I did a series of videos for eCornell during Dreamforce and one of them fits nicely into this series (now extended to 3 parts) so I thought I'd share it as the 2nd installment. I'll probably share a few others over the next week as well.
I did a series of videos for eCornell during Dreamforce and one of them fits nicely into this series (now extended to 3 parts) so I thought I'd share it as the 2nd installment. I'll probably share a few others over the next week as well.
As we move into 2013 it's time to take a look back and see what major events shaped and changed enterprise software in 2012. It was an active year, particularly from the standpoint of continued consolidation in the enterprise software markets. Several hot trends continued to drive acquisition activity and product directions, including cloud, mobile, social, Internet of things and data analytics. Social business has started maturing somewhat and is at least much clearer in specific directions and the best areas of focus for businesses to see real benefits.
The cloud wars really started in late 2011 with SAP's acquisition of SuccessFactors but gained momentum throughout 2012. The major enterprise apps vendors are moving quickly to gain footprint and functionality in cloud apps, as well as define platforms and infrastructure. Early in 2012 Oracle fired the first return shot to the SAP / SuccessFactors deal with its bid for Taleo. Not to be left out, IBM joined the HCM race with its acquisition of Kenexa in August. HCM continues to be a hot area for investment, for more on the 2012 HCM market see this guest post from IDC analyst Lisa Rowan.
The next major cloud acquisition came, once again, from SAP with its acquisition of cloud collaborative commerce vendor Ariba. Ariba provided SAP with a full featured and mature cloud based procurement, sourcing and contract management tools and the largest and oldest supplier network. Maybe more valuable though is the cloud expertise and credibility that Ariba's executives added to the SAP management team.
Oracle filled out its cloud portfolio quite a bit by focusing on customer experience. The Oracle Cloud CX suite, which arguably started in late 2011 with the acquisition of RightNow, added social marketing platform Vitrue, socialytics platform Collective Intellect, social media management platform Involver and finally with the recently announced acquisition of marketing automation vendor Eloqua. Combined with other cloud assets in commerce, sales (Fusion CRM), content, etc., the suite has a broad footprint. I wrote about the Eloqua acquisition here. In addition to Oracle's strong move into CX Lithium acquired social support vendor Social Dynamx and IBM moved to redefine it's web experience products in the context of the overall customer experience.
Social business, particularly around enterprise social networks (ESN), applications to support CX strategies, innovation management and talent and performance management, matured quite a bit over the past year. Much like cloud almost all the major tech vendors get involved in social business technology through new acquisitions, new products and enhancements to existing social tools. Existing social vendors also moved to broaden offerings through acquisition.
ESNs are one of the hottest areas for growth as many companies have / are deploying the technology and working to consolidate existing networks. Consolidation in the ESN market started in 2011 and continued last year, as larger tech vendors moved into the space. Adding to VMware SocialCast, Salesforce Chatter, Cisco Webex Social, Tibco Tibbr and IBM Connections Microsoft purchased ESN leader Yammer for $1.2B in June, Oracle made its own Oracle Social Network generally available in the Oracle cloud, Citrix acquired Podio and SAP completely revamped its offering into SAP Jam.
More and more companies are looking for ways to drive adoption of social processes and increase productivity. Getting social embedded into the enterprise workflow is gaining support and more companies are looking for ways of providing an integrated social experience. The trend is gaining momentum as vendors move from social applications to apps that are social, or have social functionality embedded inside the workflow. At Dreamforce 2012 Concur and Salesforce announced a good example of this concept, Concurforce, an app built on the Force.com platform.
As more companies embrace social technologies internally and externally a few issues are growing that will need some answers as we move into 2013. In particular there is a growing skills gap in consulting expertise to help companies drive successful social projects and sort out ongoing operations. I wrote about it here. In addition to the skills gap there is also a growing issue for many companies that have deployed several ESN products, which often grow virally and at least initially without full executive support. This social network sprawl issue is creating the exact opposite of the desired outcome by perpetuating organizational silos. To solve this companies will have to consolidate in some cases and in other they will need to integrate the networks so that functionally a single ESN exists.
Mobile continues to be an enterprise priority as the need to support multiple devices with multiple OSs is expected by employees. Tablets continue to grow in popularity and smartphones are a standard. Many vendors have provided native mobile apps with some subset of enterprise features but are feeling pressured by customers to give compete access to enterprise features on multiple devices. Many vendors moved to provide a better mobile framework on which they can provide a richer mobile experience to cuatomers. Among those vendors that made good strides last year include Netsuite, Deltek, salesforce, SAP and Oracle, although they all have more work for this year.
Internet of things was discussed quite a lot as sensor technology gets better and more and more "things" are added to the network. In the area of automation the use of sensors with new software products is providing benefits as diverse as preventative maintenance to inventory control. From a consumer perspective the mobile device is becoming a "Swiss army knife" of sorts and integrating sensor data opens up many possibilities for health and fitness monitoring to commerce. Look for 2013 to see this trend explode across business and consumer.
There seems to be more pressure on IT over the past few years to redefine and change its roles to be more relevant to the business. What has become more of a governance and enforcer role for many IT organizations is getting pressured to find new ways of adding value as more IT buying decisions get pushed out to the line of business executives. In many companies CMOs now manage a larger IT budget than the CIO, particularly as companies deploy technology to drive CX strategies. The move to the cloud is also changing the staffing requirements for many IT shops. Many IT organizations are finding that they need more of a business process focus and less of a deep developer technical focus. Look for this trend to accelerate in 2013.
In general enterprise software has remained a growth area as companies continue to buy technology. Driving this growth are several trends, including the need to provide better mobile support, the need to get technology that helps facilitate critical CX strategies and the need to provide a more collaborative and networked work environment. As a result of the economic pressures that continue to plague businesses many companies find themselves doing more with considerably less resources. The only reasonable way to maintain and increase productivity is though automation and through better software tools. Hot markets in 2012, social, mobile, CX, etc. will continue to be hot in 2013.
This week there was quite a bit of debate and discussion instigated by a letter from SEC Chairman Mary Schapiro to Rep. Darrell Issa, Chairman of the House Committee on Oversight and Government Reform that was a reply to a letter from Issa and talks about the possibility of reforming the regulations around capital formation. Lately high profile start ups like Facebook, Zynga and Groupon have been under a lot of scrutiny because of their sky rocketing valuations in the secondary markets and a SEC rule that private companies with more than 500 shareholders must report financials just like public companies. This rule is designed to protect investors and takes away one of the major reasons for staying private. As Schapiro points out there is a fine line between protecting investors and in supporting a start ups need to gain access to capital. In the letter the SEC Chairman steps out from under what is often seen as a very conservative regulatory stance and suggest that some of its rules may not be in line with the current needs of start ups and need to be reviewed on a regular basis to make sure that they keep pace with current thinking or as Schapiro says "to make sure that they are up-to-date and costs and benefits remain appropriately calibrated." She goes on to provide a long lists of regulations that are being reviewed. There are a few of these that have significant implications for start ups including the increase of the 500 shareholder cap and relaxing the prohibition of companies publicizing the issuing of shares, called the "general solicitation ban."
The changes to the rules around reporting are interesting of course, taken in context to the Facebook, Groupon, Zynga, etc. status in the secondary markets. The change in the general solicitation ban though, is probably the more important. The truth is that most if not all start ups break the ban every time they raise money today. By changing the ban not only does it remove the current violation but it paves the way to using crowdsourcing as a funding vehicle. Current crowdsourcing platforms like Kickstarter are limited to projects not companies and can't offer equity stakes in those projects (prohibited by the general solicitation ban). Instead they offer "rewards". Allowing equity as a vehicle to encourage crowdsourcing would allow start ups to use these platforms. The one thing not addressed in the letter though, is a review of the accredited investor criteria, something that many start ups have called for. I suspect that those criteria will not be lowered and maybe that's not such a bad thing.
Here's the full contents of the letter if you'd like to read it yourself:
I was having a conversation the other day with a colleague about trends that are impacting and driving change in businesses and as often happens lately we ended up on the subject of business networks. When discussing new concepts we have no choice but to apply words that have existing, accepted meanings, even if those terms don't quite fit what we're trying to say, and add other adjectives to help translate the picture that you have in your head to mutual understanding. For the last few years, as I've focused my research more and more on emerging trends in the enterprise, I've found this task very challenging. Using the word social in some business context for example, is fraught with issues as people try to shoehorn their own understanding of the word into some new frameworks. The word network, I've learned, is another ambiguous term when used in a business context. It seems that the word's techie baggage, while appropriate to some extent in understanding where I'm trying to go with this idea, causes some confusion. The challenge then is to find the right adjective(s) to start to move people in the right direction, or perhaps, even though it's not my favorite activity, delve into a more detailed definition of business network.
The problem with the word network is also part of the strength of applying it to the current emerging business environment. From IT networks that are flexible, scalable, configurable, fault tolerant, accessible from multiple points and on multiple devices, we can borrow concepts that businesses need to begin to apply more broadly. The downside I think, to using the word network is that when many people hear the word they start to think of the physical connectors, the Ethernet cables and routers, etc. that make up the LAN or WAN and that's very limiting. Or perhaps they think of it in terms of the social web, which can also be distracting even though again some of those characteristics apply.
Sitting in the Philadelphia airport early this morning in one of those inviting white rocking chairs they provide, sipping a cup of tea and prompted by the sight of so many people connecting and carrying out business, I had an idea. When I think about business networks in the context of all of the other technical and cultural change factors that I see in our post-industrial information economy, maybe what I mean is "organic business networks". The word organic could be confusing though, but when I think about it in this context I am thinking that it has similar traits to organic computing. Organic computing is a computing system that is self-optimizing, self-healing, self-configuring and self-protecting. More broadly organic models are generally patterns and methods found in living systems used a metaphor for non-living systems. So applying an organic model, organic business networks are networks that represent the interconnectedness of the emerging information business environment. Organic business networks connect people, data / information, content, and IT systems in a flexible, self-optimizing, self-healing, self-configuring and self-protecting system. People are the primary nodes of the network but the other nodes, data, content, applications and systems, are no less important.
A business functioning as an organic business network would incorporate the characteristics of a social business, as I listed here, but go beyond this basic idea, using social business as the operational paradigm but using the organic business network as the mode of operating it's business. The two concepts play off each other, social business is the "what" and the "organic business network" is the how. An organic business network lets the business work outside of traditional "firewall" boundaries and is the continuously adapting implementation of an optimized business strategy. In this approach value creation can move to the optimal point in the network depending on strategic influencers like economy, market dynamics, customer behavior, prospect behavior, partner behavior and needs, supply chain dynamics, predictive business outcomes, etc. An organic business network driven company is the anthesis of a hierarchical, rigid, reactive, process constrained, and silo'ed organization. Instead the business can adapt to changing conditions, leverage assets effectively and thrive in a hyper-connected, global competitive, information driven environment. What do you think, does that add a little clarity?
I like the term social business, I'm comfortable with the concepts I've used a lot over the last two or so years. I think that it captures the necessary transformation that the post-industrial enterprise needs. As I think about social business I've started to use another concept that seems to help clarify things a bit, people-centric enterprise. But, I've started to think that maybe something beyond social business and people-centric enterprise might help us think through what is really happening or should be happening in the business transformation. There are two very key social outputs (see the IDC Social Business Framework for a discussion on social outputs) that we need to consider, content and community, that represent the force of the social web. In the social context content is often represented by social media and community is seen as a social network. So here's my idea, maybe we need to start thinking of the new business model as the networked enterprise?
To build a new model for business we have to leverage the power that comes for shifting the focus from process to people. Relationships are drivers of people-centricity, so doesn't this really mean we're changing from a hierarchy to a network? I considered other terms that apply, connected enterprise, ecosystem, collaborative enterprise...all are relevant. The business transformation has impact on all parts of the business from sales to field service and from inside to out. There's a concept in economics called the network effect, or the tendency that the value of a product or service increases as more people use it. The example of network effect most often cited by business texts is the telephone, a single telephone is useless but value increases the more people have and use it. We see this effect on the social web to a great degree, social networks like facebook and Myspace are relevant because people are connected there and become more or less valuable as more people join / use the service (or don't, so network effect can be both positive or negative).
From what I've started to observe I think that there could be a related concept to the network effect in a networked enterprise. In the networked enterprise there is an effect that I call network synergy, or value to the business is increased as a result of the increased interconnectivity of it's people. The addition of the term synergy implies that the interconnection of people produces a result that could not be obtained if the people were not connected (in simple form it's the idea that 1 + 1 = 3). So in a people-centric business the increased interconnection of employees, suppliers, partners, and customers produces a result greater than what could happen if the network didn't exist, or in other words increases value to the business. The social business, which has people as its platform, performs at a higher level because of network synergy. The more interconnected the business becomes the greater the return from network synergy.
So far 2010 has been another prolific year for M&A activity in the software markets. The software industry and tech in general has seen a solid amount of M&A activity through out it's existence, but over the last 6 years or so the pace has accelerated quite a bit. The current economic conditions have created additional pressure and opportunity that has caused the pace of acquisition to increase substantially this year. Vendors looking for bargains, looking for new growth opportunities, filling needed talent gaps and looking to build out additional product capabilities have aggressively pursued the M&A route this year. We also see consolidation starting to accelerate in a few newer hot technology areas like social software, mobile and cloud, as both start ups and established vendors look to expand product portfolios to take advantage of the emerging markets.
I try to keep a reasonable list of M&A activity during the year, especially around the enterprise software markets, so I thought it might be useful to share it. If I missed anything please add it in the comments and I will update my list.
Alright, so why am I rambling on about innovation again. Recently I ran across a great example of the culture of innovation (or to be precise the impact of culture in a negative way on innovation). I recently transitioned from AT&T / iPhone for my family mobile ser vice to Verizon (not the subject of this post, but a very good transition). As a part of that shift my two daughters (11 and 14 yrs old) had the chance to pick new phones. They were moving from a Nokia slider (the 11 yr old, the slider replaced the 1st gen hand-me-down iPhone by her choice btw) and an iPhone 3G. I allowed them to pick whatever they wanted from the current Verizon phone portfolio (including the HTC Incredible) and they both picked the new Microsoft Kin although different models, the 11 yr old took the Kin One and the 14 yr old took the Kin Two. Their only real complaint was the lack of apps but the social integration of the OS more than made up for that shortfall (and my older daughter has an iPod Touch so she didn't really miss the iPhone at all). They both required full data plans but then both had already been on full data plans on AT&T so I didn't really think about it.
The Kin has been much maligned in the blogsphere in recent weeks. Microsoft discontinued the phone a couple of weeks ago after a really poor showing with something less than 10K sold. I've heard and read lot's of stories about why the phone wasn't popular but my own experience leads me to believe that the phone did in fact have the potential as a disrupter, but fell short on two fronts...the lack of an apps store and the requirement of a full data plan (so pretty expensive for a phone targeted at teens). Now the funny thing is that both of these issues were created when the phone fell victim to some internal politics at Microsoft. The original Kin (or Project Pink as it was known internally at Microsoft) the brainchild of J Allard and with technology from the 2008 acquisition of Danger was something of a darling project and operated independently of the Windows Mobile OS division led by SVP Andy Lees. The project was on a short timeline for delivery in 2009 and included an apps store concept. Verizon won the bids to carry the phone and had promised a lower price data plan to make the phone attractive to teens (and parents). Allard, who is also credited with the Zune, used bits from Danger and from Zune but did not include the legacy Win Mobile platform (which was later scrapped and rebuilt as the Win 7 mobile platform). Not to go through this whole debacle play by play, you can do that here in this Engadget Post, but the problem was politics. Lees wanted control of this rogue project and eventually got control. Thus begins the end of innovation, the project was re-scoped, the apps store was out as were other innovations and the delivery date was slipped. Verizon, faced with the new longer timeline reneged on its promise of lower pricing and the phone was released to its now predefined failure.
From the reaction I've seen the phone had potential but politics and the desire for control smashed the innovation and set it on a path of sure failure. This is to me, a great example of what happens in companies when they value the organizational structure and power over innovation. It also points to the evolution of a company and its ability to innovate. Culture is one of the most critical elements that allow people to develop and launch innovative ideas. Microsoft, and executives like Lees, do not foster innovation if it threatens their political power and control. Often we see larger software companies in the continuous innovation camp, but rarely as creators of discontinuous innovation. The open culture that is required to create disruptive products is much more prevalent in start ups. Not that larger software companies can't create disruptive technologies, but often those technologies come through acquisition, not internal development. Politics make it very difficult for the culture of innovation to thrive.
I had the pleasure of joining Emergence Capital and a group of executives from some of its portfolio companies for dinner a couple of weeks ago. All of the companies are selling their products in the freemium model, and the dinner was an open discussion about the model and its many permutations. The discussion was spirited as often happens when you get a group of software executives together to talk business models, but also very engaging.
So what exactly is "freemium" anyway? I suppose it has some connection to the "free trial" model that is very common with SaaS applications, but it carries the idea of free to a different level (and as the CEO's of a freemium model company are quick to point out, is NOT like a free trial). The concept is to tier the product offerings and offer an "entry" level product with low barriers of entry (free). Besides the free product there are any number of enhanced products and/or features that the company tries to use as enticement to move to a paid edition. All of the freemium model companies had that much in common, but beyond that the details are very specific to the product, market and target customers. Noted VC (and EverNote investor) Fred Wilson talks about the model here.
The least complex freemium product offering usually involves 2 editions, free and premium. The free offering has enough of the feature set to provide customers with the genuine user experience but not enough features that some of (and hopefully a lot of) customers would not eventually feel the need for the premium product. The free version has to be as pain free as possible to encourage sign up, no long profiles to fill out and no credit card needed. Asking for more than basic customer information should wait until you have established the relationship and started to build some trust. Often the free product is ad supported as well, generating some revenue for the company, and possibly providing some additional incentive to move to the ad free premium edition. Companies using this simple version of freemium include popular note taking app EverNote, NewsGator, InsideView (an Emergence company, SaaS sales intelligence with 3 versions, free, Pro and Team), Box.net (storage / file sharing, 1 GB free, $ for more), Yammer (an Emergence Company, internal microblog, pay for administrative features) and social network LinkedIn. The model can be expanded beyond this simple 2 product tiers to include additional versions or even add ons like bandwidth, storage, etc.
The next permutation of freemium is what I'd call the viral extension model. The idea is to offer a product / service that has at its core a way to draw in new prospects as a part of its process. This method of gaining customer share was pioneered by Hotmail in the 1990's and is still used by Yahoo, gmail and others...basic is free, pay for more services like PoP access or more storage. Expansion comes from the free advertising that is on the bottom of every free email sent. A couple of the Emergence portfolio companies fall in this model, EchoSign (electronic signature and contract visibility, the contract is the viral vehicle) and Yousendit (just like the name implies, sending, receiving and tracking large files...the file is the viral vehicle of course).
The model has several benefits, most importantly lowering the cost of customer acquisition. The freemium companies are all cloud based products / services which provides an interesting benefit for the companies by making the variable cost go down as customer volume increases. This is very important in a business model where only a percentage of the total customer base is paying for the product. Conversion is of course key and the successful company is very focused on conversion metrics. They need to understand what creates the conversion event and when it generally occurs to manage the business and cash flow. Many of these companies see very high attrition rates for the free product but generally the attrition happens very early in the relationship. If a customer sticks around for very long (more than a month or so) the conversion opportunity is pretty good. Unfortunately though, at some point that conversion rate falls off. If you stay free for too long there's a much greater chance that you will not convert unless of course the conversion event is something like storage capacity or bandwidth.
There are some risks and detractors for the model as well. Conversion or more specifically lack of conversion, is the greatest risk. Finding the right balance between making the free offer compelling enough to acquire the customer but not rich enough that they never want to move up to a paid product is critical. And no bait and switch, what's free stays free, that's the quickest way to create a nasty customer backlash.
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.
I spent most of yesterday at the Oracle Conference Center listening to Oracle and Sun Exec's talk about the go-forward plans for the new company post-close of the acquisition the day before. As you might imagine the plans are fairly detailed, especially given the amount of time they had to develop them as they waited for the glacially slow decision from the EU to bless the deal. I won't go through every detail that we learned on the product plans, you can do that in greater detail yourself next week when they post the Sun-Oracle product plans on Oracle.com. What I will do is give you a quick overview of the basic strategy and share some observations. I will say that if you follow Oracle as closely as I do the general strategy should be no surprise, as it looks very similar to the process and approach that they have used on all of their major acquisitions. Also the announcements made yesterday are completely consistent to what was said by all of the Oracle exec's at the announcement of the deal, in subsequent conversations that I had with Oracle Co-President Charles Phillips and Oracle CTO Edward Screven, and in all of the public statements that CEO Larry Ellison has made since.
Here are a few observations:
The other interesting thread that was clearly present throughout every executive presentation is Oracle's commitment to high quality support. Jergen Rottler, EVP of Oracle Customer Services also presented and reassured Sun customers that Oracle would integrate and rapidly increase the level of customer service (BTW, historically in other acquisitions this is the case. They have developed a very sophisticated process of integrating acquired company support organizations, which I guess is no surprise after 60 acquisitions in 5 years).
Overall it was a very up beat and positive day. The new company and strategy is promising but as always the true test is in the ongoing execution of the strategy, something Oracle has proven to have as a core competency.