Michael Fauscette

Oracle reports Q3 2010 results

Last Thursday Oracle reported its Q3 2010 results and continued its strong performance trend. Generally for Oracle Q3 is somewhat weaker from a seasonality perspective but the Oracle team delivered a strong quarter with results that seem to indicate they are pulling out of the recession faster than many competitors. Showing growth both in new licenses (up 10% y/y excluding Sun) and overall revenue (up 7% excluding Sun) Oracle's field continues its strong execution focus. Overall new license growth was distributed regionally with the Americas growing 22%, Europe 3% and Asia / Pacific at 12%. Database / Middleware new license was up a total of 11% y/y with the Americas growing at 20%, Europe at 2% and Asia / Pacific at 9%. Applications was up 21% y/y with the Americas growing at 26%, Europe at 7% and Asia / Pacific at 29%. This particularly strong showing in Apps seems to indicate both that there was some typical end of year effect from customers as well as an overall strengthening of software spend.

Last year was tough for all the on premise and hybrid software companies. In general Cloud apps companies held up exceptionally well as customers shifted spend to non-capital intensive investments and as Cloud adoption moved mainstream. All of these Cloud apps companies though are working off a much smaller base revenue number than mega-vendors like Oracle. Oracle proved that the hybrid model could perform well in a down economy as well. At IDC we track performance on a calendar basis and just finished updating vendor performance. For Oracle the 2009 calendar year was slightly negative for apps (~ -2%) and slightly positive for database and middleware (~ +2%) to end up overall slightly up in total revenue (total almost $20B) for the year.

So why did and does Oracle's apps business continue to be strong when other apps competitors are struggling? I believe that several factors are responsible:

1. Oracle's broad product portfolio, leveraging something like 61 acquisitions in the last 5 years, allows its salesforce to meet a much broader set of needs for its customers so if a market cools they can simply shift focus to more in demand offerings.
2. The strategy to acquire / build out deeper vertical product offerings has proven to be one of the biggest strengths of its continued performance and gets much of the credit for new license sales over the last year.
3. Oracle's cross sell / up sell strategy is a strong asset as the overall install base grows with every acquisition.
4. Three or so years ago the field organization set out to minimize churn and establish a longer term view of managing customer relationships that is paying off with stronger same account sales.
5. Oracle's more channel friendly stance over the last three years is producing strong partners who are growing their business.
6. The On Demand business is getting much more attention and is growing in importance in the overall strategy.

This year should continue to be strong for Oracle's apps business especially as the new Fusion applications roll out mid-year. In the earnings call Oracle CEO Larry Ellison validated that the Fusion apps (which were built with multi-tenancy capabilities) will be available in both on premise and on demand offerings from launch. I've previously talked about the strength of the offering and with both delivery models available I believe Fusion apps have the potential for good upside to its apps business over the next few years.

It's really about trust

    The foundation for any relationship is trust. Last week I had a very interesting meeting and discussion with some execs from enterprise video management platform (VMP) vendor Qumu. As we talked about what I believe is a very exciting market opportunity for the VMP vendors like Qumu, Kaltura, VBrick, Cisco and others I shared what I believe is the real driver behind the increasing interest in video by the enterprise...trust. Trust in the online world is complicated and fragile, yet essential to the social web. As social beings we inherently rely on visual clues to help build trust and friendship. In the online world, while its fairly easy to gather loads of information about a person often the only visual is a tiny avatar on some social network...or maybe a series of pics at best. Add video though and the experience changes. That richer experience helps build the relationship faster and stronger.

This whole conversation got me thinking about trust from a business perspective. Transparency in business is also about trust. Building trust as a business is a key component to engaging customers more effectively. If social CRM is about engagement and conversation then building and maintaining trust with your customers is critical. That may seem obvious but somehow I think maybe its not. Often in the past business has been about doing whatever it takes to drive revenue. Driving short term gain can have severe long term effects. Look at some recent examples of the lack of transparency in business. The most obvious recent case is the Toyota recall debacle. By issuing inaccurate information and failing to take appropriate action the company has severely tarnished its brand which was built around high quality. Autos are complicated machines and in even the most strict quality environment a mistake is possible. If Toyota had taken swift and proper action, been transparent in the market with what it knew and was doing, it could have averted most of the damage.

Another example happened this past weekend with multinational Nestle. Nestle has a Facebook fan page as a part of its social marketing efforts. Having a public forum is a great way to connect with your customers and prospects of course, but it is public. Nestle has long been criticized for using palm oil in its products, a product that is linked to all sorts of ills from deforestation to animal endangerment. Greenpeace posted a video to YouTube that attacked Nestle for threatening the livelihood of Orangutans which Nestle has tried to have removed. As a part of the campaign Greenpeace encouraged its supporters to post comments on the Nestle Facebook fan page and change their avatars to anti-Nestle pics. Nestle reps responded by posting: "To repeat: we welcome your comments, but please don't post using an altered version of any of our logos as your profile pic--they will be deleted.", and well intended reps started aggressively responding to posts and removing comments that had altered logos in them. Well, you can imagine how this story goes from here, the conversations on the page rapidly deteriorated. There were Nestle fans there as well, but they were drowned out by the escalating protesters. In the end a Nestle PR rep apologized but the damage was done. Now I won't get into the ethical issue around the use of palm oil, that's not what this post is focused on. Instead think about trust and transparency again. Nestle was put into a tough spot but its reps could have handled the conversation in a much different fashion. At least I'd say if you are planning on maintaining a public forum and you have some business practices that could be shown in a poor light you had better think through how you can handle a public assault and still maintain a positive conversation with your audience. Social marketing is a powerful concept. listening to your customers sounds great, but remember that when you ask someone to talk to you, they have control of what they say, not you. Here's a good post on PR crisis management in our new social web age that you might find interesting.

Ethics, trust, and transparency work hand in hand on the social web. Consumer behavior has changed dramatically because of the Internet. There's so much information available at the touch of a button. You can read reviews, ask your network for advice, and check out brand reputations, all online. And of course you can join the conversation about a brand as well. Frankly brands don't really have a choice about all of this. You cannot control the conversation, you can only participate (or try to ignore it, which doesn't seem like much of a plan to me). Trust online is hard to earn and easy to lose; don't risk your brand by being less than transparent. Somehow it always seems to come out in the end, there are just to many sources of information and you do not control most of them.

A fresh take on SAP's strategy under the new Co-CEO's

I attended a roundtable Monday with SAP's new co-CEO's, Bill McDermott and Jim Hagemann Snabe to get an update on their business strategy. SAP has had a few rough years and was hit especially hard by last years recession. They have taken quite a bit of criticism over their slow to execute cloud strategy and their attempts to push customers to a higher tier maintenance offering by eliminating lower price options (and subsequently re-instituting the basic tier). I won't rehash those issues here though, instead let's look at what we discussed at the meeting this week.

Moving forward SAP's product strategy is based on three pillars:

1. On demand - Both executives basically reiterated the on demand strategy that was outlined at the SAP analyst summit in December (see this post). The most obvious shift though, is the level of prominence the message gets from the executives and that customers will probably buy / deploy in hybrid models. According to Snabe the next release of Business by Design (ByD), version 2.5, which is supposed to be the "ready for general consumption" multi-tenant release, will be available in July. Snabe also stated clearly, for the first time that I know of, the reason SAP struggled with ByD was the shift to the agile development methodology from its traditional waterfall methodology. He also states that now that the shift and methodology are working and the company plans to switch all development teams to agile. In true SAP bold marketing form both execs claimed that SAP will become the leader in on demand apps and that ByD is the most complete and feature rich ERP on the market (when v2.5 is released, that is).

2. Mobile - In an acknowledgment that mobile is gaining prominence in the enterprise as an acceptable desk top replacement both executives indicated that SAP is working on an "any device" strategy for all of its apps. This fits well with what we at IDC have predicted about the accelerated shift to utilizing mobile devices to interact with enterprise systems beyond just email. While light on information at this event I'd expect much more detail around this pillar at the upcoming Sapphire conference.

3. Orchestration - Snabe talked a little at a high level about SAP's renewed focus on Master Data Management (MDM), overall lifecycle management, and delivering the lowest TCO for customers across hybrid deployments. This is certainly a key topic for companies deployed in hybrid models both across different vendors and different delivery models, something that is definitely increasing.

and three delivery models:

1. On premise

2. On demand

3. On device

The word of the day was "innovation", a term that both executives used repeatedly and in several different situations. Snabe defined innovation as the level of creativity multiplied by your companies scale in the market and McDermott stated that "innovation isn't just how you build a product, it's every bit as much about people".

Continuing with the innovation theme when asked about SAP's acquisition strategy going forward, they pointed to the Business Objects acquisition and stated that acquisition would be used as a strategy to "increase the speed of innovation" not to just buy growth.

In the hybrid business model that SAP is moving into, go to market strategy will be extremely important and the clarity of approach will need to be messaged carefully both internally and to partners. When asked how SAP will sell on prem and on demand products the answer was that it would be based on customer choice. McDermott indicated that SAP will sell on demand direct, on the web and through its channel. The ecosystem will undoubtedly want more detail around that answer.

A few other observations: SAP is still very focused on one competitor. As an executive team they are trying to "dramatically simplify things so everyone knows what to do". The one thing that is clear when you talk to SAP employees is that attitudes are much improved and the workforce seems much more motivated now. The focus of this meeting was more on high level strategy and not on technology but they did of course briefly mention the perceived advantage that their in memory processing developments will have in the marketplace.

The real question is can SAP execute on these plans and will it be enough to change their current trajectory? Expect much more detail around this strategy in a couple of months at SAP Sapphire.

Social Business Prezi

Several people have asked me for the Prezi I used during my Directions presentation last week. The Powerpoint slides are available for download on the IDC Directions site (if you attended the conference). Here is the Prezi that goes along with the slides:

The Road to Social Business Enlightenment on Prezi

Applying social to business

Sometimes words and the baggage those words naturally carry can really get in the way of explaining new ideas. Maybe it's just me, but I think that issue is one of the biggest barriers to the current discussion of social business. I've consistently tried to drive home the concept that social business is about transforming business culture and not about new technology. Unfortunately when I try to drill into the structure of this new culture I've fallen back to my software roots and used enterprise terms that lead people down the wrong path. I realized that clearly this week during my social business track at IDC Directions. We have to come up with a better way to analyze social business and explain it in ways that help people understand where we're going, not where we've been. So to that end, I'm going to move away, at least for now, from software terms like CRM, PLM, ERP, etc. and start to think about a different framework.

Social business touches all areas of a business. Underlying technology will of course be needed to enable the connections and scaleability but the focus is on business functions. New business approaches that incorporate social concepts can impact customers, employees, partners and suppliers. The framework then, is built around these business areas: 1. customer engagement, 2. employee empowerment, 3. partner enablement and 4. supplier engagement. This Prezi fleshes out this framework a little more:

Social business is not "just" about communicating better!

I heard this statement recently from an analyst, "social media for business is really just about communicating better". Huh? Traditional collaboration was about communicating better and you see where that took us...email inboxes overflowing and almost useless, team workspaces that support silo'ed work, IM sucking productivity as bad a phone calls (why does a ringing phone appear to be urgent even when you don't know who it is?)... No sir, social media for business is NOT just about communicating better. Of course part of the problem is trying to use the social media term for what is a much bigger "thing", the social web and all the constructs it has created. I use the term social business to cover the holistic look at social for business, which to me seems like a much better fit. Now if the claim was that social in business is about connecting with people or engaging people more effectively, maybe I'd buy that but not just communicating.

Applying social concepts to business has wide applicability and could touch almost every area in an enterprise. When I think of social business and how we're using the concepts (or could use) in business I see the following:

• Social CRM: the application of social concepts to engage customers more effectively in sales, marketing and customer service. (I could break each area out more, social sales, social marketing, social PR, social customer service, but you get the point).
• Social product design / development: using social concepts to design products that are based on customer needs, wants and desires (ideasourcing) and vetted through the collective knowledge and expertise of a companies' employee resources in a closed loop system that runs from customer input to customer feedback.
• Social employee enablement: enabling a cultural shift in the overall employee community by applying social concepts to employee policies, processes and tools. This could include: a) socialytic apps, b) enhanced user experience for enterprise apps, c) user generated content for employee, customer, and partner training, d) enterprise "YouTube", e) internal microblogging, f) employee network, g) ad hoc process enablement, h) open access to, search to find and tools to update, rate and contribute to enterprise content (with tagging, folksnomy, etc), i) social human resources (at some point I'll expand on this, but at a minimum self-managed profiles but could go as far as socially managed compensation)...
• Social partner management: I suppose we'd call this social PRM, applying social concepts to partner programs and changing the way we interact with the partner ecosystem. This could start with partner communities but could extend to self-managed programs, open content development, etc.
• Social supply chain: Supplier networks, as a concept are not new but through the application of social concepts we could extend that and create supplier communities as well as tie the supplier into the social product design / development process.

I've purposefully tried to stay away from vendors and specific tools as much as possible. Focus needs to be on the business transformation not on the technology. What do you think, are there other areas in business where social concepts can be effectively applied?

  

Impossibilities

Yesterday I joined a large portion of the movie going population and took my daughters to see the new Tim Burton "Alice in Wonderland" movie just released (and helped it set several opening weekend records) in 3D. It is really excellent, great cast, excellent acting, cinematography and effects but that's not why I'm talking about it. You most certainly don't look to me for movie reviews and recommendations and with my "odd" tastes in movies that's probably advisable, even though I'd be happy to share them if you want. The reason I bring it up is this, there is a quote from Alice's father, "I imagine 6 impossible things everyday before breakfast", that has me thinking. In fact I haven't been able to shake the line since I first heard it yesterday.

I've believed for some time that the real underlying factor for developing a social business is a major culture change for a company. At the same time this key factor is the largest barrier to accomplishing this transformation. Last week there were some good conversations around the topic of cultural change and the difficulty that change engenders. Check out this post from SugarCRM's Mitch Lieberman to get the gist of the discussions. Change is hard, there's no argument there and frankly, changing company culture is probably one of the hardest evolutions a business faces. This is amplified when we understand that most of the change is starting from the bottom up, not the top down in this instance (not that top down culture change is easy of course). What I mean is that bottom up culture change accompanied by top down resistance or even blockage is, well, almost impossible, right?

If you read my post on moving beyond the industrial societal models of the past you know I think the move to social business is very very disruptive, transformative and unavoidable. The issue is how painful will the transformation be and how long will it take. When you disrupt accepted social norms, or accepted business norms, resistance will come, especially from those most threatened. I think this is one of the reasons we're still mostly talking about the consumer social web or maybe of the most obvious business changes. The business case around transforming your relationship with your customer, for example, is difficult to resist, even for the most threatened managers. The internal business transformation though is finding stronger opposition. I submit though, that the external transformation can only go so far without the internal culture to support it. To me saying "we're engaging our customers" when we don't engage our employees, partners or suppliers in the same manner is ludicrous.

Don't get me wrong, I'm not saying we can only transform a business holistically. Traditional change management teaches us to move slowly and build on success and I believe this is essential here. We have to build credibility and support at every level and with every stakeholder. I get very excited when I think of the possibilities and the power of the social concepts we're starting to apply to business. Engagement, shared control, transparency, trust, shared problem solving, opened silo's; all of these things will change the face of business. So I don't know about you, but I'm going to go on imagining 6 impossible things everyday before breakfast.

Redefining the enterprise user experience

I wrote recently about the growing phenomenon of employees circumventing corporate policy and tools to solve business problems using their on tools, both hardware and software and even process. This "BYO" culture, I believe, is partially fueled with the increasing desire to mimic the web 2.0 user experience that we're growing accustomed to in our "personal" online lives. It's also fueled by a change to a culture of individual empowerment that has accompanied adoption of the social web. I also want to emphasize that I don't think this change is generational, but is in fact cross-generational, what I like to call Gen"S" (that's Gen social in case that wasn't obvious). Most of the recent survey data supports that concept, that social adoption is crossing all generational boundaries and creating a group that has some similarities beyond generation. One of those similarities seems to be an aversion to "traditional" enterprise software and its somewhat dated user interfaces (UI). The traditional UI tends to be complex, often difficult to navigate, hard to learn, a challenge to remember procedures for processes that are not done routinely like exception processing and unsupportive of ad hoc processes and collaboration. Portals don't help that experience, by the way...opening a window to multiple systems in one place still uses the original UI in the end, even if you can arrange the widgets on the portal however you choose. The traditional enterprise UI is in stark contrast to the UI of familiar web 2.0 tools that we are growing accustom to using on a frequent basis.

There's another underlying issue around the current user experience that, although it may seem disconnected, is not. The last couple of years has seen some shift in enterprise IT behavior that I think may be a new pattern. Budgetary constraints have forced companies to focus IT spending on the highest return SW which often has led them to put a hold on changes to the core ERP systems. Enterprise companies continued to invest in SW but that investment was often in deep vertical applications that offer the highest competitive advantage. The concept of maintaining core ERP systems basically without upgrade for a longer period of time is of course counter to the behavior that vendors preach but I wonder if this behavior might not be a part of the "new normal"...maintain the core ERP, spend and expand on high value items like vertical apps, social collaboration tools, social CRM and social platforms. I'm talking specifically about enterprise by the way, this does not apply to the SMB market in the same way. SMB buying behavior is different and I believe they are actually in the opposite part of the ERP cycle, currently investing in full systems to replace disparate and incomplete systems, especially cloud-based ERP (although I do think SMB's will also invest in social solutions over the next few years). My point with this is that in a time when employees / users are looking for a different user experience companies (at least enterprises) are not changing core systems at near the pace they did before 2008 so even if there was a new UI and experience available from ERP vendors (which there isn't), the chances of it getting implemented are very low if it is a part of the core system.

What do employees want from their enterprise SW user experience? Here are a few of the things that come to mind in no particular order:

• A way to connect with, work with and share with other employees
• A better way to find out who does what inside the enterprise
• A UI for enterprise SW systems that looks and works more like facebook, Google Wave, or some other simplified but powerful web 2.0 tools. The UI should be able to aggregate information from and interact with people (employees, customers, partners, suppliers, etc.), enterprise SW systems and public social channels in a user configurable and selectable way.
• A way to contribute content easily to various projects and systems ranging from employee training to product manuals.
• A simple way to form group mashups or ad hoc workgroups.
• Presence in a simple, manageable method
• Content sharing not content management
• A simple way to execute project tasks and understand work interdependencies while reporting status to a configurable group of interested and involved individuals
• A system / method to integrate and utilize various communication channels ranging from (and as diverse as) telephone to Twitter
• A simple way to find "things" in the enterprise, people, content, data, information...search
• A way to aggregate and use social data (socialytics) and combine that data with other enterprise data to form analysis in a social context.

I'm sure there are a bunch of other things to add so feel free to do so in the comments please. So what's the real challenge then? To do both "fix" or better yet build a new enterprise user experience AND maintain the core systems in a somewhat static state. It strikes me that there are a couple of ways to approach this. One would be to sort of decouple the UI from the systems through some sort of mashup platform that could be used to build and deploy a new UI across the enterprise (I suppose that also includes the capability for UI level integrations). There are a few of these types of mashup platforms emerging but I haven't seen anything so far that is complete enough to do what I am suggesting. Another approach is to provide an application that sits on top of the enterprise (or maybe that's in between the enterprise systems, people and the outside world) that provides features and functions that provide the new and desired user experience. I have seen two applications that I think are version 1's of this concept, salesforce Chatter and Novell Pulse (it also seems like IBM's Lotus Connections is moving in this direction but I'm not as familiar with it as the other two). And of course in new enterprise systems we have to take these new requirements and needs to heart and significantly change our current user experience going forward.