Managing disruption

I know, its an oxymoron. Key part of that word being moron. The titbits of news that has gotten me to this post is the latest about SAP SaaS (and here) offering A1S. (although they won’t call it SaaS)

The key bit of this news is that SAP think they can launch a mid market play using A1S, service about 100 000 customers, while not cannibalising their existing revenue streams. Cool, looks solid, some leading edge consultants will be nodding their heads sagely saying SAP have indeed found a niche… they’ve missed a critical point tho. Its complete nonsense.

Disruption is just that, a radical break with the current. Incumbents don’t like disruption because its almost certainly an extraneous force impacting on how they do business. Would MS or SAP with their fantastic margins on software licensing deliberately disrupt themselves? Hell no!!!, they’ve been dragged into this kicking and screaming. (as an aside David Berlind does a great job of explaining how these companies keep their revenue streams intact but misses the point).

That is to say that they’re reactive, that things outside their control are impacting them. If they don’t have control, how are they going to manage this disruption? No chance. Its like saying we can control this wildfire. This break with reality isn’t just limited to Software companies, Telco’s are big into this at the moment as well with VoIP, media companies with content. You get the idea

The intricacies of the SAP offering seem to be quite vague. But there are already a couple of things that scream out to me that they haven’t quite got it right.

Firstly, the name A1S. What the hell? The worlds moved on, product codes aren’t marketable anymore.

Secondly according to AccMan “SAP is very coy about A1S which has now been in development for some 3 years”. That just screams uh oh to me. If you can’t build it fast is it what you are good at? Can you meet the fast charging continually in beta competitors? No chance

Thirdly and again from Accman “SAP will have to put considerable resource into a business model with which it isn’t wholly familiar. It has already set aside $3-400 million for this effort.” That’s a tonne of money. Given that they don’t have anything in the market yet wouldn’t that get some alarm bells ringing. Any start-ups out there, what could you do with $400mill?

So lets zoom back up. Those three examples, combined with the ‘we won’t cannibalise’ statements point glaringly to a complete misunderstanding about what it takes to compete in SaaS, to put it bluntly SaaS isn’t in SAP’s DNA.

Global control to the globe

This is brilliant. It is really gratifying to see that someone else not only recognises the US self serving policies, but the blatant ethnocentrism that the country continually expounds.

Not only are the policies suspect, but the USTR report should be seen for what it is – a biased analysis of foreign law supported by a well-orchestrated lobby effort

 
Personally i have  a couple issues with the US approach.  Firstly they attempt to set themselves up as the governing body for such critical elements as patent, copywrite and domain names. (the centralisation is fine with me in practice) but then they act in self interest while holding all the purse strings. It is bullying. At best this behaviour is lacking integrity as it is a conflict of interest (which, while i’m not a lawyer) is not exactly legal is it.

Secondly the ethnocentrism is truly galling.  The US never really seems to have gotten that they are part of the global system, not the centre of it. The extremely narrow mindset that has very little appreciation for other countries rights, laws or mindsets will in the end catch them. This shows up in many different ways. Georges “axis of evil” is one of them, The Special 301 report typically identifies about 50 countries that the US has targeted for legal reform.  The Special 301 another. Here’s another, i remember having some input on Bruce Schneier’s blog. Bruce was upset about George bugging homeland communications, but perfectly fine with bugging international comms, despite the fact that other countries have data protection laws. (I admit to be very disappointed with Bruce’s response)

 
My final beef with the hole process is lobbying. Not knowing the whole detail, it looks to me to be kind of like legalised bribery. Political officials take large sums of money to fund their campaigns or gain votes from large industry based in their states, and in return vote accordingly on bills or committees.

 Sounds a hellava lot like corruption to me. Not a bit like democracy.

I’m with professor Geist, lets call the US out on this stuff and as a global economy start putting together standards and rules that best serve us all.

On-demand isn’t just about the application

On-demand isn’t just about the application, its about the complete stack of componentry required to deliver the solution.

I say this because i see an interesting dichotomy in action in the SaaS (on demand) market. Many vendor seem to get the application themselves into pretty good shape for delivery on demand, and forget about the bits and pieces it runs on.

Here’s a classic example by Intuit.  If they’d embraced their own mantra about subscription based services, taken a grid computing or ondemand infrastructure solution from a platform provider could they easily boost their capacity to match these peaks? Hell yes. Why didn’t they? I can only guess but it would seem that like quite a few of the application vendors i see, they think the value is all in the app. That’s missing the point.

The value of any application or service is in what customers (the end users who pay the bills) can do with it.

That means that the outcome that a customer buys, is not solely based on the application (that just like all of history, every solution is only as good as the weakest point). A good many SaaS providers should think about this more.

So, what is the value of a hosting provider?

Depends on their own go to market play  but it could be any of the following

Robust infrastructure, capacity planning, redundant internet links, pre prod etc

Operational support processes and teams who understand that they need to focus on the system not just the end customer

Reach, apex type platforms can expose a new ISV to a wider customer set that their limited marketing and sales budgets couldn’t achieve

Identity management, yip the ole single sign on and administration chestnut

Billing (if you let them)

API’s or webservices to integrate with other apps on the platform (to solve the limitations of your offering

Customer credibility – SaaS can be daunting enough without providing uptime type assurances.

Economies of scale

 

I think for this reason you will see more and more hosting plays, what interests me the most is ‘the who’ element of hosting plays. You’ve got Google and MS supposedly putting out global coverage of Data Centres (hosting 1.0 in my opinion), you have Telco’s who control the pipes and know scale and data centres (but beggar all about services and service delivery) and then you have the SaaS vendors themselves who understand applications and their interactions.

Interesting future landscape here.

 

The telco week that was

Its been a pretty interesting week for Telecommunications in NZ and the world in general actually. Remarkably there has been some fairly reasonable commentary about Telecom’s proposed separation plan.  Personally i think this is a good move by Telecom, it

a) removes a point of leverage that the government was putting on them

b) it will provide a more realistic and manageable timeframe for actual separation

c) it will remove the burden of investment off them alone (to who i wonder again)

d) it will mean that they MUST absolutely deliver on their ICT strategy and remove the foot in both camps that they suffer from and

e) make it easier on their staff (i think that makes 4 severe re-orgs in 2.5 years!!! Spare a thought for them)

I particularly like the line in Fran’s piece where she says

  "Trouble is the Government may be too wedded to its own offensive strategy to see reason in return.”

I’d actually extend that bit to “the government and Telecom’s competitors” are too wedded to their strategies and in my opinion are going to miss an outstanding opportunity.  

I think that the government will miss the opportunity (despite the efforts of people like Rod Drury), i think they are far more interested in rhetoric and political posturing than actually making things better for that average NZer. The other issue is, if they controlled the network, then they’d be on the hook for our current OECD standings, which will in turn make it abundantly clear that having a decent broadband network is only a small part of a picture. Personal and company tax rates, compliance, electricity and other core infrastructures as well as a student debt scheme that drives grads away in their droves once we’ve educated them all need to be addressed.

I also think that most of Telecom’s competitors will miss the boat as well. Firstly that are so attached to being a victim that they don’t have the DNA to actually be proactive.  They will also have to put up some cash to actually differentiate themselves or even get ready to sell the network assets of the new netco. Finally, with the exception of a few of the ISP community, most of them are focused on the consumer market, (which is actually pretty much already on a trajectory) and miss the greater opportunity of offering services to business.

I think the big mover this year will be the Vodafone Ihug story. Already they are making some moves. But this is a network, access and calling game. To be honest this is Vodafone’s DNA coming through. At the end of the day they are what Telecom was 7 years ago, a network and calling company, full stop, end of story. Their track history in building and deploying value added services isn’t flash. Added to this is their ambition (which i have heard from a source) to have one of their divisions being the number 1 telco (and that can only be NZ) and i think they’ve got it wrong.  Another factor that they should be considering is market saturation in the core business and things aren’t going to be that rosey.

Be and interesting couple of years

The end of MS?

Thanks to Aaron for commenting on the previous post about MS discontinuing XP. It has led to a whole new thought pattern for me about vertical integration and customer choice.

Now the crux of this issue is that MS is the dominant (monopolist) player in the OS and desktop market. And they’ve achieved this through various plays, one of which is practically removing choice in the market by having the OEM companies bundle their OS with their product. That is you hardware arrives with MS in the box or preinstalled.

Now let me describe what i think is a potential perfect storm for MS competition.

 
Firstly, there is choice in the OS and desktop applications market. Linux is small but mainstream, similarly ODF is accepted by some really large government agencies and is growing.

OEM manufacturers are themselves trying to add some value to their customer transactions, this means it would be relatively simple for them to add ‘Linux’ as a option when you buy your hardware. (the monopolistic repercussions aside this would single-handedly be a huge play by whoever did it).*update just found this link about Dell and Linux *

Culturally, there is a growing trend toward collaborative development, freeware and DIY applications. That is, people aren’t recognising the value in vertically integrated software that they used to. What was hard is now commoditising, and by its very nature meaning that its becoming less difficult.

Added to that is SaaS as a delivery model. This in effect means that once you have a working computer (hardware and OS and a browser) and a decent internet connection, you don’t really need to purchase and office suite of apps. You can subscribe to those which you want, and not pay for a vertically integrated, costly and pre-packaged group of apps that you don’t really want (mostly).

 
To this whirlpool of ingredients, you throw in an arrogant self-centred play like the MS vista play and you may have in fact created just enough incentive (or resentment) that users and OEM’s might actually have reached a tipping point and will choose alternate OS’s to meet their generic requirements.

 

As an aside, vertically integrated products and services as a whole seem to have reached their used by date. Or perhaps we are seeing simultaneous trends around this. What i mean by this is you see Telco’s, software companies, service providers of all kind breaking their vertically integrated stacks up because of market demand, regulation and SOA type technical functionalities.

The end of XP

Now this is old school. Microsoft is showing an incredible degree of arrogance here in forcing the adoption of Vista into the market and running and incredible risk.

My guess is that this is the last time that they’ll be able to pull this stunt.

Why? Well given their current development timeframe (7 years for vista) by the time a new release is out, there will be customer choice in the market. That being SaaS delivered applications, accessed by linux powered PCs.

The irony is, if MS was actually a SaaS company, this wouldn’t be an issue.

State Owned Networks

Sorry to keep banging on about Rod Drury, but his last two posts have been in my humble opinion bang on.  

 As i’ve stated before it is naive to expect a publicly listed company to fund a nations core infrastructure. Isn’t that what governments are for? (As an aside, how many of the detractors of Telecom’s broadband services are shareholders? Interesting dichotomy there).

Rod’s argument that robust connectivity to the rest of the world is essential to our survival as a nation is fundamentally correct. Despite the work of people like Rod, Pete Jackson and a lot of others, our economy is still fundamentally primary sector based. That is, the same as just about every other 3rd world country in the world. (if you don’t believe me check out Statistics NZ. Of the top 9 export categories, ALL of them are primary products… nice. ( I mean what other country in the world has adverts in prime time TV to become a dairy farmer!!! Hello!)

 So how to transit further up the food chain, well you start moving into service industries. Ops, well because we are physically isolated from the rest of the world, that means creating things instead of provide traditional services. Creating things that add value to primary products or are unique, like gee i dunno, software?

 Which gets us nicely back to topic, how can we when we are so physically isolated compete? Well we do have a bunch of smart people, entrepreneurship seems to be in the water and luckily enough for us there's this trend call SaaS coming which means we could actually deliver services all around the world from home. Nice, sounds great. All of this is being done, but Rods point is that if we want to explode this, ie exponentially grow our services the links we have and the economic metrixs used by a publicly listed company to decide on whether or not to invest in more fibre aren’t going to cut it. They would actually inhibit this expansion (some would argue they already are).

 Fast links to the rest of the world alone won’t do it in my opinion but it will help. Culturally we need to think global (don’t start a business thinking it’s a NZ entity), we need to think tertiary sector, we might need more than the pittance of innovation funding we currently get. A decent savings culture that would free up funds for VC would also help. But it is a good start.

 I also agree with Rod (and know this better than most) that it would actually do the incumbent providers good to loose the network. It might be the catalyst they need to change as a company. Either that or they will be superseded by someone who could adapt (see the innovators dilemma to see how this works) , either way progress will be made.

Rod’s the man,

This article on stuff,  pointing out Rod Drury’s success with Aftermail and planned success with Xero is fantastic. Kiwi’s are traditionally appalling at recognising our talent and successful people. Well done to the team at Stuff for actually going out there and celebrating this guys success.

 
I’m a big fan of the SaaS delivery model and concept as a whole, and while i’ve not trialled Xero, the concept is incredibly sound, the vision grand. I’ll be watching it closely. After (or perhaps with) CRM, finance applications and payroll are going to be the big winners in SaaS.

 
You can tell by the list of people becoming involved in the project that it’s got legs. I’d personally love be one of them.

 
From us at Unreasonablemen, Congrats

Everything in moderation

Been a fairly lively debate over the Easter break about offline / online debate, the end of software and all sorts of doom predictions for Microsoft.

 
All relevant points of view, all extremist. Isn’t the answer (like just about everything) somewhere in the middle? AKA both offline and online?  I say this for a number of reasons.

 
Software in the cloud applications aren’t there yet. They aren’t all encompassing. Despite the term rich (internet applications), some of them aren’t all that rich.  They are improving, sure. But they aren’t there yet.

 
Ubiquitous connectivity doesn’t exist, doubt it ever will (see my post on companies making money). This in its own right will stop online only plays dead

 
Prior investments in software mean that if this does happen its not going to be quick. I think this is why Salesforce.com APPEX is such a big deal, it’s a fantastic play to remove the “but we’ve spent millions on SAP already” objection.

 
Fit for purpose isn’t always there. It can be more convenient to have the software on your computer. Reasons like lag, authentication (you actually have single sign on to the desktop in case you hadn’t noticed it) and the way desktop  apps tend to play well together (they’ve got a 15 year head start on online apps)

 
Cultural change. Sure development times are compressing, but software as we know it has been around for 40 years, in the cloud 7ish. Its going to take time to change, and is it a good thing to be always connected? The Net gen might be always on, but they are also the most unhealthy bunch of adolescents ever as well.

 
Companies and individuals will build hybrid solutions for themselves (enter the consultants and systems integrators if they have the foresight). Developers will have to look at the learnings from the mobile application development world to learn how to cater for the instances where you need to have offline functionality.

Will this change? I think so, eventually some companies will rid themselves of installed legacy systems (in like 10 or 20 years).  Cultural change will occur, internet connectivity rates, connectivity speeds, compression and delivery will improve over time.

 
By then though, won’t the computer be obsolete? Typing archaic?

Platforms

My punt, platforms are the really exciting part of the SaaS revolution going on. There has been a number of recent articals regarding this and it is to me just another sign of the shift in focus.

Why? My guess is that many would be SaaS application providers have a lot on their plate as it is and have only just realised that SaaS is soooo much more than just a app in the cloud.

I really enjoyed the links off Sinclair Schullers    last post on Saasblogs.  Quite a lot of harmony with some of the challenges we are currently going through, have been through or are deciding to go through.

This i guess is one of the best part of the blogsphere, the coalesence of similar thoughts and collectively crystalising them.   Nice work