findings note that early-stage spinouts "were less likely than traditional startups to generate 10X or higher multiples."

Nevertheless, Blueprint manages about $100 million to $200 million from investors who believe they are getting solid returns.

LANDesk, a company spun out from Intel, sold to Avocent for $416 million. Here's a company that Intel was likely to shut down, and instead Blueprint wrote Intel a check for $50-plus million -- about an 11X return on Intel's original investment, according to Hoyem.

Monetizing dormant IP has not yet registered with VCs looking for revenue-generating businesses.

"These kinds of early-stage IT spinouts don't meet their [corporate] hurdle rate or strategic core direction," Hoyem tells me.

So Blueprint comes along and says we can liberate assets and turn them into startups, which the company has done for Intel, Fujitsu, and NEC, among others.

For example, American Electronic Power (AEP), a utility in Ohio, was working with Cisco to put up networks on medium-voltage power lines in order to become an ISP for rural parts of the country.

Along the way, however, AEP discovered being an ISP was not its core competency. So AEP took its technology and Cisco's and bundled it into a separate company called Amperion in 2001. Amperion is now the leading medium-voltage power-line communications company for broadband over utility lines, according to the company. That's a nice win-win example for everybody.

But sometimes Hoyem sounds a bit like a predator on the prowl.

"One day, the music will stop at Google," he tells me -- I'm on the phone, so I can't see if he's twirling his mustache -- "and Google will be a great hunting ground for us."

Wow, this guy is good.

"They will have all these patents," Hoyem adds. "And some exec will come in and say, 'What are we doing here? We need to focus.'"

Of course, no definitive numbers are available on these deals, but typically about 19.9 percent goes to the parent company. That percentage represents the barrier at which a company doesn't have to consolidate earnings, profit, and loss, up through its income statement.

After that, 15 to 30 percent typically goes to the new founders and the new management team, and it's used to lure talent to the startup. The remainder goes to the investors.

Dormant IP aside, think of the hundreds of projects in which companies spend millions, if not hundreds of millions, only to never complete them. Blueprint figures out how to value these assets and structure spinouts -- certainly worth looking into while the VC money is still flowing.

Posted by Ephraim Schwartz on October 23, 2007 03:00 AM

October 12, 2007 | Comments: (0)

Reading between the lines of the Oracle bid for BEA

TAGS: Business

It is the end of an era.

Oracle's take over of BEA, be it imminent or eventual, along with last week's acquisition of Business Objects by SAP tells us that we will see a major change in how the enterprise buys software.

Let's leave software as a service [SaaS] out of the picture, for the moment at least, and look at what is happening just among the giant on premise application vendors.

For better or worse, the battle for survival between these major vendors who offer a single, all encompassing solution, from database to middleware on up through applications versus the point solution vendors is ending.

The single solution vendors have won. At least for now.

This is for better or worse because point solutions offer a number of benefits to a large company.

For one it gives them a vendor with domain expertise who can help them use technology as a competitive differentiator.

Secondly, it allows a company to remain flexible. Because they are not dependent on a single vendor, they can pick and choose best of breed solutions.

It also puts the buyer in the driver's seat, at least to some extent.

If you're Nestle and you just spent $100 million deploying an all SAP solution, if dissatisfied a CIO's threat to go elsewhere would ring somewhat hollow, wouldn't you say?

On the other hand, if your company spent $100,000 or even $500,000on a point solution, it would be somewhat easier to admit a mistake and correct it when the software doesn't do what you ask of it.

Unfortunately, it looks like all of those point solution benefits are going, going gone.

Last week's Reality Check said "what we will probably see now is an accelerated pace in acquisitions and consolidation among software vendors as each major company vies for what remains of the pure-play vertical solution ISVs."

Oracle's latest acquisition attempt makes the point. But don’t discount the importance of SAP's acquisition of Business Objects for what it means, either.

It means, one of the very largest software vendors is no longer sitting on the fence, making only small, strategic acquisitions. For the most part SAP preferred to build rather than buy technology.

That will now change. SAP has decided to join the fray directly. If it wants to scale and compete with the likes of Oracle, Microsoft and maybe EMC it has no choice.

On a more positive note, what enterprise users will lose in vendor independence, flexibility and domain expertise, they will gain in ease of integration, deployment and support. Of course, that will happen as soon as the software vendors figure out how to integrate their latest acquisitions.

The wild card in all of this are the SaaS vendors. The fact that the big vendors are getting even bigger may actually push companies towards SaaS.

There appears to be benefits to SaaS both on the business and technology side.

The fact that it becomes an operational expenditure on the books rather than a capital expense, shouldn't be discounted.

Or the fact that a company can try a solution without investing a great deal of time or money. Plus the low cost of deployment, and the sheer number of choices now available, among other things, may in fact make SaaS an appealing option when put up against a giant on premise vendor who basically will own your IT department.

It is a jungle out there. The big on premise vendors are fighting among themselves for prey and hunting down the smaller pure play vendors. But as SaaS continues to evolve and grow in size,the hunters may become the hunted.

Posted by Ephraim Schwartz on October 12, 2007 12:48 PM

September 25, 2007 | Comments: (0)

SAP's rocky road to on-demand

TAGS: Business

Can SAP make the transition to a services business model?

Flak is already flying around SAP's Business ByDesign. And it's not entirely about the suite of online services itself. It's more a question of whether a stalwart ISV of the traditional, client/server-packaged-applications-for-the-enterprise vendor can become a major player in the SaaS (software as a service) market for SMBs.

In SAP's favor is the fact that ByDesign is a more comprehensive solution than what is on the market now, says Paul Hamerman, vice president of the business process and applications group at Forrester. Hamerman points out that most SaaS offerings are point solutions, mainly for CRM or HR. There are a few exceptions such as NetSuite, which offers ERP and e-commerce, in addition to CRM.

SAP ByDesign, on the other hand, offers a full suite of solutions for running an entire business, including compliance management, CRM, executive management support, financials, human capital management, project management, supplier relationship management, and supply chain management.

With a lineup like that, how can SAP lose?

For one, SAP's business model has thus far been set up around licensing and maintenance. Can the company really get its head around the nuances of monthly billing, let alone offer the kind of sales and customer service models necessary to woo SMBs?

On the revenue side, SaaS has a long ramp up period to profitability, Hamerman notes. He points out that NetSuite is losing "tons of money" and that SuccessFactors is "losing 100 percent of their revenue."

In other words, SuccessFactors' net loss equals its revenue.

Still, Hamerman is positive about SAPs long-term success, believing that SAP will keep its current enterprise business and revenue stream flowing and that SaaS will earn SAP incremental revenue rather than cannibalizing its current business.

Gartner analysts are far more negative.

Back in June, a group at Gartner got a good look at what was then known as A1S and there were a lot "ifs" in their final recommendations.

Last week I caught up with Rob Desisto, one of the group of A1S naysayers, to see whether Gartner's opinions, findings, and recommendations have changed since June. Desisto said no. SAP revealed a few more details, specifically around the database on the back end that Gartner had not been aware of in June. Pricing has since been announced. Otherwise, everything the analysts said in June still holds.

While being optimistic because "the business application market lacks a global leader in this category," the Gartner group felt that the inability to customize the service models and the paucity of implementation partners offers a "significant" risk to the offering's success over the long term.

Whereas Forrester's Hamerman feels that offering a full suite of business solutions is a plus, the Gartner group contends it is a negative.

A negative, I suppose, because many companies want best-of-breed applications rather than a horizontal, one-size-fits-all solution.

In fact, Gartner warns that unless SAP incorporates a customization/extension model based on enterprise services "and an integration method with on-premises software," users should not consider the product viable.

This has been promised, with no details available, and has not been demonstrated to date.

Forrester's Hamerman is also quite disappointed with the UI.

If SAP is truly going after the SMB market, then you would think the first item on its new application agenda would be a simplified interface. Unfortunately, Hamerman says, the UI "needs more refinements. It is not a big improvement over the current ERP UI."

Yikes.

Hamerman had nicer things to say about the configuration layer, however, finding the set of checklists and procedures and tools to rapidly configure an application to a customer's requirements, "innovative."

The big unanswered question is, Can SAP keep its two domains, packaged applications for the enterprise and SaaS solutions for the SMB market, separate?

Gartner says that, at present, the "product will not functionally support the majority of SAP's installed base."

Well, if SAP believes that strategy will work over the long term, it isn't reading the market right. And the rock and the hard place for the software giant is this: If SAP is wrong, as I believe it is, and even if it is able to turn the ship around to offer SaaS solutions to the enterprise, this move will dramatically affect its business model in a way that may not be so easy to recover from.

The road ahead for SAP is the same road ahead for Microsoft, Oracle, and all of the traditional client/server vendors. The big shakeout is happening right before our eyes. Over the next couple of years, the software landscape will look entirely different.

Posted by Ephraim Schwartz on September 25, 2007 03:00 AM

August 21, 2007 | Comments: (0)

Customer service gets human again

TAGS: Business

Eschewing automation, Netflix puts folks on the phone in hopes of achieving competitive advantage

Customer service sucks. For everybody. Not only for those who require it, but also for those who have to provide it.

So the news that Netflix is investing in its customer service strategy, as reported by The New York Times, is heartening for those of us who rely on customer service from time to time -- but perhaps disheartening for providers that specialize in automated customer service technology.

Netflix's solution runs counter to every high-tech business strategy I have ever heard: The DVD rental company is putting customer service reps back on phones rather than trying to reduce the workforce and costs associated with customer service by automating the experience through technology, which typically includes a Web interface or e-mail interaction.

But with Blockbuster suddenly giving Netflix a run for its money, Netflix officials believe customer service can provide it a competitive advantage. Perhaps if done well.

Notably, Netflix went even one step further. Not only did it turn its back on technology by returning to a human interface, it chose not to use an offshore service provider. Rather, it located its phone banks outside Portland, Ore.

The Times quotes Michael Osier, vice president of IT operations and customer service at Netflix, as saying that "it's amazing how consistent people are in their politeness and empathy" in the greater Portland area.

For those who firmly believe that technology can be used to solve any problem and that it is superior to most human solutions, the Netflix move has to be disappointing.

What we are witnessing here is a perfect example of what is sometimes called the "uncanny valley." There are many definitions of this term, but let me explain how one expert in artificial intelligence defines it.

E-mail is not a robust technology solution. Rather, it is just another away of saying to the customer, "Talk to the hand." In other words, send a letter.

I think companies are confusing the use of a computer interface with the true meaning of high tech. Let's face it, e-mail as a technology is simply not smart enough to provide high-quality customer service.

This despite the fact that once the e-mail is received, companies usually deploy some kind of NLU (natural language understanding) technology that attempts to interpret the e-mail by looking for particular words and phrases before determining how to resolve the issue.

Unfortunately, NLU technology isn't fully up to the task yet, and this is where we begin to enter that uncanny valley, according to Eliezer Yudkowsky, research fellow and co-founder of the Singularity Institute for Artificial Intelligence.

Yudkowsky says, with a laugh in his voice, that we certainly know more than we did 200 years ago about customer service, "but not quite enough."

By that Yudkowsky means that although technology may be capable of solving any problem, time remains a factor. Today we can build skyscrapers much taller than ourselves or steam shovels far stronger than we are, but remember, says Yudkowsky, the human species was running around for tens of thousands of years before we created such marvels.

"There is always time, and there is also the uncanny valley," Yudkowsky says, explaining the "uncanny valley" as a gap between two systems.

One system is so dumb that we don't expect it to be helpful. The other system is so lifelike and helpful that it fools us into thinking it is human.

In between is the uncanny valley, technology that works just well enough for us to be disappointed with it.

As a consumer who has spent many frustrating hours punching in selections on my telephone keypad or waiting for an e-mail response to arrive in my inbox, I'm of the mind that most automated customer service technologies are stuck in this uncanny valley.

Someday technology will evolve to offer reliable customer service, but until then it might not be a bad idea for companies to turn their backs on hype from customer service technology vendors and just follow Netflix's lead.

Posted by Ephraim Schwartz on August 21, 2007 03:00 AM

August 15, 2007 | Comments: (0)

Direct TV, Current deal will open door for broadband via utilities

TAGS: Business

The news that Direct TV signed a deal with the Current Group to deliver broadband over power lines opens up a fascinating new chapter in last-mile solutions and will certainly ramp up the competitive landscape.

The deal between Current Group and Direct TV is only the tip of the iceberg. Yes, now the satellite company can not only offer VoIP and other broadband services, but look to all of the utility companies getting into the act as well.

This would be a natural next step. The utilities already own the customer relationship, which includes billing, metering, and monitoring. What could be more of a natural fit than to add a second line to your monthly bill for data?

The additional cost to the utilities may even been so negligible that the pricing will be extremely competitive. The utilities may decide it is better to have a low initial fee and make their money on adding additional services.

In one fell swoop, the utilities have the potential to grab millions of customers away not only from cable providers but also from the carriers as VoIP services become more ubiquitous and accepted by the public.

Of course, the use of power lines for data is not new. I wrote about a large department store chain that used the technology almost 10 years ago.

This retailer used rolling cash registers during the Christmas rush to reduce the long lines at check out. Each cash register cart was simply plugged into the power line, which put the register on the company network.

The real boost, pardon the pun, to the technology came back in 2004 when the FCC approved the use of broadband over power lines services and technology.

I'm excited by the idea that the Current-Direct TV deal will help to renew interest in broadband over power-line technology, which in turn can create new services and lower prices for all of us.

Posted by Ephraim Schwartz on August 15, 2007 12:25 PM

August 07, 2007 | Comments: (0)

Advertising makes the Web go 'round

TAGS: Business

Researchers are still searching for the key to monetizing a Web site visitor's behavior

Out with the old metric and in with the new is the mantra among Internet media and market research firms.

One of the first metrics used to indicate a Web site's value as an advertising medium was the total number of visits users made to the site in a particular time period. Then the metric du jour became the number of unique visitors who browsed the site. That transitioned to the depth of user interaction as measured by the number of page views per visit.

All of this was being driven by the fact that the Internet was created as an information vehicle, according to Kevin Ryan, vice president and global content director at Search Engine Strategies.

"It is being manipulated into an advertising vehicle," Ryan observes.

Fact is, the most successful sites, as measured by current standards, are still those that most closely resemble an information resource.

But now, Nielsen/NetRatings believes "total minutes," a.k.a. time spent on a site, is a superior metric to measure consumer interest and thus translate, somehow, into a particular site's potential to sell more products or services.

However, Ryan worries that if every couple of years you tell advertisers that they should use a new metric, you risk losing credibility.

Nevertheless, Nielsen did not come to this metric by chance; rather, the company says it is reacting to the changes in Internet technology. There is certainly some validity to this. The latest Internet technology does appear to make page views less relevant.

AJAX, for example, delivers new content without reloading the entire page. Streaming media changes what content you can view within a single page.

Nielsen says that total number of minutes becomes the "common denominator" for user behavior because it is "independent of site design."

And in a classic case of denigrating the old product once you have something new to sell, Nielsen in its press release says that certain Web environments "have never been well-served by the page view, such as online gaming and Internet applications."

Nielsen offers as an example the fact that whereas MySpace garners 10 times more page views than YouTube does, YouTube visitors spend three times as many minutes on YouTube than MySpace visitors spend on MySpace.

Does this mean publishers need to revamp their Web offerings in order to keep eyeballs on their sites for longer and longer time periods? If that's the case, how and when will ads be served? This is a challenge, admits Scott Ross, director of product marketing at Nielson.

Typically ads are served when a page loads. For example, 10 page views equals 10 ad views. But does 10 minutes on a single page mean one ad view, or do you interrupt the visitor every minute to get an equivalent amount of ads integrated with the surfing experience?

Now that there is less refreshing, how are the ads going to be served?

While the total number of minutes is indeed a reflection of changing technology, as a metric it may not reflect any change in why and how consumers are motivated to buy.

Ryan says that, for the most part, advertisers still view the Internet as a direct-response medium. They want to know how many people made a purchase. Therefore, how much time a consumer spent watching a video may have little to do with whether or not they buy.

While Ross admits this is true, he says that in general the more time spent on the site, the more time there is to give your pitch.

"That is the supply; whether it affects demand for the inventory is another matter," admits Ross.

Publishers have two clear goals, says Ross. The first is to create a user experience that keeps people coming back, and the second is to create a good ad platform on which advertisers want to show off their wares. Ross believes that the total-minutes metric reflects those two goals.

If you are given 10 opportunities in a 10-page slide show or one opportunity when a single video is served, where is it better to advertise?

In trying to answer that question, it seems to me everyone is missing the point. Advertisers and publishers need to tap into more basic research as to what makes people respond -- that is what's inside the black box.

Yes, some day, total minutes may prove an effective way to gauge the advertising value of a site, but that doesn't tell us what about total minutes makes it a worthwhile measure.

Why are these questions important? Well, to state the obvious, everything you love about using the World Wide Web is underwritten by advertising. End of story.

Posted by Ephraim Schwartz on August 7, 2007 03:00 AM

June 25, 2007 | Comments: (0)

Only the best get a company's best service

TAGS: Business

I filed a story today on Nexidia, a company that has technology to analyze the quality of spoken English, as well as other languages, in order to assess whether or not someone speaks with enough clarity to be understood in a customer service setting.

Originally called Accent Analyzer, the name was changed to Language Assessor.

In researching the article I spoke with an industry analyst, Elizabeth Herrell, at Forrester Research and what she told me just ticked me off.

Herrell said that there is a trend called "right shoring", or "best shoring", which only connects a company's premier customers to native speakers if and when they need help.

If, however, you are a lowly, small-fry customer, they send you to a customer support representative [CSR] off shore, where both you and the CSR may struggle over getting and being understood.

How cynical can it get? Whatever happened to being proud of your product, and that should include customer support? So proud that you don’t want to give anyone second best service?

This has to come under the heading of "how low can you go?" It also puts the lie to any company uses best shoring but claims its customers come first.

I would suggest before you purchase any big ticket item that may need help you should ask if the company does indeed use a "best shoring" strategy for their customer support.

If they do use right shoring, you might want to look elsewhere because if that's how they treat their customers I wouldn't be to sure of the quality of the rest of the product either.

Posted by Ephraim Schwartz on June 25, 2007 03:12 PM