Last week's Structure 08 conference was dominated by Cloud computing and the fact that enterprises haven't figured out how to embrace it. Luminaries from the likes of Salesforce.com and NetSuite outlined their visions of a Clouded future.
Cloud computing
By Stuart Lauchlan, news and analysis editor
“The world is about to change, and change in profoundly interesting ways,” declared Jonathan Yarmis, VP for advanced, emerging and disruptive technologies at AMR Research at the Structure O8 conference in California last week. “The enterprise itself hasn’t figured out how to embrace Cloud computing; users are figuring it out very quickly.
“Kids coming out of college will not go to a company that blocks Facebook. Equally importantly, it’s ineffective. It’s all about the user and we’re not going to stop them," he warned. “We talk all about Web 2.0 and Enterprise 2.0. It’s time to start thinking about User 2.0 and the attitudinal differences these new users bring to the equation. Now ad-hoc, socially-oriented, enterprise agnostic users will take wisdom of clouds anywhere, they have no loyalty to company.”
Yarmis said there needs to be a cultural shift to make Cloud computing work. ”When PCs first came in, and even when computers first came in, the first thing we did was task automation,” he said. “The whole rise of enterprise software has really been around process automation. But at the end of the day, we’ve omitted the social aspect. We’ve solved the CEOs problem; what we haven’t solved is the individual sales person, who is trying to figure out 'Who do I know who can get me in the door of some company?'. They are the poster child of the social revolution, because their job is inherently social.”
The matter of the challenges facing salespeople is where software as as a service (SaaS) firms like Salesforce.com and NetSuite come in. Parker Harris, executive vice president and co-founder of Salesforce.com, argued that scale is a primary consideration when developing Cloud applications. “When we started we thought about the scale of the internet — if everyone was using the service at the same time, what would that look like?" he explained. "From the very beginning at the software layer we thought what would it take to build this thing? We architected it not thinking about biggest customers, but about the internet."
The pain point
“When we started, Marc [Benioff] had a vision of the customer experience of Salesforce.com being as easy as buying a book on Amazon.com,” added Harris. “As a technologist, you want to build a platform, but you risk losing touch with what you're building it for. So when we started, we said we're going to build a service that's fast, simple and right the first time.
From a technology point of view, Salesforce.com has now evolved into a platform for application development in its own right. “As a technology, we wanted to build a platform first, one that is beautiful from a technology perspective," said Harris. "But you risk losing touch with why you're doing it. Originally it was going to be for sales people and there were various abstract layers; we quickly realised the need to unify them. We continued adding layers in response to our customers; columns, end user interface. At that point we realised it could be a platform. We didn't consciously do that.”
There were issues of trust surrounding the deployment of Salesforce.com, he conceded. “When we started, a lot of people said they didn't want to trust their information to anyone,” he said. “Data, privacy... these were all big things, and people were concerned with trusting their customer records and leads with another company. We made the huge step, and now people trust the information services. We sell to business. We do a lot of work on compliance and security issues to meet the needs of enterprise. For business, we are very appropriate.”
Of course, things haven't gone entirely smoothly. “About two years ago we did go through some serious issues and part of it was due to eBay. We were in a data centre and they could give us more power but no space, or space and no power. eBay was the dominant tenant. So we moved everything to new data centres,” he said. “The scale-up was so complex, and we had the top people in the industry and it was too complex at that point. Changing everything and pushing the scale created a layer of complexity.
"We eventually worked it out and scaled it up. We made two big mistakes: we changed everything all at once, which is a huge risk for any business, and we moved onto large scale systems. We had an Oracle database that was heading into some bugs. You're always going to have bugs, but changing everything at once and also pushing scale in a vertical sense created a complexity that was just too hard. Then we hired the guy from eBay who had been through it before to make sure it never happened again!
"Maybe the next guys won't hit that pain point, but we hit it, Amazon hit it, eBay hit it, Facebook hit it. We're all very different businesses but we all hit it. It's not like there's a blueprint that says 'this is how you build a massively scalable service. You never replace it with version 2, so you are forever changing it. There are best practices that have evolved, and people should follow them if they want to do this."
Suite-based approach
Also representing the new world of SaaS business applications was Zach Nelson, CEO of NetSuite who turned his attention to the mid-market. “The mid-market is the last great software market,” he declared. “The Cloud is important in the mid-market because it finally makes it economical to reach the Fortune 5 Million. It's always been very difficult to sell business applications to millions and millions of customers. The other thing that makes that market economical is Google. In the old days, you had to send out lots of direct mail and advertising to find the customers. Now they find you through Google.
“No mature software market looks like the mid-market. No one company has more then 10% market share in the mid-market. It's harder to reach them with marketing and sales and with product. It's harder to run a mid-sized company than it is to run a billion dollar corporation. You have the same problems but not the same resources to deal with them. How do you build an application that's rich enough to deal with the problems, but easy enough to be used by everyone? That's the challenge for the mid-market."
Nelson added that the intergation issues of traditional applications deployments do not go away just because of the Cloud. “Most people see the Cloud and they think that all applications magically work together because they are delivered from the Cloud. Nothing could be further from the truth,” he said. “Google takes the credit for some of this. You click on a link in NetSuite or Salesforce.com and you zoom in on a map from Google Earth and find the office you're going to visit. People look at that and they think 'that's easy, maybe I can now have orders in one system and invoices in another and they'll all work together.' No they won't. The web is very good for loosely-coupled applications, but businesses run on very tightly-coupled data models. That's very important if you're considering building applications on one of these platforms.”
Nelson highlighted the old way of buying applications whereby a company would buy Siebel to run sales, SAP to run back office, PeopleSoft to run HR and Broadvision to run the web, then paid ten times as much to tie it all together. “Guess what: the sales guys wanted to see what was in the ERP system, they wanted to see what got shipped,” he said. “So they spent millions of dollars and after about six years it worked for a week, until someone changed a field in Siebel and the whole thing fell apart. So the enterprise standardised on one suite, from SAP or Oracle. At the very least, they had one throat to choke, one person to blame.”
“Now you can swap the names – SAP and Oracle for NetSuite and Salesforce.com – but the issue remains the same. Cloud computing doesn't solve data integration issues. Web services make it easier to connect these applications but the problem is the data stored in the data model. Microsoft has Microsoft CRM and Microsoft Great Plains – they own the code and they can't make it work together. How's the customer ever going to do it?”
The answer is to adopt a suite-based approach, but make sure it's the right suite, said Nelson. “The suite that wins isn't the sales force automation suite,” he warned. “It's the ERP suite because that holds the only data that they trust: what they sold, what they bought, how much did they pay for it, was it returned and so on. You don't ask your sales guy what you sold that month, you ask your finance guy. If you're building applications on a platform then you need to look at the data model on that platform. If you need data from an ERP system, then you better build your app on an ERP platform, not a CRM platform.”
World of hurt
Cloud computing will also change the nature of the services industry. “There's a world of hurt coming for traditional services companies based on the economics and delivery model of Cloud computing and the expectations of customers,” predicted Nelson. “Someone is going to be the Accenture of the mid-market, it's just not going to be Accenture or any of the top 100 VARs around today. Just as no traditional software company has been successful at delivering SaaS, I believe no traditional services company will be either. Why is this? Someday the traditional VARs will embrace SaaS but they need to go through a transformation just as software firms have.”
He illustrated his point with the example of a $75k perpetual licence for Great Plains versus a $25k NetSuite subscription. “The Great Plains VAR will get one to three times the licence cost to implement it, so you're looking at $75k to $225k to implement Great Plains. Am I going to get $225k to implement a $25k licence? No way! The customer mind set won't buy that. But I still have costs attached to implementing – like business process re-engineering and training – but that's the economic problem for SaaS firms. We run services as a zero gross margin business, we see it as a vehicle for renewals. That's another challenge for services companies – we're not even trying to make a profit in services.”
Nelson suggested that SaaS will become service as software. “At Oracle in the old days, Ray Lane was always talking about needing template accounts where we could reuse customisations from one account to another. It never happened,” he recalled. “But it's always been the Holy Grail of services companies – instead of doing one-off implementations, take the implementation from that customer and use it for another.
"One-off services will become reusable, re-sellable software. Service as software will mean that instead of sending your little man out to do warranties and servicing to every company you sell to, why not send him out once, then take that as software into another account. Take that warranty management system for one customer and inject it into another. Services companies will start to look more like software firms. This is the future of the services industry.”
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