Beagle Research Group

More SAP

I am still thinking about SAP’s announcement last week that it would invest in a new business model to bring its new SOA mid-market products to the market place.  I thought it was a significant enough announcement that I wanted to offer an opinion on it right away, which is why I did a piece last week, and a few days’ perspective have given me additional thoughts.  If you parse the announcement you may conclude that it is significant but perhaps more because of where SAP is in its own evolution than for what is offered.

According to last week’s press release, “CEO Henning Kagermann outlined plans to introduce a new mid-market solution offering breakthrough innovations in faster, lower-risk implementation, continuous adaptability and easier user adoption.”  They are talking about an application set based on a platform that the company has been working on for three years.  Later on the release refers to a “largely untapped market” and there we might need some clarification.

First off, the platform and business model sound a lot like what Salesforce.com has been doing with AppExchange or on a less grand scale what NetSuite has been doing with its NetFlex product.  Either way, we’re familiar with the broad outlines—on-demand solutions, easy to implement and manage, low total cost of ownership.  How much the additional benefit of financials will be is hard to gauge.  Lacking financials has not exactly slowed down Salesforce and other vendors like Sage and NetSuite have integrated financials and are doing well, thank you very much. 

That brings me to my second point the “untapped” market.  Now, every vendor has a right to make its best case in a press release, as long as there is some truth in it and I suppose describing the market as “largely” untapped covers things.  Nevertheless, there is no shortage of companies engaged in the mid-market—the afore-mentioned NetSuite, Sage, and Salesforce.com as well as others that would make up a long list that I don’t want to get into here.  In fact, the press release claims that SAP’s customer base is 65 percent mid-market companies.

Add to that list the emergence of third party platform providers and the list grows.  By third party I mean any vendor with an integration platform whether it’s Cast Iron Systems with their application integration appliance or Above All which does similar things with software.  There are also plenty of more traditional EAI vendors like Tibco to consider too. 

Pretty quickly you can see that the number of platform and integration choices available today make it plausible for even mid-market companies to use a best of breed approach.  I have spoken with customers who say they have integrated three major on-demand solutions using Cast Iron and Above All has similar tales to tell.  All in all, I think the “largely” modifier was a wise choice.

All that said it is still an important announcement for SAP.  As I said at the beginning, the announcement says a lot about where the company is right now.  For starters, I think it’s clear that SAP is one of the top two or three companies with the most to lose by the on-demand tsunami, so it’s good that they’re learning to surf.  Spinning up a new business model in a well defined market is a way for the company to begin a necessary transition to an on-demand approach for all of its customers—or at least as many as want to come along.

The new model in a defined market enables the company to begin positioning shareholders for the time when revenues come from repeat monthly payments rather than large episodic license payments.  At some point the new model will have to become the primary model and I would not be surprised to eventually see the new model begin to creep up market as the company gains experience and proof points.

Right now though, SAP is a late entrant in the on-demand market—there is really no other way to say it.  They have new product in beta and they are apparently indicating that they have found religion on the business model.  They also have a tremendous customer base. 

It would be a mistake to believe that SAP will be able to convert all of its existing customers to the new on-demand technology when it comes out.  Customers have a way of drifting away for all kinds of reasons.  This announcement is as much as anything else, a nod to the fact that until now, customers wanting a lower cost on-demand offering had to look elsewhere.

With all that said, from a pure business perspective, if I had to be any conventional enterprise software vendor right now, I think I would choose SAP because they’ve taken the most realistic approach to the situation of any vendor I have seen. 

In contrast Microsoft brought out Vista this week—four years late—along with a new Office suite.  Microsoft is one example of where I wouldn’t want to be right now.  There are many competitors with on-demand office software and plenty of competition at the system level from Linux and Apple’s MacIntosh.  Worse, there is plenty of talk about virtualizers that would make operating systems largely unnecessary.  The bad news for Microsoft is that even if all of this competition turns out to be rather benign, take together it represents a lot of pressure on growth.

No sir.  If I had my ‘druthers I’d rather be at least embarked on the new direction than trying to preserve the old way of doing things.  The ancient Chinese philosopher Lao-tzu is supposed to have said, “A journey of a thousand miles begins with a single step,” and I think you have to applaud SAP for taking its first step. 

Is SAP changing its business model?

I always chafe at the saying, “The proof is in the pudding” in part because it is a truncation of a longer phrase but mostly because it means nothing by itself.  The proof of the pudding is in the eating is how the phrase really goes and it is the one thing that came to mind when I heard about SAP’s announcement in Germany about a new business model and new mid-market products.

Without having the benefit of a briefing from them I am left to wonder what this all means.  At its best it could be a bold move which sounds like it will be executed well and that’s where the flip side engages.  It was after all simply an announcement of an idea; I do not believe they actually rolled out the plan, just sort of a teaser.

If the best that can be expected actually materializes then this could really be something.  My interpretation is that this “game changing approach to the mid-market” is an attempt to change the company’s business model.  As a traditional software company that trades CD’s and DVD’s for cash, that means the company is moving toward a SOA architecture, which it mentioned in its press release, that will position the company eventually as a pure play on-demand player.

That approach is perhaps the most viable for any traditional company confronting the end of its paradigm.  It takes real vision and intestinal fortitude to pull it off because it means going to the shareholders with mixed metaphors and saying, “Look, the sun is setting on our model and if you want this goose to keep laying golden eggs, we need to do something different.”  Other approaches simply represent denial and as Clayton Christensen amply documented in “The Innovator’s Dilemma” denial is not a strategy for dealing with the future.

The way it works and the way that it appears that SAP is doing this, is for the company to spin up a new business, give it P&L responsibility, new products and of course, the new model—along with the usual encomium, go forth and…well you get the idea.  Eventually the sun really does set on the old company but the new company acts as a life raft for all that capital, the jobs and the products.

From what I have heard this seems to be what is afoot.  According to the release, “SAP detailed plans to invest in an additional business model which will operate in parallel with its established business.”  Yup, “additional” and “parallel” are important words here.

Of course there were also the usual competitive marketing things going on like the name, NETSAP.  Sounds a little like NetSuite doesn’t it?  Same market, same range of products including CRM and ERP, and of course, NetSuite’s major investor is none other than Larry Ellison who also heads up that other non-Microsoft software company.  Viewed this way it simply might mean that SAP is playing catch up with Ellison and his on-demand dabbling, but I think this could be more.

If SAP is to be believed then that leaves Oracle in the funny position of trying to preserve the licensed software way of life with Fusion.  No one wants to be the last one to leave the party for many good reasons so that should put some pressure on anyone still dancing.

As a result of having bought Siebel about a year ago, Oracle is not in a bad position if it decides to be more aggressive in the on-demand world.  Siebel On-Demand offers a rich set of capabilities around which Oracle will eventually build a true on-demand presence. 

Let’s keep things in perspective though, this is a mid-market announcement and an investment announcement and while I think I can see where it’s all heading, I would prefer to see some products and some happy customers.  As I alluded in the beginning, the proof of the pudding is in the eating.

Back in the channel again

Axel Schultze is a serial entrepreneur based in Silicon Valley. Perhaps that is not a very useful description since the valley seems to be littered with them, but Axel is, in my mind, an interesting case.

His area of interest is the indirect sales channel, and he was the founder and first CEO of BlueRoads, a San Mateo, Calif.-based company that focuses its efforts on improving life in the sales channel. This week Axel announced a new venture called Xeequa. I'll get to that in a moment, but first the channel.

Getting the Job Done

You don't have to be blind to miss the importance of the channel these days, but it would help. In the last few years the channel has been responsible for moving more technology of all kinds than its direct counterpart.

Not surprising, you say? Well, it is at least remarkable because of what it says about the technology market in general. Early in the high tech cycle, and any product cycle for that matter, when product categories are new, definitions are loose, and customers don't have a clue about why they need the latest gizmo, companies rely heavily on direct sales forces to carry the missionary message home.

Direct sales has its place, but it also has an underside -- it's expensive to put all those feet on the street, and it's a risky proposition because it burns a lot of venture capital. Often, however, it's the only way to get the job done. Later on, when more people "get it," the sales effort and some of the marketing can be given to partners in the sales channel, but that has an underside too -- for lots of reasons, there is an uneasy alliance between the OEM and the partners as well as among the partners.

Long story short, Axel had some insights about how you can improve the relationships up and down the hierarchy and improve overall channel throughput. That's what went into BlueRoads.

A Grass Roots Campaign

The story of technology, or at least the story I am writing, is about transforming hierarchies into a network. It's a slow process, and this kind of transformation is as old as the Enlightenment -- think about the move from monarchy to democracy and you'll get what I am saying.

So, Axel's new idea for the channel is to treat it more like a network than a hierarchy. I for one don't think that we will see a wholesale change in business models any time soon -- there's very little danger of this new paradigm upsetting well established channels, but shifts like this start at the grass roots and grow up.

Axel comes along at an interesting time. He is enabling channels to arrange themselves differently -- as networks instead of hierarchies -- at precisely the same time that platform technology, spearheaded by companies like Salesforce.com (NYSE: CRM), is providing the means to flatten out the software market. Just this week Salesforce.com released its application programming language, Apex, which clears the last hurdle for developers to build completely new applications on top of its service.

Salesforce's AppExchange makes it possible for developers in its ecosystem to build and sell custom applications to the world, but it also puts every member in the interesting position of, at least potentially, being both OEM and partner.

I expect this will result in webs of companies developing and selling solutions for complex business processes -- what we used to call vertical solutions. These consortia of providers will potentially each be empowered to sell an integrated solution, and that's where I think Axel comes in.

Bridging the Gap

Xeequa doesn't look to me to be a replacement for SFA and traditional CRM, but it does look like a much needed traffic cop that can bridge the divide between hierarchical CRM, where you have well defined vendors and customers, and the emerging realities of networked selling, where a company can be both, depending on the circumstances.

It won't drive the emergence of vertical solutions based on platforms -- at the end of the day, that's a technology issue. Xeequa (or something like it) will, however, help provide the business underpinnings that will reduce the friction caused whenever multiple companies try to work together to deliver a standardized solution.

A lot of things need to go right before this idea can take hold. Xeequa is just starting out and the product needs to be hardened. The same can be said for the idea that ecosystem vendors can come together to symbiotically help each other and help customers.

I am seeing enough on both sides to make me think that this direction is valid, but we will need more data points in the coming months before anyone breaks out the French champagne and Cuban cigars.

CRM 2.0

Paul Greenberg has one of the most prolific and wide ranging minds in the CRM business.  He wrote the CRM bible—“CRM at the Speed of Light,” which is now in its third edition and he lectures constantly, educates, and he writes and publishes just about everywhere in the CRM world.  Every vendor and analyst respects his ideas and opinions and many of the biggest seek him out for advice.  For those and other reasons, I have started calling him the dean of CRM analysts.

Greenberg is also an incredible gadget-head.  He has all of the toys you can imagine—phones, game consoles, entertainment, computers, and he plays with hardware and software the way a kid uses legos.  So when he told me he had started dabbling in wiki’s it seemed right in character. 

A wiki, as you probably know, is a domain where people of like minds go to share ideas.  The word itself, I am told, is from the Hawaiian language and means fast.  The point in using this name is to highlight how quickly ideas can evolve when many hands (and minds) are turned to a single purpose. Greenberg’s wiki idea has been to launch a discussion of the future of CRM.  If that sounds too nebulous it’s really about CRM 2.0, which is what he’s calling it.  I can’t think of a better person to instigate this process than Paul Greenberg and I am writing about the effort today because I think it’s vitally important.

Paul and I have kept up an active dialog over the last few years about CRM, where it’s going, and where it needs to go.  Many of the ideas that I first surfaced here have gone into our conversations and Paul has now taken the lead in bringing together some of the best minds in CRM together in one spot to plot the future of our industry.

Many people in the CRM business are coming or have come to the conclusion that the CRM that grew out of the 1990s has exceeded its useful life and I am among them.  The business climate is different, the economy is different, the types and kinds of products that companies are making are different—in short CRM 1.0 has not exactly kept up with the changing times.

So Paul has decided to convene a congress of the Internet on his wiki to ask the hard question, “What now?”  The idea of doing this as a community activity has a lot to recommend it.  As Greenberg put it, a definition that comes from an interested community, “…would be universally acceptable so that the mistakes made during the CRM 1.0 period that we've just left, a.k.a. 15 million self-serving definitions of CRM out there that left customers confused, wouldn't happen again.”

Now, here’s the cool part, everyone’s invited to help out.

There are already a number of industry and academic heavy weights involved in the project which you will see when you visit the wiki, but Paul is opening this to, as he puts it, “Vendors, practitioners, academicians, students, consultants, authors, etc. who are interested in truly doing something important when it comes to customers.”  If that sounds like you, I encourage you to check it out.  All you need to do is send an email with your details to Paul at paul-greenberg3@comcast.net and give a short description of why you are interested in helping with the project.  In return mail you will get a URL and an invitation to join the community.

I am already involved and plan to post some of the ideas I first expressed in this space over the last year or two in updated form.  But there are others like Joe Pine who, along with James Gilmore, first expressed the idea of the customer experience in the 1999 book “The Experience Economy.”  As you will see the drivers for CRM 2.0 are diverse, the people who are contributing are many, and the thinking that will go into this effort has been percolating for a long time.  Now it’s time to bring it all together.

I expect to report back to you over the coming months on progress and on some of the issues that we might be wrestling with. In my humble opinion this could not have happened at a better time.  I think it will be a fun experience for all of us.

Moneyball meets CRM

I was fascinated to read NetSuite’s announcement last week that Billy Bean had been appointed to the company’s board of directors.  If you have been living on Mars for the last decade, Bean is the general manager of a pretty fair baseball team, the Oakland A’s.  If that was Bean’s only calling card, the appointment to the board of a software company would seem quirky at best, but Bean’s major contribution to the game has been his focus on statistical analysis that produces winning baseball teams in a “hit ‘em where they ain’t” philosophy. 

The noted business writer Michael Lewis chronicled some of Bean’s approaches in a best selling book “Moneyball: The Art of Winning an Unfair Game,” which caught the attention of a lot of business people who understand that Bean’s ways of analyzing his business are largely transferable to the general business world.

Most people would agree that Bean is a game changer, one of those people who see the world differently than their contemporaries and because they do, they can cause great changes while leveraging their insights against the status quo. 

Of course it remains to be seen how much influence Bean can have from a seat on the board of directors.  After all, the company is already dominated by some pretty powerful personalities like Larry Ellison.  Maybe drafting Bean was Ellison’s way of saying that NetSuite can access disruptive innovation talent.  Since Bean is also a NetSuite customer you can bet he is not simply on the board to polish his or the company’s credentials.  This will be worth keeping an eye on.

Meanwhile, the original disruptive talent in the software business, Marc Benioff, is still going strong at Salesforce.com and he runs the company as well as his board.  As the disruptive innovation we call SaaS or on-demand continues to reel out we’ll see more niches opening up and we might actually see less competition between companies, at least for a time, as the space between them increases.  For example, although other companies say they are in the platform business, it’s really only Salesforce that has done much—actually a lot more than others—at putting the new platform market on its feet.

The bulk of the SaaS competition might be in CRM right now, but the green field is the platform.  Or, another way of looking at it—CRM might be “Moneyball” but the “Field of Dreams” is now the platform.

I'm...Superman???

Ok, I took the Superhero Personality quiz recommended by Paul Greenberg.  Why not?  It was year end and I was looking for something to do.  Sort of like the forgettable blog tag game we played.  If you are a blogger please know that I have received immunity from all future contests, there's only so much about myself that's worth revealing. 

Except for the fact that I am Superman. 

Don't ask me how it happened, I am dumb to it but facts are facts and stats are stats and I am in the stats biz, more or less.  So there it is.  Me.  Superman.  And to think that Mom's been less than forthcoming with me all these years.  Sheesh!

Your results:
You are Superman

Superman 85% Spider-Man 85% The Flash 80% Green Lantern 80% Hulk 75% Iron Man 75% Supergirl 67% Robin 67% Wonder Woman 62% Batman 60% Catwoman 55%

You are mild-mannered, good, strong and you love to help others.

Click here to take the Superhero Personality Quiz

New Year’s Resolutions 2007

It is part of the American Experience to be always searching for self-improvement and I think that contributes to our obsession with New Year’s resolutions.  I have made a few of my own over the years and 2007 will be no exception.  In the last few days I have witnessed this urge to plan and improve in others around me and I am not immune to it.

I am not as organized as Paul Greenberg who tells me he is in the middle of an eleven year plan—no wonder he’s the dean of CRM analysts.  The best I can muster is some resolve to do better in a few selected spots.  I thought it might be fun to share some of these resolutions with you while also projecting some for our industry.  First, my stuff.

I decided I need to get out more.  While I have had a busy schedule of briefings and company visits in the last few years, my attendance at industry events has not exactly waned, but it hasn’t grown either.  So, for me, I need to change what I do when I go on the road, maybe do some speaking.  Plans are in the works.  Also, I had an abortive go at writing a CRM book last year.  I am a rank amateur at book writing and seeing all the machinations that go into making a book—all the dealings with publishers—was a real eye opener.  It turns out that publishing a book resembles trying to build a modern jet aircraft with a stone ax.  Anyone know a good ax maker?

Customer experience

For our industry there are lots of things to make resolutions over.  For instance, the idea of customer experience needs some rethinking.  The idea itself is a winner—who wouldn’t want a better experience with a vendor?  The benefits of improving customer experiences are by now well known and go to things like retention, loyalty, wallet share and more.  Nevertheless, so far, we seem to be going at it like it’s first down and the goal is a happy customer, meaning we’re applying more or less the same tactics but expecting different results. 

We ought to know better.  So for 2007 let’s also try to add some new phrases like “co-creation of value” and “voice of the customer” to our discussions of the customer experience.  I bet we get further.

The business process

Next, is it time to think bigger in CRM?  I think so.  Specifically, it’s time to quit looking at the front office as a collection of stove piped business practices layered on top of some processes and applications and to think more concretely about how it all goes together—and why. 

The idea of the platform answers the how question pretty well.  There has been a lot of movement from Salesforce.com, NetSuite, Rearden and others on the platform concept, but more needs to be done.  If 2006 was the year the market became sensitized to the platform idea, I think 2007 will be a year when the idea really begins to roll out.

The why question—why the need to bring so many disparate applications together—is another matter and one that will occupy a lot of us for a long time.  Answering the why question involves taking a hard look at the ways we do business and acknowledging that is it one big seamless effort, and that this effort represents a single end-to-end process.  You can’t really separate sales from service or marketing and the bigger the picture is that you see, the more likely it is that you’ll get all the way to the positive customer experience.

If we can acknowledge that, then we also must conclude that no single vendor is ever going to offer us all of the support we need for all of the possible ways to conduct our business processes and therein lies the importance of platform technology.

On-demand’s late adopters

There are several companies big and small that are less than ideally positioned to take advantage of what I think will be a market move towards platform technologies.  The primary reason is that platforms—or successful ones at any rate—are part of a SaaS strategy and many companies are still mired in asking themselves what to do about it.

Take the plunge, deploy real on-demand solutions and stop worrying about what Wall Street will say.  They won’t like it, especially if you don’t position it well.  If you announce that your business model will change from capturing large up front license fees to one that sips monthly charges you’re probably a goner.  However, if you talk about a transition and about the need for it due to market forces, the blow to your stock price might not be as bad.  Regardless, the share price will recover. It will certainly be a better situation than watching your customers drift away later on or of trying to explain why your move to smaller up-market niches really does make sense.

There’s also a big and growing services opportunity awaiting on-demand solutions providers.  Not the services associated with making sure all the lights are green on the console but the services that go with delivering added value in partnership with your customers.  If I was looking for a business to start in 2007 I don’t think I would start out writing any code at all, instead I might look at what’s already out there and figure out how to help customers do better with it.

I don’t know if anyone ever lost money spending time and attention on customers and it appears to me that that’s what I am resolving for myself and prescribing for the industry.  I think that’ll be fun.