It’s time to shake up the enterprise software market

Kristoffer is chief executive at Starcounter.
The enterprise software industry as we know it is changing significantly. Recently, it’s seen a rise in ‘best of breed’ apps, which in turn, has contributed to the fall of the enterprise monopoly. More specifically, there are three factors fueling this change, including the reality of the problem, the collective app economy, and new technology enabling the next generation of business applications.

The reality of the enterprise problem

Over $600 billion is spent on enterprise software each year. And to date, modern enterprises have had two options: buy big, unfocused packages that excel in nothing; or buy small, focused ’best of breed’ apps and risk an integration nightmare.
First off, the major software platforms purchased by IT departments provide tools to make thousands of different features for thousands of different types of users. These products are cumbersome when they are overloaded, often perceived as hostile by the user, and difficult to learn. What’s more, this obstacle isn’t bypassed when they move to the cloud in an attempt to keep up with changing trends. But since these products seem to solve everything, they’ve been successful for quite some time and become the status quo in the software market.
In the meantime, the ’best of breed’ apps have been the preferred choice by business executives, and they have increasingly received support among all employees. With the consumerization of enterprise technology, products now enter a company from the bottom up, rather than the top down.
In the private space, you can easily compose your own suite of software tools to accomplish a task. To throw a birthday party, for example, go to the app store and get a calendar app, a social app, an invitation app and you’re set.
Those who have grown up today with the ease of an app store are entering into the positions at enterprises. They want their daily business tools such as accounting and smart marketing tools to be as accessible as messaging apps and car navigators. Enterprises must endorse this through the fast and easy delivery of efficient tools to employees who need a certain software to accomplish a special task.
Although these have been the two prevalent options among enterprises, the reality is that 68 percent of IT projects fail. These failures are forcing CIOs and CEOs at enterprises to seek change from the status quo.

The collective app economy

When multiple small apps band together, they can upend the status quo – this is the new collective app economy. Today, new technology is allowing this to happen:

  • Allowing enterprises to mix and match best of breed apps without the need for complex and expensive integration projects.
  • Allowing each vendor to be on top of its own food chain.
  • Allowing new business models to outperform the existing ones in the enterprise software business.
  • Allowing app stores, for example, to deliver interoperating apps and to be truly polylithic.

The ’best of breed’ app vendors often have an innovative edge because of their focus and domain knowledge. Though they still cannot check off as many boxes as the big vendors with their ecosystem of piggy-backers, and buyers shun complex, expensive, lengthy and risky integration projects.
The incumbent software platforms will not be replaced by a single app, no matter how elegant, intuitive, and powerful the app is. That’s because a single app can never replace the full functionality of the large players’ platforms. The best of breed apps must be able to be mixed-and-matched without the need for complex integration projects.
A single mobile payment app, for example, cannot replace a full retail solution. However, combining best of breed apps for accounting, product stock and point of sales results in a virtual retail suite that can outperform the larger players. These new apps are promising and must meet two critical conditions to gain any significant market share:

  1. It must be possible to run multiple independent business apps by different vendors side by side in a modern web user interface. Together they create your virtual business solution.
  2. The apps must operate on the same set of data without knowing about each other. All apps being aware of all other apps simply does not scale. APIs have been the peer-to-peer glue between apps for 50 years, and independent business apps still do not operate on a single set of data.

As new technology is now solving the vital, if not all, components of the ”shared data and shared screen” problems, this will have a major impact for enterprise software vendors and enterprises.

The next generation of business applications

Technology comes before revolution. Always. Though not typically obvious when first introduced, the importance of truly novel technology is not something reserved for tech geeks; in fact, it is and has always been vital for the evolution of the human race. Modems and computers were not invented to power the web. Rather, the web was discovered because we had computers and modems.
The new generation of in-memory application platforms will not only transform the database industry; it will forever change the enterprise software industry. How? By combining an in-memory database engine, data processing and application server into a single business operating system. This technology can deliver the capabilities of a huge data center in that single server. It can allow many small independent applications in combination to replace a monolithic application. It can remove the need for a single application to be the master of all others. Plus, the speed, radical efficiently, low costs and openness will help drive fast and wide adoption.

Time to band together

The enterprise software landscape will change dramatically in the near future. The new software landscape will be simultaneously fragmented and connected, with new business models created by collaboration among many small vendors.
It is time for vendors and talents to band together in order to provide businesses with the freedom to use the best tools needed to meet their goals, instead of being locked into a single vendor that is a jack of all trades, but master of none.

SAP to trim jobs and redeploy resources

Enterprise software giant SAP could cut up to 2,200 jobs (three percent of its 74,000 employees) in a move to rebalance employment around growth areas. The news was first reported by Bloomberg News.

[company]SAP[/company] CEO Bill McDermott told Bloomberg that the company needs to put jobs where the work is.

 “If I have a great growth opportunity in Middle East and I have excess of capacity in U.S. or Germany, I am gonna offer those employees the opportunity to go to Middle East, to where customers need us … We are not eliminating jobs but lifting and shifting those assets.”

A spokesman confirmed the news but said 2,200 was the upper limit and that many affected employees could end up in other positions in the faster-growing HANA or cloud business segments. Some jobs may go away via attrition. He said the company will end the year with more employees than it started out with: “SAP is hiring.”

Still, the axe will fall for some, in what would be the second set of cutbacks since McDermott assumed the top spot at SAP in 2013. The first round of cuts came in May 2014 in a move that McDermott said would bring total headcount to 67,000 by year’s end, so clearly some hiring took place in the interim.

SAP is hardly the only enterprise IT company struggling with the new sales and cost models of the cloud computing and Software-as-a-Service world. IBM and HP have both announced layoffs and employee reassignments to try to get their cost structures in line. IBM sounded a very similar message to SAP earlier this year, confirming layoffs but also stressing that its hiring in hot areas.

Part of the problem is that [company]IBM[/company], [company]HP[/company] and other older companies have relied on selling on high-end, high-margin software and hardware tied to big up-front purchases. The SaaS revolution, which spread payments out over time and offered less expensive (at least initially) products, took its toll on these players as born-to-SaaS companies like [company]Salesforce.com[/company] started to eat their lunch.

Now, even though those SaaS companies have moved more to an enterprise sales model — requiring up-front payouts for a year or more of use — they are still seen as more cost-effective and more modern than the legacy guys.

The enterprise view of cloud, specifically Private Cloud, is confusing

Enterprise organizations are actively looking for ways to leverage cloud computing. Cloud presents the single-largest opportunity for CIOs and the organizations they lead. The move to cloud is often part of a larger strategy for the CIO moving to a consumption-first paradigm. As the CIO charts a path to cloud along the cloud spectrum, Private Cloud provides a significant opportunity.

Adoption of private cloud infrastructure is anemic at best. Looking deeper into the problem, the reason becomes painfully clear. The marketplace is heavily fractured and quite confusing even to the sophisticated enterprise buyer. After reading this post, one could question the feasibility of private cloud. The purpose of this post is not to present a case to avoid private cloud, but rather expose the challenges to adoption to help build awareness towards solving the issues.

Problem statement

Most enterprises have a varied strategy with cloud adoption. Generally there are two categories of applications and services:

  1. Existing enterprise applications: These may include legacy and custom applications. The vast majority was never designed for virtualization let alone cloud. Even if there is an interest to move to cloud, the cost and risk to move (read: re-write) these applications to cloud is extreme.
  2. Greenfield development: New applications or those modified to support cloud-based architectures. Within the enterprise, greenfield development represents a small percentage compared with existing applications. On the other hand, web-scale and startup organizations are able to leverage almost 100% greenfield development.

 

Private Cloud Market Mismatch


 The disconnect is that most cloud solutions in the market today suit greenfield development, but not existing enterprise applications. Ironically, from a marketing perspective, most of the marketing buzz today is geared toward solutions that service the greenfield development leaving existing enterprise applications in the dust.

Driving focus to private cloud

For the average enterprise organization, they are faced with a cloud conundrum. Cloud, theoretically, is a major opportunity for enterprise applications. Yet the private cloud solutions are a mismatched potpourri of offerings, which make it difficult to compare. In addition, private cloud may take different forms.

 

Private Cloud Models

 

Keep in mind that within the overall cloud spectrum, this is only private cloud. At the edges of private cloud, colocation and public cloud present a whole new set of criteria to consider.

Within the private cloud models, it would be easy if the only criteria were compute, storage and network requirements. The reality is that a myriad of other factors are the true differentiators.

The hypervisor and OpenStack phenomenon

The defacto hypervisor in enterprises today is VMware. Not every provider supports VMware. Private cloud providers may support VMware along with other hypervisors such as Hyper-V, KVM and Zen. Yes, it is possible to move enterprise workloads from one hypervisor to another. That is not the problem. The problem is the amount of work required to address the intricacies of the existing environment. Unwinding the ball of yarn is not a trivial task and presents yet another hurdle. On the flipside, there are advantages to leveraging other hypervisors + OpenStack.

Looking beyond the surface of selection criteria

There are about a dozen different criteria that often show up when evaluating providers. Of those, hypervisor, architecture, location, ecosystem and pricing models are just some of the top-line criteria.

In order to truly evaluate providers, one must delve further into the details of each to understand the nuances of each component. It is those details that can make the difference between success and failure. And each nuance is unique to the specific provider. As someone recent stated, “Each provider is like a snowflake.” No two are alike.

The large company problem

Compounding the problem is a wide field of providers trying to capture a slice of the overall pie. Even large, incumbent companies are failing miserably to deliver private cloud solutions. There are a number of reasons companies are failing.

Time to go!

With all of these reasons, one may choose to hold off considering private cloud solutions. That would be a mistake. Sure, there are a number of challenges to adopting private cloud solutions today. Yes, the marketplace is highly fractured and confusing. However, with work comes reward.

The more enterprise applications and services move to private cloud solutions, the more opportunities open for the CIO. The move to private cloud does not circumvent alternatives from public cloud and SaaS-based solutions. It does, however, help provide greater agility and focus for the IT organization compared to traditional infrastructure solutions.

Apple is accelerating its enterprise push

New evidence is emerging that shows Apple is doubling down on its push into the enterprise software sector.

This past week, at a Goldman Sachs conference, Tim Cook was very clear about the partnership between Apple and IBM when responding to a question from Gary Cohn, the CEO of Goldman Sachs group.

Cohn: How important is IBM partnership? What makes it interesting for two titans?

Cook: IBM has very deep knowledge of a number of verticals, we don’t have that. IBM has field expertise, we don’t have that. Apple has devices people want, programming languages easy to write for. IBM doesn’t have that. We want to change the way people work. So when we thought how do we do this, we realized we didn’t know enough and didn’t have all of these people on the street and didn’t have all of these engineers to write these unique apps. But we knew we needed them at the enterprise level. Presentation, word processors, those are general. But when you start talking about tools for the pilot, the nurse, the banker, you need unique apps.

So we knew we needed to partner with someone. We looked around, and it became clear IBM would be an outstanding partner. The relationship there is good, the teams work well together, and the teams are very complementary. Enterprise has not moved nearly as far as consumer. Kind of like experience for digital kids. Enterprise is like this…you live one way at home and then turn back the clock when you go to work. It doesn’t have to be like that.

So, I admit I was surprised to hear that Apple went looking for a partner to attack the enterprise with, as opposed to IBM approaching Apple.

Other evidence of a full Apple attack on the enterprise?

  1. UBS analyst Steve Milunovich reports — without citing sources — that Apple is going beyond the initial IBM/Apple focus on iOS business apps: “Now we hear that IBM will be adding horizontal apps as well over time, such as supply chain capabilities. IBM has been backing into applications through its SaaS acquisitions and analytics expertise; this could be powerful.”
  2. Apple is hiring enterprise sales reps.
  3. Rumors of a larger format iPad (iPad Pro?), presumably more attractive to enterprise users.
  4. Apple announced on 13 February that iWork for iCloud beta now works on Linux box, Google Chromebook, and — cue the drumroll — Microsoft Windows PC, as well as from Apple hardware. And it’s free. This is a very-late-in-the-day attempt by Apple to counter Office and Office 365 dominance on Windows devices.

So Apple — which just posted the best quarter of any company ever, making $6 billion in profits per month — is going to invest some serious bank to expand dramatically in the enterprise. Perhaps Cook&Co are looking to additional markets to continue their astonishing growth: it can’t be just iPhones. Now it seems that Apple is planning to make electric cars, along with Apple Pay, the coming wearable Watch, Beats streaming music service, and the long-rumored TV initiative. What will they disrupt next?

 

3 reasons traditional enterprise vendors will fail

Many often ask for my thoughts on traditional enterprise vendors compared with their startup and mid-size contemporaries. Without going into naming names, let me outline a few real situations that happened in just the past week alone. Each of these are large traditional enterprise providers and publically traded on either the NYSE or NASDAQ exchanges:

Direct line to sales

Last week, I called the main number of an IT services provider from their website. In the phone menu, I selected ‘sales’. Someone from ‘operations’ answers. I state that I’m looking for sales and was told “we take information for sales and pass it along for them to return the call.” It has been 5 business days and someone has still not returned my call.

Companies need to offer customers (and prospects) a direct line into sales. It is ok to leverage inside sales, but responses need to be quick while the customer is still engaged.

Keep reasonable hours

In a separate case, I called a second company that provides telecommunications, IT and cloud services. I used the main number from their website. Theoretically, telecom should be part of their strong suit. Unfortunately, the experience was not. My call was met with a greeting “Thank you for calling <name omitted>…Our hours of operation are 8-4:30pm Eastern Standard Time.” I was calling mid-morning Pacific Time, well within their hours of operation. But then the phone just rang and rang. No answer. After a few minutes, I hung up and called back a while later. Same thing, the phone just rang with no answer.

Two problems here: 1) their hours are 8-4:30pm Eastern? That means that anyone from the West Cost of the US better call in the morning before 1:30pm Pacific. That assumes that 2) there is someone to take the call. Even if not, there should be an option to leave a message with a quick callback. For a telecom company, this seemed like a big miss on multiple fronts.

Listen carefully to what the customer is saying

In yet another case with a third company, I wanted to explore their cloud services. First, getting to the right person was not trivial. Once I did, I clearly stated what I was looking for and wanted to understand more about their products. The person kept coming back to a script that involved a process to evaluate my needs before talking solutions. In most cases, this would be stellar. However, I knew what I was looking for. I just needed to know which of the vendor’s solutions fit best. It seemed that was not possible without running some involved tool that characterized my environment for some period of time first. I kept asking for more information about their solutions to no avail. They were not budging. Eventually, I had to actually state, “I don’t know how to explain what I’m looking for any other way.” And that was the end of the conversation.

Simplicity over complexity

Let’s face it; working in a big company has its issues. Big companies are complex beasts that are hard to traverse. In the first case, I’m certain my request for sales fell through the crack somewhere and may never surface again. Even if it does, I’ve already moved on. In the second case, I finally got to a person that could help me out. But not without the help of social media and a few extra hops finding the “right” contact for my specific situation. Again, far too many people in the process. In the third case, the person was not listening to my needs. They were more focused on the official company process.

Comparatively for their mid-sized contemporaries, the process was far more direct, complementary and simple for a customer to traverse. It is clear that mid-sized competitors do have an edge on their larger, established enterprise companies.

As a result of the experiences above, 2 of the 3 enterprise IT providers lost the opportunity. The third almost lost it, but barely made the running…for now. Unfortunately, those are not good odds.

My point of view

If enterprise IT providers are going to play in today’s ecosystem, they need to change their game. The game itself has evolved and is quickly leaving them behind. The sad part is that most of them either 1) don’t realize it or 2) refuse to believe it. My advise: believe it, step up and make a change.

Not a shocker: SAP puts HANA at center of new biz apps push

When you hear from SAP these days, the software giant always leads with HANA, its in-memory database. HANA is to SAP what Watson is to IBM — proof that just because a company is getting along in years doesn’t mean it can’t do great stuff.

So it’ s not a huge surprise that SAP’s “next generation” business software suite, S/4, will draw heavily on HANA and sport a single unified interface across the applications. The first of these to be delivered, Simple Finance, was introduced Tuesday with more modules to follow.

At a rollout event in New York on Tuesday, [company]SAP[/company] CEO Bill McDermott characterized this as “the biggest product launch in the last 23 years and perhaps the company’s history.”

No pressure there.

The rewritten S/4HANA applications are now available on-premises across industries and regions. Simple Finance is the first application to be offered via SaaS — it’s also available on premises now, according to a spokeswoman.

Update: An SAP spokesman said these new applications were built from the ground up to run on HANA and will not work with third party databases, which is sort of shocking. (So much for earlier reports that the applications would continue to  work with third-party databases if needed — but would work better, faster, prettier with HANA.)

[company]Oracle[/company] has a similar “better together” story around its database, middleware, analytics, Linux and servers — er, make that engineered systems. All of these vendors talk about being open, but also say they’re more powerful when running with the company’s full array of technologies.

Complicating this particular storyline is that SAP and Oracle used to be more friends than enemies, with the majority of SAP’s business applications running on Oracle databases. Then Oracle decided to dive full on into enterprise applications with its acquisitions of PeopleSoft, Siebel Systems and everything else that wasn’t nailed down, while SAP doubled down in databases, buying Sybase and creating HANA. SAP and Oracle also bulked up their respective SaaS rosters — Oracle buying RightNow, Taleo  and SAP snapping up SuccessFactors.

And of course you know, this means war.

This story was updated at 11:16 a.m. PST to add SAP’s statement that the new applications will not run with third-party databases. 

SAP’s lower profit guidance blamed on “tough” cloud transition

SAP, like its enterprise software competitors, has been talking cloud for years, putting a ton of effort into promoting HANA as a cloud-enabled in-memory database for example.

But early Tuesday, a preliminary earnings report for its fourth quarter 2014 had analysts wondering about just how well it’s executing on the tricky balancing act between on-premises enterprise software sales — with big up-front payments and high maintenance fees — and the more incremental sales model of cloud technologies.

In this game, SAP is competing not only with long-time rivals like [company]Oracle[/company], but newer-look (but not really all that new) companies like [company]NetSuite[/company] and [company]Salesforce.com[/company] that offer enterprise applications in the software-as-a-service model. SAP has had a couple of hiccups in that market

On Tuesday, the Walldorf, Germany-based software giant said it now expects operating profit for fiscal 2017 to come in at about $7.3 billion, on revenue of about $24.3 billion,  down from previous guidance of $7.7 billion. Coming as it did after another profit warning four months ago, Wall Street got restless and SAP shares fell 5.09 percent to $63.71 in pre-market-open trading

Bloomberg News summed up the problem: [company]SAP[/company] revenue from cloud subscription and support will reach $2.26 billion to $2.35 billion this year, but analysts surveyed by the publication had expected them to come in at around $2.41 billion range.

To all of this SAP CEO Bill McDermott took to CNBC to say (paraphrasing here) that the company’s core business is growing, its cloud business is growing faster, so there’s nothing to worry about.

SAP, like rivals Oracle and other legacy enterprise software players, have to convince customers that they truly “get” cloud, or at least SaaS.

Sort-of-stealthy Domo gets ready for its closeup

Looks as if Domo, the business intelligence startup founded by former Omniture CEO Josh James, is getting ready to be more chatty about just what its product does and what it’s been doing with the $250 million it’s raised.

It announced plans for Domopalooza, a customer conference to take place in Salt Lake City in April. There’s not a ton known about the product except that it gathers data from all of a company’s existing applications — [company]Salesforce.com[/company] CRM, [company]SAP[/company] ERP, 300 of them in all — to help it react faster to changes or errors in its processes.

Domo CEO Josh James also talked a bit to Re/code. Per that story, Domo is

a big software platform that pulls in all of a company’s operational data, creating a live view of pretty much every aspect of its operations — inventory, manufacturing, the amount of needed supplies, who’s being paid and who’s paying, who the employees are and what they’re being paid.

Which, in truth is very little more than what James told the Wall Street Journal last February (paywall).

At that time, James said Domo can start by:

[showing] someone data about their company, bringing in data from Salesforce and Concur and SAP and looking at the data. The next thing they want is to ask questions, so you need social. Then they want to understand who people are … and it expands and grows from there. We feel like we’re doing seven or eight unique things, and I don’t think there’s a company that has more than one or two.

Domo, founded in 2010, claims 1,000 customers — all of which had to sign non-disclosure agreements about their use of its software. That’s a pretty impressive tally, although a  startup’s definition of “customer” can be pretty loosey-goosey.

Still, James has a lot of credibility. Omniture, which Adobe bought for $1.8 billion in 2009, offers a popular tool web analytics tool.

Domo, based in American Fork, Utah, is one of several new-look business intelligence startups — a cadre that also includes Thoughtspot, Looker, Chartio and others. Since it reportedly has 600 employees, it’s sort of hard to see it as a startup.

Apple targets the enterprise: can acquisitions be far behind?

When you are already the highest valued company in the world, and you want to continue your growth trajectory, what do you do? You move into new territories. That’s why Apple is launching Watch, why Tim Cook continues to talk about TV, and why they signed the partnership with IBM to work jointly on developing business applications.

But new evidence is emerging that shows Apple is gearing up for much more aggressive campaign, partnering with other companies and building its own direct sales force, in a push to make iPhone, iPad — and maybe even Mac — the platforms of choice in today’s business sphere. Reuters reporters broke a story today about the talks that Apple has been having with CIOs across the country, learning what they want and need, and presumably planning a systematic approach to countering players like HP, SAP and Oracle. With IBM as a partner, some of those bases are covered, but it raises many questions.

Obviously, Cook and Co wants to sell hardware to the enterprise — that’s where it is making the overwhelming majority of Apple’s revenue. HP and others sell hardware, too, principally Windows and Android devices, as well as servers, printers, and so on. But Microsoft, Oracle and SAP are primarily selling applications software, some of which Apple and IBM can counter, but there is also a great deal of non-overlap.

That situation — in combination with the hundred billion plus of cash that Apple has in the bank — leads me to a semi-obvious conjecture: Apple is likely to make some acquisitions to build a suite of enterprise software tools.

If Dropbox hadn’t gotten so cozy in recent weeks with Microsoft, I’d suggest that Apple might look there. Perhaps Box instead, although both companies might be overvalued.

Slack would be a great company for Apple’s business push, with tremendous growth and an avid user community, and there are dozens of others.

Apple might what to follow the pattern of other enterprise players, and build its own stack, with various services that could be leveraged by a large ecosystem of developers, partners, and customers. But that may bring a conflict with IBM, who is trying to push the IBM cloud stack. I know it seems unthinkable, but if Cook wants to take on Microsoft, HP, SAP and Oracle, maybe he should consider acquiring IBM, whose market cap ($160 billion) is less than Apple’s cash reserves. That would be a big splash.