Reality Check | Ephraim Schwartz » TAG: IT strategy

April 08, 2008 | Comments: (0)

SaaS favors Google over Salesforce

TAGS: Google, IT strategy, Outsourcing, SaaS, Web 2.0

To say that strategy and technology are finally becoming interlinked in business is pure BS.

It has always been thus.

I'm certain that when the first cash-register salesman convinced the first general-store owner to buy a cash register, the sale went through because he was able to convince the owner that this new technology would improve the general store's bottom line.

SaaS as strategy
Even when companies bought and failed to successfully deploy technologies for technology sake in the late '80s and early '90s, you'd have to say they were well-intentioned. By that I mean, no company decided to spend $100 million on SAP R3 because it was cool technology. Some cash-register salesfolks reincarnated as SAP sales representatives convinced them it would, eventually, improve the bottom line.

There is a difference today, however, as Web 2.0 and SaaS (software as a service) are emerging to create technologies that perfectly serve businesses virtualization as a business strategy.

According to Ben Pring, vice president at Gartner Research, virtualization is just a synonym for the ongoing trend to outsource more and more processes.

Call it what you will, Web 2.0 or SaaS, coupled with outsourcing is a match made in heaven.

"First companies bought SAP instead of using home-grown ERP; then they used companies like EDS to handle customer support; now SaaS is just another version of this story," Pring says, who will elaborate on these points at the Gartner Symposium/ITxpo in Las Vegas this week.

I suppose this is all about that old chestnut, "Focus on your core competence and let somebody else do the rest."

But what Pring predicts will happen next really caught me off guard. He believes that a company such as Salesforce.com can grow linearly during the next three to four years but that there will be no exponential, sudden leap in the number of customers it serves. And if it did happen, Salesforce.com couldn't handle it anyway.

Enter a company like Google.

"Google is prepared for the exponential. They built out the architecture and the infrastructure to manage that kind of growth," Pring says. Whereas Salesforce celebrated its 1 millionth user a couple of months ago, it is estimated that Gmail serves well over 5 million users.

What's more, as I mentioned in "A step closer to the integrated cloud," Google is looking to acquire ISVs from the CRM, ERP, and BI markets. By combining those offerings with front-end productivity applications, Google could create a service that, over time, will be hard to beat -- a back-end, front-end suite that Pring believes businesses will more readily buy than anything Salesforce develops via its AppExchange partnership model.

Google: Point SaaS solution killer
Google certainly has the cash to acquire ISVs to round out a complete application suite. Perhaps we are witnessing the oncoming death of point SaaS solutions in favor of those who can offer complete solutions and back it up with infrastructure that the enterprise respects. If this is the case, Google’s brand, positioning, and perception of reliability -- real or imagined -- means that Google will soon pose a significant commercial threat to all traditional ISVs.

In this, Google represents the changing of the guard, one that heralds a new wave of upstarts who know how to exploit the Internet. As I said up top, strategy and technology are and always have been interconnected. But companies like Google understand better than most how to leverage the emerging Web 2.0 technology in order to give companies a competitive edge.

Yes, Salesforce opened the door. But it may be Google and its kin who will be the ones to boldly step through.

In the short term, Pring advises enterprises to review their application portfolios to ascertain where SaaS can deliver advantages and then go about making the best use of it. But remember, there are not that many areas where SaaS is part of the equation today. CRM, HR -- but beyond that, there is not a lot out there, yet.

For the long term, Pring suggests keeping your eyes on the SaaS and Web 2.0 vendors but also watch how the old-guard likes of Oracle, SAP, and Microsoft respond.

My advice? Outsourcing, in all of its forms, sounds good in theory, but as outsourcing initiatives have proved over time, it takes solid analytical thinking to understand where it makes sense and where it doesn't.

Posted by Ephraim Schwartz on April 8, 2008 03:00 AM

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

April 17, 2007 | Comments: (0)

Best of breed vs. trusted partner

TAGS: IT strategy

A battle royal is shaping up over two distinct IT/business strategies

Best of breed vs. trusted partner -- it's the perfect example of why the execution of a business strategy cannot be disentangled from the implementation of IT operations.

To make good on the trusted-partner model, as defined by Ray Repic, chief technical architect at Coca-Cola Enterprises (CCE), a company must establish meaningful relationships with a tight group of technology vendors and transform those associations into strategic business partnerships. In this scenario, each side must give up something: The enterprise must reveal its closely held strategic goals; the vendor must unveil its technology road maps. Obviously, the goal of the enterprise is to determine how best to use the vendor’s technology to deliver on its business objectives.

There are unspoken commitments once this exchange of closely held information is made. The enterprise promises that when a new business need arises, it will go to these partners first to see how they can fulfill the need.

"If the partner can provide for 'mandatory' or basic requirements, then the enterprise says it will look no further, assuming financials are all in alignment," Repic says.

The vendor also has to make a commitment to the enterprise, allowing it to participate -- co-develop -- in the process of bringing new functionality to the market. SAP calls this "co-innovation." Obviously, by being the first to understand how the new functionality works, the enterprise gains a competitive advantage.

This is, by the way, in contrast to what Josh Greenbaum, principal at Enterprise Applications Consulting, says is the more typical "predatory commercial relations" with a customer, in which the customer exists to make the vendor's quarterly numbers.

"I don't envision CCE moving away from its ERP decisions anytime soon," CCE’s Repic says. But in saying why his company will remain with the trusted-partner model, Repic reveals a significant reason as to why many enterprises go the best-of-breed route.

Repic says companies that choose the trusted-partner model are typically those that "do not require 'bleeding-edge' technologies to support required business operations."

But how many companies can say they don't require the latest and greatest? Would your company prefer to deploy software that has only the "mandatory" requirements until their trusted vendor catches up?

Today’s enterprises depend on the latest enabling technologies -- those not in the core ERP package so to speak -- to differentiate themselves in their markets or to support internal growth initiatives. Whereas disparate application integration used to translate into expensive propositions, we now have SOA, XML interfaces, and SaaS (software as a service), all of which help ease the pain of integration.

Rick Collison, director of solutions at Ariba, one of those best-of-breed application vendors, in this case for spend management, warns that if you need a new solution and you wait for your "trusted partner" to come through, it's like "the blind leading the blind."

Collison's point is that best-of-breed vendors, such as Ariba, have more depth. These best-of-breeders offer end-to-end solutions that optimize every aspect of spend or supply-chain management, for example, rather than just lightly touching a product category outside core ERP.

I spoke with Shai Agassi, a former SAP board member. Although Agassi no longer works for SAP, he still sees ERP as the "core" of the enterprise. Here's an excerpt from Agassi's blog:

"Without a strong core ERP you cannot scale a company and you lose scale even on successful strategy. ... [T]he more applications you have designed separately, the less you can afford any change and the more you invest in the gaps between them." Agassi writes. Agassi makes a good point, but I'll give the final word to Marc Benioff, CEO and chairman of Salesforce.com, one of those best-of-breed SaaS upstarts that offers a noncore application that has been "designed separately."

In a recent video interview, I asked Benioff whether he wanted Salesforce.com to become the new platform, or new core, around which Web 2.0 and SaaS applications would plug in to. Benioff would have none of it. He simply answered, "There is no core."

An interesting proposition, and like everything in high tech, where things change rapidly, CIOs and CEOs will have to confront this issue sooner rather than later.

Posted by Ephraim Schwartz on April 17, 2007 03:00 AM