Michael Fauscette

Moving to the Cloud: Transitioning Software Companies to New Business Models

It seems that everywhere you turn today you hear about software in the cloud. Considering all of the marketing you might begin to think that the cloud business model, or software as a service (SaaS) was the only way left to purchase software. Of course that's not the reality of the software world though. Certainly most, if not all new software companies that have launched over the last few years are leveraging the public cloud and the SaaS subscription based business model. But that's only a small fraction of all of the software that is available today. Even considering the high profile SaaS only companies like Salesforce.com and Netsuite, SaaS still only makes up less than 10% of the total dollars spend this year for enterprise software. (I should make a note here that comparing SaaS revenue to on premise revenue isn't the best metric to use for comparison, seats would be better but unfortunately seat data for most enterprise software vendors is very difficult to get. The difference in the payment models, subscription usually over an agreed term of a few years versus perpetual license that is mostly up front loaded with annual maintenance of 18-24%, means that a $1 of SaaS isn't = to a $1 of on premise.)

If the bulk of the existing software companies sell mostly in an on premise / perpetual license model, but more and more companies want to buy in the cloud, then there is a compelling reason for these companies to transition to the newer model. All of our survey data on software purchasing points to a growing trend for companies to desire SaaS and the subscription model. It's still early in the transition of course, and with so much on premise software already deployed, the period of transition will be very long. Still, if you're a vendor that doesn't have any SaaS offerings, there's a lot of evidence that you need to be figuring out how to move to the cloud to stay competitive.

Taking an on premise application and offering it in the cloud is not as simple as just setting up data centers and selling the product in a subscription model. There are architectural, performance and scalability issues that have to be addressed and general wisdom indicates that this process can take up to a few years. There is also a very real concern for publicly traded companies of disrupting revenue growth during the transition, something that must be handled very carefully. So what are leading software vendors doing to address this need to offer more applications in the cloud?

There are two basic plans that a vendor could use to make the transition, 1. go cold turkey, shifting everything to the new model at one time or 2. building a hybrid business where products are cloud enabled and offered in both models for some period of time. While #1 has been done, IMHO it's not a wise choice for most vendors, with option #2 offering a much more "gentle" transition path.

Let's look at two examples of companies that are in the midst of a transition, tech behemoth Oracle and a mid-size software vendor, Deltek. Oracle is attacking the cloud in two distinct ways. First it is aggressively pursuing an "arms dealer" model where it sells necessary infrastructure software and hardware to other cloud vendors. For Oracle this is a natural extension of its database business, middleware business, hardware business including Exadata and Exalogic, and even its existing applications business. Secondly Oracle is building a SaaS application business out of some of the existing apps like CRM on Demand and also its new Fusion Applications offering. Fusion Applications were architected to be deployed in both single and multi-tenant SaaS as well as on premise. The applications were in beta last year and this year in a controlled general release. Initial customers are choosing both on premise / perpetual models and SaaS subscription models. For Oracle this transition will take a very long time, with customer choice driving its offerings and a substantial amount of revenue coming from the arms dealer model. For the foreseeable future Oracle will continue to operate in this hybrid model.

Deltek is taking a similar approach for the transition. Last year Deltek started adding talent to its staff in cloud including an experienced VP to oversee the strategy and execute the plan. Through acquisition it has already added several cloud offerings including GovWin, INPUT/Fed Sources and a new complete end to end government contracting business solution called Deltek First. On the professional services side of the business, Deltek is aggressively building a cloud based product and I'd expect to see something in the market by next year. Deltek will also have a long transition path with much of its business in a hybrid model for many years. This slower transition allows the product teams the cushion they need to get the products "right" and helps smooth the revenue transition while meeting new competitive challenges.

Across the board we're seeing traditional on premise vendors move their business to a hybrid business model with both on premise and cloud offerings. This includes Oracle and Deltek, and also companies as diverse as SAP and Infor. For cloud pure plays it makes sense to only offer cloud based solutions, but for companies with substantial revenue from on premise products, this hybrid model is a good middle ground, and offers prospects and customers flexibility and choice. Hybrid also extends into the enterprise IT stack, where many companies are operating with some of their software in their own data center in a perpetual license model, and some of their solutions in the cloud. For both the vendors in transition and the businesses in transition, this model is likely to continue for many, many years.

Tags: SaaS, cloud, software, business models, subscription

Looking Ahead: Today's Disruptions, Tomorrow's Enterprise

Today if you ask me what the most disruptive and impactful technology "pillars" are I'd answer much like you'd expect; cloud, mobile, social and big data. In fact I was on a panel at the CRM Evolution conference a couple of weeks ago discussing exactly this topic. If I dug a little deeper, which I did almost a year ago in this post, I could add in several other disrupters. All of these things are valid disruptions and are causing changes in businesses every day. We're consuming applications differently, learning to deal with customers, partners and employees differently, opening up enterprise resources to mobile access and finding creative ways to use the massive amounts of data we are creating every second of every day. If you read this blog often, you know I talk about these things regularly.

I started thinking last weekend though, that maybe I'm not stepping back far enough...or perhaps I should say, I'm not looking far enough ahead, to see how these disrupters will actually change our lives and businesses. So that's what I'm going to do, spend a few minutes thinking about some of the possible outcomes and downstream business changes that could result from our current environment of change. As a framework let's look at the impacts across four dimensions, people, culture, organization and technology.

Technology

Automation: Automating manual / production processes has been an ongoing effort for many years. In the information oriented side of business though, often people are the key to making the process work. As business intelligence / analytics software and automation software both evolve the ability to automate what in the past was exception processing done by people is rapidly increasing. At first this automation was aimed at mundane and repetitive tasks but increasingly that bar is moving up. Big data and the ability to use big data to support decision making is increasing the pace of change. Social data and the increasing capabilities of socialytic systems to provide behavioral modeling to the automation process broadens the types of tasks that can be automated. The more we can automate tasks and raise the level of those automated tasks, the more we can free up people to focus on higher value activities. 

Computational power / AI: Computational power is increasing at a massive pace and continues to accelerate. The ability to interconnect and utilize this power in grids is also advancing at an incredible pace. Recent experiments have even shown that it's possible to create ad hoc wireless grids out of the computing power in growing numbers of pockets...the smartphone. Couple that with the explosion of connected devices, or the Internet of things and we are increasingly becoming a large, connected programmable system. The recent demonstrations of IBM's Watson starts to show what artificial intelligence and natural language processing can accomplish and offer glimpses into the next evolution of the computer as an interactive tool.

Hyper-connectivity (Internet of things, people-centric networks, mobility): The world is becoming an interconnected network as the Internet expands outside of the web and into smart "things". Connectivity or as I've often referred to it, hyper-connectivity, driven by an increasingly mobile society that is always on, has far reaching business consequences. In a real time, always connected world, personal and professional blend or merge and the very definitions of workplace changes. The addition of the social web is creating a people-centric, interconnected network that is supported by real time access to data, content, and computational tools that change decision making and interactions. Business itself is moving to a business model where connectivity leads to a broad business network of partners behaving as an ecosystem. This ecosystem is the business of the future.

New Media: Media is one of the most obvious areas of disruption created by the social web and particularly the new tools for generating content like blogs, microblogs and social networks. From creation through distribution and to consumption, media has experienced a radical shift. Our ability to get information in real time as it happens is evidenced by every new news event. this week both the fall of Kadafi and the East Coast earthquake broke first on social channels. In fact, yesterday while the traditional news media was fixed on the aftermath of the Kadafi story, Twitter once again became the reporting medium for the earthquake. Media literacy in this new environment is critical and the channels and methods are constantly evolving. The new workforce will be required to understand and use these new communication channels.

Content Centric Networks: I wrote about this new networking development recently here. Since this is a recent post I won't recap it for you but I will say that as the nature of the network changes we move closer to the organic business network. Our old network paradigms don't support the new ways we need to work and the real time immediate access to content that will be required to support that work. CCN is one interesting development that might address this.

Organizations

Organic Business Networks: Another topic I've written about recently, is a critical part of the socialization of business. In fact, I think that social business is the "what" and organic business network is the "how" in the equation. Extending the connectivity and the business model outside of established boundaries has broad impacts on organization, roles, and even value creation. 

Value creation: Business model innovation is as compelling a business differentiator as product innovation. The Internet has created the opportunity to create value in a  business in some very unique ways. In traditional business value creation was generally straight forward, a product or service was delivered to a customer and the customer paid for the item or service. In the Internet age this is not always the case, indirect value creation is common with ad supported business models as the leading example. Google, a $30+B business, generates almost none of its revenue in a direct value creation model. Freemium, a business model that mixes ad supported products with subscription models, or indirect and direct value creation in one business is also gaining a lot of traction. In the future businesses will be able to move value creation around in the business model to optimize revenue and increase their competitive standing.

Structure: Organizational structure is under a lot of pressure as social starts to change the culture of many businesses. In a knowledge sharing business environment where everyone is capable of contributing the nature of leadership and management changes. I wrote about this here. Information businesses feed and grow on information sharing and the old top down models are not consistent with the new ways of doing business. Flat structures where everyone is connected and contributing are more productive and leverage the new technologies of collaboration. Even the nature of employee definitions can and are changing with an increase in contract or job sharing situations.

Culture

People-centric enterprise: People-centric enterprises are the backbone of the new social business. Collaboration is really about facilitating the connections between people, not about sharing or managing files. The network become a connected workforce that includes customers, partners and suppliers in an ever evolving relationship. Co-creation of value depends on this people centricity.

Work: Thing you do, not the place you go: The very nature of work is changing and the concept of separate private and professional lives seems to be disappearing. With the hyper-connected, always on, real time nature of work its difficult to distinguish between the two. Mobile tools enable work anywhere, anytime.

People

Increasing life expectancy: While this may not seem like a work topic is most certainly will change many things about business. People will have to develop life long learning practices and change old expectations of careers and retirement. As the life expectancy increases so does the length of careers, which has impacts on both the individual and also on peers. New types of advancement and rewards will be needed as experienced workers persist in positions much longer. Businesses will have much greater opportunity to leverage experience but will also need new ways of utilizing and leveraging it along with ways of balancing new innovation with the value of that experience.

The brand of me: The social web, social media and the ability of individuals to have a public voice is changing the meaning of personal brand. The ability of an individual to build a public brand has changed with the emergence of new communication and media channels. In the new business environment the business brand must find balance with the personal brands of its employees. The business becomes the umbrella brand and each individual chooses to associate the power of their own brand with that overarching corporate brand. The respective networks merge for the period of time of the association, and each gains from the relationship as long as it lasts. Individuals own their own networks but the merged network grows for both the corporate and individual brand. This is a very different concept of the interaction of personal and corporate brand and has many implications for both businesses and individuals.

I'm sure there are many other changes ahead of course, but this is at least a start. The next several years will be years of deep change for businesses and individuals, but there are a lot of interesting opportunities created in the changes. What did I miss?

Tags: change, future, social business, business, social web, Internet, hyper-connectivity, cloud, mobile, data

Using Consumer Social Tools for Business: Facebook v. LinkedIn

Twice a year my group at IDC does a social business survey to look at adoption and use of social software in the enterprise. For this summer's round we decided to take two "branches" in the questions, business use of enterprise social tools and enterprise use of consumer social tools. The first document from the survey was recently published (subscription / purchase required) on idc.com, and focuses on the enterprise social tools branch. I'm working on a document that covers the data on the consumer social side, but given some recent online discussions around this very topic I decided to preview some of the data here specifically related to LinkedIn and Facebook.

LinkedIn has always billed itself as a business / professionally focused social network, as opposed to Facebook's broader quest to be the social network for everyone. Recently LinkedIn's CEO stated that he was seriously considering moving beyond professional social networking and making a play for enterprise social networking. The site would, in theory incorporate some type of internal collaboration tools similar to Yammer or Salesforce.com Chatter into it's already robust business network. by adding an activity stream / microblogging capability LinkedIn would try to compete in both the external communications social category and in the internal social collaboration category, sometimes referred to as enterprise 2.0. One possible advantage that LinkedIn bring to the table is it's already robust profiles for many business professionals, an area that is still up for grabs in the employee network space. That said, let's take a look at the data we collected before commenting more on this idea.

The survey had a sample size of 400 managers and above and was distributed across all industry verticals and company sizes. The first figure shows which consumer sites that the respondents are using for business:

As you can see, over 75% of the respondents reported using Facebook, making it by far the most prevalent consumer social site used for business purposes. That's not really a surprise as marketing led the charge in social for business and Facebook is widely used for social marketing through business oriented Fan Pages. What is interesting is finding LinkedIn in the number 2 spot, just ahead of Google. Now I should point out that this survey is referring to Google search ads NOT Google+, which was not out at the time of the survey. Since Facebook is number 1, let's look at the detailed data next:

Not really a surprise and certainly supports the idea that Facebook is an active social marketing tool. What is a bit surprising though is how high "To communicate with business colleagues" rated, which would seem to indicate that Facebook is gaining as a "dual" purpose social network, mixing both personal and private. Perhaps the recent improvements to Facebook messaging has added to this use case. It is good to see that more companies are reaching out to customers on Facebook for both customer service issues and for product research. Even recruiting on Facebook is seeing some upswing, although still fairly low overall.

Now compare this to LinkedIn's data:

The LinkedIn data is perhaps more surprising than the Facebook data IMO. Recruiting is fairly high, which does hold out that LinkedIn is the most popular social site for that function, but it was a little lower than I might have guessed. Communicating with business colleagues came out number 1 with 60% and exceeded Facebook's % by almost 20%. This would lead you to believe that LinkedIn is already a popular tool for business communication, presumably external of course, which does provide some view to the possible success of moving more into internal collaboration. The number 2 choice, "To promote my company, product and/or brand" is a little bit surprising since the marketing use of LinkedIn is more limited but I think it points to the high use of LinkedIn by sales as a networking and prospecting tool.

The battle for the internal / employee social network is still fairly new and there are no clear winners as yet. LinkedIn has the weight of its professional social network and if it could get the right functionality in place it's conceivable that it could make a run at this market. The competition isn't light though and it's not a war that will be won easily. What do you think, could LinkedIn make a run at enterprise social networks...and what about Facebook?

Tags: Facebook, LinkedIn, social, collaboration, enterprise social networks, survey

Google Announces the Intent to Acquire Motorola Mobility

Falling squarely in the Monday morning wow, that's a surprise, category, Google announced that it intends to acquire Motorola Mobility for $12.5B in cash. The obvious move to compete head to head with Apple, also helps Google offset the recent acquisition of the Nortel patents by a consortium that included Microsoft, RIM and Apple, but excluded and significantly outbid Google. Motorola, which uses Android for both its' smartphones and tablet devices seems like a natural fit for Google from a technology perspective. Cultural fit is an open question of course, but that one will have to stay open until the deal is approved and the companies integrated.

A big part of Apple's success in computers, smartphones and tablets is its control of both the hardware and software, thus engineering the devices together for more complete integration. This completeness translates to a much better user experience in my opinion, and has hindered other mobile OS vendors, particularly Microsoft, but also Google to some extent. The diversity of device manufacturers that have produced Android devices has on one hand led to a broad selection of devices that add to consumer choice, but one could argue also led to variability of experience. Many of the handset manufacturers created their own UI on top of Android, for example, which makes the experience across devices inconsistent. While this acquisition won't eliminate this issue, Google has stated that it plans to keep Android open and available on a variety of manufacturers devices, it presumably will produce a line of smartphones and tablets engineered with Android, much like Apple does with its devices. Will the experience be better and would these devices be more popular, that remains to be seen.

In the smartphone market, Apple, while not the unit leader, is by far the profit leader worldwide, garnering over 66% of profit among the top 8 manufacturers. This move by Google could put the combined company in a much better position to compete with Apple in the profitability race.

The big question is how will this acquisition impact Google's other handset manufacturer partners? The press release tries to quell fears that this will disrupt these other vendors, but you have to wonder what the reaction will be from the likes of Samsung, HTC, LG and Sony Ericsson. Samsung and HTC in particular have a lot invested in Android devices and have been very successful with the OS. Perhaps this drives some of them closer to Microsoft, which needs more handsets on the market quickly to try and turn around its market share in the smartphone market. One might even speculate that Microsoft could feel compelled to buy a mobile hardware manufacturer itself. Lot's of open questions of course and only time will provide more answers. Up next, clearing regulatory hurdles and getting the acquisition closed. Oh and apparently Motorola will continue to operate as a separate company post acquisition.

Tags: motorola mobility, mobile, google, android, apple, patents

Free Speech and the Internet

I'm a tech analyst and blogger, not a political commentator, so I usually keep my own political beliefs and agenda to myself. The events of the last week though, have really set me on edge with respect to the Internet and free speech. I've watched for a great many years as free speech has been slowly attacked and eroded and as governments increasingly encroached on the open Internet as they struggle with the social web and the new voice that it has amplified. 9/11, a horrible time in this country's history, has unfortunately been used to justify a slow and continuous progression of measures that, in and of themselves, seem fairly benign, but, taken in total, have already given far too many powers to enforcement agencies without requisite oversight and controls. It's a funny thing about change; large, massive changes are obvious and people can and do choose sides and fight for what they believe. But small, slow, incremental changes often go unnoticed until they have gone so far that it's too late to object.

The social web has had and is having a dramatic impact on people everywhere. Web 2.0 tools have changed the way we communicate and the way we create and disseminate news and information. Traditional media channels are being disintermediated by these new tools and channels and the citizen journalist brings us closer to the scene of events than we've ever been able to go. We've seen these powerful tools used in creative new ways to help dissidents more effectively fight against oppression and let the world know what governments want to hide. These coverage of these events and the use of the social web to counteract oppression was applauded by democratic societies everywhere. When autocratic regimes have tried to shut down the free use of the Internet to control dissidents they have garnered the worlds loud criticism from both private citizens and from governments. You could feel the outrage online and it felt great!

This past week though, a couple of events happened that for me, really show that the threat to free speech and the open Internet does not just come from these oppressive autocratic regimes, but also our own democratic governments. As I said, we've already seen many small, incremental erosions of freedom online over the last 10+ years under the guise of the fight against terrorism. Not to minimize the threat, certainly terrorism and it's threat to free society is real and presents a great danger to us, but, does that threat justify relinquishing free speech and the open Internet; for me, no.

The first event grew out of the horrible riots in the UK that have raged all through last week, On the one had I was intrigued by the creative use of the Internet and the social web by citizens and police to identify many of the criminals that were involved in the riots. Facial recognition technology coupled with videos collected covering the riots were used to discover the identities by correlating with the social web. Unfortunately the rioters were also finding uses for the Internet and mobile technology like RIM's Blackberry Messenger. The tools and the process of communicating on the Internet have wide spread adoption so it's no surprise that criminals also use them. What was a surprise was the reaction by British Government officials who called out to eliminate / restrict the communication channels to help fight the riots. How is this different from the actions of the Chinese or Egyptian governments that we so loudly condemned? This Wall Street Journal article does a much better job of pointing out the dangers of this type of action than I could. All I can say is that the world is watching and a precedent like this would be difficult to overturn.

The second event this week is closer to home. It seems that in San Francisco the BART authority decided to try and prevent a demonstration by cutting cellular coverage to several of it's stations. The demonstration, which was related to a BART officer shooting of a transient man recently, did not materialize so perhaps the measures worked but at what cost? The disruption of service, which apparently was done without the knowledge of the major cellular networks and included access to 911 emergency calls, was seen as a direct violation of the rights of free speech for BART commuters as well as a safety concern by free speech advocates. Here are a couple of articles that talk more about this (find them here and here).  By the way, this is apparently the first documented case of a public agency in the US disrupting electronic communications to keep protesters from organizing a protest.

The Internet and the social web have created exciting new ways to communicate and disseminate information in a hyper-connected global environment. They open up all sorts of possibilities for individuals and for business and are the catalyst for much positive change. This can only continue if the Internet remains open and free. There are many regimes that do not want open communication and free speech, they cannot justify their methods with such transparency. We cannot allow our own governments to give these regimes reason to continue their oppressive policies by enacting policies that look very much the same as the policies we so despise. Small erosions of freedom over time equate to large losses when taken in aggregate...

Tags: free speech, open Internet, censorship, human rights

CRM Evolution 2011

I spent two days this past week attending and participating in CRM evolution in NYC, an annual CRM conference managed by CRM Magazine. It's always a good conference with a solid line up of speakers and this year was no exception. Chaired by Paul Greenberg again this year, the conference provided informative keynotes and 3 days packed with session around 3 tracks, Social CRM, CRM and Deployment Strategies. The overall conference focused on:

• Streamline business processes
• Increase profitability
• Create great customer experiences
• Improve customer satisfaction and loyalty
• Generate high returns on CRM investments
• Prepare for customer trends that are reshaping the marketplace
• Leverage technologies that will change customer relationships
• Benefit from Web 2.0 and Social CRM

I want to look at some sessions and other commentary from the event but first I have to share some insights from the opening key note by senior political analyst and former advisor to 4 US presidents, David Gergen. He's a good and entertaining speaker with lot's a great stories from his days associated with the White House, whether you agree with his politics or not. This association gives him an interesting perspective on leadership, which is a subject that he addresses often, having written a book on the subject, Eyewitness to Power, The Essence of Leadership, Nixon to Clinton.  On the subject of leadership, Gergen advises that keeping an eye on the basics is key, "if you want to lead others you must listen to them." According to Gergen, courage is the number 1 virtue of a leader, as evidenced by leaders like Winston Churchill during WW II. In addition to leadership Gergen shared some insight on the political use of the Internet, which he says is all about the 3 M's, mobilization, message and money. For business use of social media he offer this advice, "have your objectives set but be willing to adjust your tactics." For more from the keynote see Brittany Farb's post.

I participated in two sessions, a panel in the SCRM track and a session in the CRM track. The panel, titled "Disruption and the Lean, Mean CRM Machine, was moderated by Michael Krigsman and in addition to me, included John Taschek, Mitch Lieberman and Becky Carroll. During the discussion we looked at the impact of the key disrupters, social, mobile, cloud and big data on CRM and on businesses. One of the important themes, at least from my perspective, is that SCRM and social initiatives are additive on top of a solid CRM foundation, not a replacement for the basics.

For my session I presented on "The New Face of Commerce, Customer Experience Redefined. While I won't try to recap the entire presentation here, I will share the Prezi I used during the session:

As with most events these days, there's a lot of good commentary on the sessions, here are a few worth checking out:

• DestinationCRM / CRM Magazine's Brittany Farb's commentary on Brent Leary's day three keynote on accommodating the changing customer.
• Blake Landau's CMSWire interview with conference chairman Paul Greenberg and interview with Brent Leary.
• Lauren Carlson's commentary on Software Advice.
• Chris Bucholtz's commentary posted on CRM Buyer about Brian Vellmure's session.

All in all a worthwhile conference, maybe I'll see you there next year?

Tags: CRM, SCRM, CRMe11, social, socbiz, conference