Is Enterprise Software Failing The Innovation Test?

The software industry these days is all about consumer software applications, with a new generation of Web 2.0 apps hogging the limelight. We caught up Vivek Ranadive, CEO and founder of Tibco Software (TIBX), to find out his thoughts about the state of innovation in enterprise software. Below are excerpts from a very candid interview with FoundRead editor Carleen Hawn.

Carleen Hawn: It seems like most innovation in the tech industry is coming from consumer software companies right now. Why?

Vivek Ranadive: There has been really very little innovation because in the last 20 years we’ve been locked into extortionist database architecture. The mother of all databases, the relational database, is at the center of everything, which is why prices of databases have stayed the same. Then we’ve got these silos on top of the database — the enterprise resource planning (ERP) silos — which is just more extortion because you need a $100 million SAP implementation to make it work. Then you’ve got this tool called “business intelligence,” sitting on top of the ERP, which is oxymoronic because it’s only a reporting system – meaning it delivers information about what’s happened to your business after the fact, when it’s too late for you to do anything about it, so it’s not really “intelligence” at all. And then you’ve got these incredibly expensive service and consulting companies who try to make this legacy stack work. Put it all together and you’ve got a three-layered conspiracy of aligned interests to extort money from your company, which prevents incentives to innovate. It’s almost like a communist regime!

CH: How would you grade the pace of innovation in the enterprise software space today? A to F?

VR: It’s an “F.” I’ll demonstrate it with an example: Some of my banking customers have infrastructures that are bigger than the public Internet in terms of the storage they consume, given all the data and equipment they have to support. It’s massive. Take one of the top Wall Street banks, they’ll tell you that they have 60 to 70 percent overcapacity in terms of their IT infrastructure, which mean they don’t use most of their systems all of the time. But because they keep being persuaded, by database salespeople and consulting firms, that they need to invest more money in their systems to keep their data safe, the established database-centric infrastructure just keeps growing. Yet with all this investment when I go to the ATM at my bank it still asks me in what language I want to be spoken to as I’m withdrawing my money. What!? It doesn’t know me? Despite all that equipment and data, the system can’t call up my preferences when I put my bankcard into the machine? I have millions of dollars in this bank!! In terms of innovation this industry definitely gets an “F.”

CH: What needs to change/ happen to speed up innovation in the enterprise space?

VR: But the good news is that change is right around the corner. We’re about to embark on a period of innovation that has been made possible by the Web.

So far, all the innovation has happened in the consumer space. Look at Google maps: It is far superior to any desktop software that any company executive has. You can create your markets on eBay (EBAY) or build your own products on Google (GOOG) and it’s your 10- or 12- or 8-year-old who is doing it. This doesn’t make sense [that] my kid can do more for free at home on his PC than I can do on my company PC –- you know, the one attached to that multimillion-dollar SAP system that I just put in to be able to tell what’s on my shelves. But I still have to beg my IT dept to give me a separate feature that allows me to know how many tires I sold today…and they still can’t tell me. It’s because we have this old legacy database infrastructure — and ERP applications, with their static reporting systems — on top of it all, hording everything.

But the Web empowers a concept of self-service. This means people can do things very quickly and on their own, so the velocity of information is a lot faster. In the old stack, the data is static. The new stack is made up of dynamic information, data that is changing and moving around fast. In the old stack, database-oriented architecture was the fundamental building block. In the new stack, there is a shift to a service-oriented architecture. So instead of the database you have service. In the old stack the killer app was enterprise resource planning. The new killer app is business process management (BPM). What this really means is that we will shift from “static business intelligence” to “dynamic business process management,” or what I like to call “predictive business.” There isn’t much use in telling me something about my business after it happens. How about telling me something before it happens so I can do something about it?

CH: So if database companies, like Oracle (ORCL), have such a grip on the market, and consultants remain persuasive by playing on companies’ data security fears, what will be the catalyst for real change in the enterprise space?

VR: The scale of so much legacy infrastructure isn’t just a business problem; this whole thing is going to end up being a moral issue, too. I’m predicting that companies in the future are going to have to put in their annual reports how their power use is going up. This is very, very unintelligent equipment. It requires a lot of energy to run so companies continue to buy more servers, lease more sever farm space, consume more power, etc. Eventually the investors and the public are going to start saying that the effects of climate change and global warming are one more reason why we can’t just keep growing the database infrastructure and adding more ERP to it — especially when it works so poorly.

CH: Tibco is often described as a developer of “push technologies.” But you’ve called it the publish/subscribe revolution of “event-driven” companies. How close are we to businesses functioning as “event-driven” today?

VR: Pretty close. The enterprise of the future will be a “predictive business.” By this I mean it has a real-time nervous system that gathers events that are happening in real time, across the company. These events are collected in what we call an “event cloud.” A set of rules is applied to them, in real time, and these rules start predicting what’s going to happen next, such as: your network might go down; I might have a stocking problem on the shelves of one of my tire stores; and, therefore, in either case, one of my customer is at risk of growing unhappy. Whatever your business, you can apply rules to emergent circumstances that apply to your company’s operations and allow your system to respond in real time. This new predictive system is the service-oriented architecture (SOA) I spoke of earlier. We call it that because it serves you and your customers better.

CH: So can you give us an example of where the advantages of being event-driven are being realized today?

VR: Gary Loveman is the CEO of Harrah’s (HET). He’s implemented the event-driven nervous system at his company. Here’ s how it works:

Holly is in one of his casinos in Vegas and she has just lost $400 at a craps table. So that data goes into the predictive business layer and the system tells Gary: ‘You know, if Holly loses another $50 bucks, she might get mad, and she might not come back to this casino. In fact, she might not come back to Harrah’s at all.’

So the software activates a business process that says: ‘Gary, go do something nice for Holly.’ The system pulls other data that tells it that there is a magic show in one hour and that there are two empty seats in the front row. It also shows a casino restaurant that is empty and has food in the kitchen that will go bad. So now a Harrah’s hospitality person can go up to Holly and say: ‘Holly we have these two tickets to this show for you, and here’s a gift certificate for dinner.’

In the old way of doing things, Holly would’ve gotten mad, and left and then three to six months later the old reporting software would’ve said: ‘Holly hasn’t been here in three to six months.’ And a letter would’ve gone out to her weeks later pleading with her to come back. Now, Gary can stave off her leaving his casino unhappy. In fact, she leaves happier.

This is about moving away from the system where data controls things. Now the database is just a place that stores information. The predictive system is clearly so much better that everyone is starting to implement it. NSA is moving away from a database-centric infrastructure to the new nervous system infrastructure. In 1999, when I published my book “The Power of Now,” everyone said ‘I don’t need real time.’ Now people are saying to me ‘I can get enough of it’ and ‘How can I know more sooner?’

CH: What is one thing businesses can do now to transform their business for this future that you describe now?

VR: It’s the extortionist database and ERP companies that are slowing things down. There is a lot of legacy IT out there that is tying up things. To start the transition, you’ll need to put in that nervous system. Your can still protect your legacy systems, but put in that nervous systems, and start measuring things in real time. You’ll need the business process management lawyer, too –- the muscles, so to speak, that are informed by the nervous system. Together, this will allow you to create and model and then activate business processes that are predictive. In the next five years you’ll see a dramatic shift, because if you can anticipate what your customers need, if you can anticipate a change up front, you’ll be able to hit the ball out of the park.