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Archive for September, 2008

Sun Tries to Stay Ahead of Commoditization With Storage

Posted by Bob Warfield on September 8, 2008

I liked Jonathan Schwartz’s blog entry Fanning the Winds of Change in Storage.  The seminal passage is here:

Granted, you can see an increasing focus on storage at Sun – the acquisition of MySQL is as much a storage acquisition, as an enhancement to Sun’s developer offerings. Discussions of flash memory, the economics of archiving, the Lustre parallel file system, all point to an increasing focus on what Sun sees as an exceptional opportunity for customers (and thus, investors). Storage and computing are converging – and we’re about to bring the trends that transformed the server industry a few years ago (mass engagement in open development communities, and scale achieved via clusters of commodity parts vs. proprietary technologies) to the historically closed and proprietary storage industry.

I read it a little differently than perhaps Jonathan intended, and perhaps I see Sun in a little different position than Jonathan would want to convey.  From my perpsective they’re being increasingly pushed to being a software company.  There is less and less advantage in their hardware innovations.  The multicore crisis is makinig horizontal scaling a necessity and vertical scaling becomes harder and harder to justify at the limit.  It’s become darned difficult for SUn to produce CPU’s that perform markedly better than Intel’s.  Hence, their hardware business is steadily being commoditized.  At the same time, the OS business is already pretty well commoditized. 

Meanwhile, the advent of cloud computing has meant Storage as a Service has real legs.  Yes, there has been a ton of storage technology available for deployment inside the firewall, and it’s good stuff.  However, cloud computing really brings home the idea that you can start to forget about some of the complexities in storage.  Services like Amazon S3 and Block Services for EC 2 really bring a lot of functionality without requiring much effort, thought, or cost to the consumers of these services.

At Helpstream, we converted backups for our SaaS Customer Service application to use S3 rather than tape a while back and have never looked back.  The quality of protection these backups afford our users is better than we could afford to do any other way.

Jonathan is still very much focused on selling inside the firewall, with products like the “Thumpers” he mentions as having gone to $100M in sales with 80% year on year growth. The interesting question will be whether Sun or any other major vendor can achieve penetration in the cloud market.  Thumper sounds great, but I still don’t see how it lets me do what I need to do as easily, cheaply, and efficiently as Amazon has.

Posted in amazon, platforms, saas, strategy | Leave a Comment »

2 Cents on the Gates+Seinfeld Ad

Posted by Bob Warfield on September 5, 2008

The blogosphere seems unimpressed.  I found the ad interesting, but in no way compelling.  In the spirit of full disclosure though, I never thought Seinfeld was the funny one on his show.  And Bill Gates just doesn’t play either Kramer or Costanza very well.

They’ve got a long way to go to catch the Apple vs IBM ads!

Posted in Marketing | 3 Comments »

Distress Signals From Dell

Posted by Bob Warfield on September 5, 2008

All successful companies have a distinctive competency.  Dell’s has been their ability to sell more cheaply than the competition based on a variety of advantages they developed over the year.  They eliminated the need to pay a costly sales channel for starters by selling direct.  But another big advantage had been their ability to really shave the pennies when it came to manufacturing and just-in-time inventory.

Today I read from Stacey Higginbotham that they’re moving towards outsourced manufacturing.  The scoop came from the WSJ, which reports sources saying Dell is approaching contract manufacturers all over the world to see if they’d like to buy Dell’s plants.

I see this as a distress signal because the company is moving to abandon one of the fundamental competitive advantages that made it great.  It’s not that I think they’re making a mistake–I suspect any company as close to the numbers as Dell is must know exactly what it’s doing, and therein lies the rub.  For Dell to sell the manufacturing plants must indicate they have concluded there is no longer a competitive advantage to owning them.  The contract manufacturing industry can evidently build PC’s just as cheaply as Dell, and hence the market has eliminated one of Dell’s big advantages. 

It’s always tough when markets take away competitive advantage, but in many ways, it is inevitable.  The question is what does Dell do next?  What will be the next major source of competitive advantage?  Having to come up with new advantages late in the game and after some of the old ones have gone dead is always very challenging.

For the time being I have to bet on Hewlett Packard over Dell until I can clearly see Dell’s new playbook.  HP is more diversified, and has other competitive advantages that are working well.  They don’t have to stop and reinvent.

Related Articles

Larry Dignan has a similar take.

Posted in business | Leave a Comment »

Avoiding Collective Stupidity

Posted by Bob Warfield on September 4, 2008

I enjoyed Bruce Eckel’s post on “collective stupidity” in his Artima blog.  He asks how organizations filled with smart people can be collectively stupid, and gives Microsoft and its inability to innovate as an example.

There are whole books written on the difficulties of innovating in large organizations, but I see a couple of patterns from time to time that I thought I’d riff on.  First, lest we forget, smart does not guarantee success.  It is a useful tool along the way, but I’m in the camp that wishes it were lucky rather than smart.

With that said, consider that reporting is very skewed.  A small organization full of smart people that fails tends to just vanish pretty quickly and with minimal news about exactly what happened.  As a result, there is often low stigma associated with failure in a small organization, at least in regions like Silicon Valley that are startup and entrepreneur friendly.   It is small organizations that become wildly successful that are most carefully documented and most widely known.  Two Stanford kids start Google and it’s the stuff of Legend.

But, collectively, many small companies have a portfolio effect working in their favor.  If we largely only hear about and remember the successes and seldom the failures, we may get a skewed perspective on whether the small organizations can fall prey to some of the same (or worse) problems that befall Big Co.’s.

Another thought that weighs on my mind are the many kinds of smart and their interaction with one another.  Students of Myers Briggs and other personality profiling tools understand that there are many learning styles with greater and lesser degrees of compatibility with one another.  Too many incompatible styles, and they just fight with each other (due to lack of ability to communicate in many cases) rather than getting the job done.  Pity the fact-based logical thinker who has to get his point across to the intuitive-leap-of-faith thinker, yet both might be equally brilliant.

Most importantly, consider what kinds of “smart” different organizational environments self-select for as ecosystems.  Large organizatins can emphasize political smart more than entrepreneurial smart.  They have well-developed (and oft discussed) antibodies that favor staying on course.  After all, that course is what made the organization big, right?  The trouble happens when it’s time to change that course.

This brings me to a last critical point.  If you believe in the idea of antibodies attacking change, it is very important to carefully define what it is your organization does to be successful in such a way that the important things to keep changeable are outside that circle and so immune from the antibodies.  If what you do to be successful is to execute the CEO’s micromanaged vision of what should be done without argument or doubt, obviously that will be hard to ever change without encountering serious antibodies!

When innovation is important to embrace, the ideal is to create a portfolio effect within the organization.  Organizations that think what they do to succeed is incubate new ventures internally will likely be good at that, and the new ventures can bring change.  Unfortunately, it is very hard to have that vision of what’s good if you’re required to grow from a VC-backed startup to that stage.  It simply requires different skills to get from one to the other.  Perhaps this is where Microsoft fell into a pot hole.

I am reminded of a conversation I had ages ago with executives from Toshiba.  They were meeting us to discuss a partnership, and I asked them what they thought the differences were in competitive strategy in Japan versus America.  Their answer was intriguing.  In their view, Japan kept everything inside individual large companies with just a little Kieretsu-style cooperation.  People worked cradle to grave for the same employer, and often on the same projects.  The executives wistfully described their view of Silicon Valley as being like the ultimate single company.  Whichever startup they would slay, ten others would spring up in its place each one armed with the knowledge of how the former had failed and each one a more formidable adversary.

Difficult to keep slaying those dragons as they get smarter and smarter each time.

Posted in business, strategy | 2 Comments »

Google Chrome: Where’s the Strategy?

Posted by Bob Warfield on September 2, 2008

Buy now everyone will have heard that Google is releasing yet another browser.  The overwhelming majority of folks I talk to offline registered a collectively negative sigh at the news.  Developers see it as one more potentially incompatible browser to be tested.  Pundits I talk to see it as more tilting at windmills that may or may not result in any net motion forward.  In general, the reaction is simply that the world didn’t need another browser.

Online, the news is not too different.  Dennis Howlett ruminates that another protracted Google beta product is irrelevant for business, which can’t adopt beta software anyway due to SOX compliance and other governance and risk aversion issues.  The money quote is:

Despite their mantra of ‘release early and iterate‘ Google doesn’t live up to its own words except in fits and starts.

Dennis is not alone, at least among the Enterprise Irregulars.  Larry Dignan sums it up thus:

the consensus seems to be that Google will make a splash for two months or so and then developers will see what the catch is with Chrome. From there we’ll find out if Google’s Chrome browser is worth much.

There are some in the opposite camp.  This camp says that there is a method to the madness, and that Chrome is not simply “Yet Another Browser We Didn’t Need.”  Nicholas Carr (natch!) has said:

(Google) knows that its future, both as a business and as an idea (and Google’s always been both), hinges on the continued rapid expansion of the usefulness of the Internet, which in turn hinges on the continued rapid expansion of the capabilities of web apps, which in turn hinges on rapid improvements in the workings of web browsers.

In essence, Google must build a browser in order to realize a full vision of Cloud Computing.  On this, Nicholas is right, and Fred Wilson is also tracking closely.  The pace of browser development as an application platform has been glacial.  And yet, I am reminded that platforms that change too rapidly are not stable foundations.  Typically it is not the role of the platform to change radically, except perhaps in its first incarnation.

I came across another interesting, if somewhat sinister, write up in the Cap Gemini blog.  Recall that these folks have been partnered with Google in attempting to get Google Apps into the Enterprise.  The post, titled “World Domination is Near“, talks about the incredible amount of information Google already collects about what you and I are doing online.  Owning the browser completes that picture in an seamless way because it gives Google visibility right at the source.

For myself, I hunger for a Google strategy.  It has seemed like Google dabbles in just about everything remotely related to the web, but that they are almost never deeply successful at it.  They certainly release early, but the iterations are very slow and the evolution seems minimal.

I’m not surprised they’re adding a browser to the list, but I am not impressed either.  Strategy is essential for all organizations.  My favorite definition of the word is that Strategy makes winning easy.  How does a new browser make winning easy for Google?  How do most of the web products Google has rolled out make winning easy? 

Google is a company that in some ways has not had to think about strategy.  Their dual search and advertising franchises have powered unlimited growth and the opportunities to dabble that go along with that.  But they’re nearing the limits of the envelope.  They’re regressing to grow at the mean market growth of those areas, which is a lot slower growth than they’re used to.  Inevitably Wall Street follows up slowing growth with tremendous profitability pressure which they seem ill-equipped to address.

What could real strategy mean to Google?  Microsoft had real strategy in its critical formative years from Bill Gates and used it to parlay one monopoly into several.  But how about an easier to grasp example.  Jack Welch insisted General Electric only focus on markets where it could be #1 or #2.  Look at the plethora of Google offerings.  How many are #1 or #2?  Does their new browser have a shot in our lifetime (hey, I’m older!) of being #1 or #2?

Where’s the strategy behind it all? Yes, we can put together some kooky notion of how anything Google is doing leads to world domination. But is Google really just, “a freak of a company, the best advertising business ever built is funding the largest collection of mad scientists ever assembled?” 

Or is there a deep strategy we just haven’t groked yet?

Posted in strategy, Web 2.0 | 5 Comments »

Which Came First: The SaaS Chicken Or The On-Premises Egg?

Posted by Bob Warfield on September 1, 2008

There’s quite a lively discussion among the various Enterprise Irregular blogs about Harry Debes extreme prediction that the SaaS market will collapse within 2 years.  Even Sarah Lacy is jinking back and forth in her views, first declaring SaaS “a Brutal Slog” and then taking Debes very much to task.  Harry Debes must be feeling he can’t win with Lacy nailing either viewpoint.

As I mention in my previous post, the prediction makes no sense to me whatsoever because the reasons Debes outlines, namely profitability, just don’t hold water when you look at real numbers.  This was my argument when I took Sarah Lacy to task as well.  Everyone wants to bash SaaS over profitability, but it’s just not that bad.  It’s also a red herring, because it is far from clear how well On-premises software even sells these days unless the company selling approaches a billion dollars in revenue.

One of the refrains common to all of these SaaS articles has been the point that SaaS is good for customers, though some are arguing it’s bad for vendors.  Perhaps “good for customers” is too strong, though I think it is, but certainly SaaS is something customers want.

Out of curiousity, I polled some sales contacts I have at hybrid companies.  I was curious about their thoughts concerning SaaS vs On-premises in a situation where they have both products to sell.  What do customers prefer and why?  How much control does the vendor have to sway those preferences.  The answers that came back were interesting.

First, SaaS is very much a phenomenon of small and medium businesses.  They overwhelmingly prefer SaaS and most of the time don’t even want to talk about On-premises, according to my sources.  Pity poor Lawson and Harry Debes, because this is precisely their market.  It must be tough not having a SaaS offering to give to them, and not wanting them to have it in any case.  Once that SaaS offering is available, it’s very very hard to sway smaller organizations away from it, all other things being equal.  Here, Lawson primarily has the advantage of a much richer offering than the SaaS world has been able to put together, to date.  But we all know those kinds of advantages are very hard to sustain forever.

What about larger organizations?  Here the story is also interesting.  It’s a tale of what IT wants versus what the Business people want.  That has to be familiar to anyone who has been involved with selling Enterprise Software.  And, also not suprising, these two have quite different agendas.  As an amalgam, the four reasons my sales sources tell me a large organization chooses SaaS include:

Perception of Faster Time to Market for SaaS

My sources were careful to label this “perception” as they still sell On-premises.  But, the general world perceives a SaaS app can be brought live and made valuable much sooner than an On-premises app.  This is typically a bargaining chip for the Business side.  They’ll get a go-live quote for SaaS and then hang that around IT’s neck.  Can you make that same deadline with On-premises?  Even if they think they can, there is serious organizational risk and political capital at stake to make a run at it. 

Lower Implementation Costs

Closely allied with time to market are lower implementation costs.  Typically there will be no large SI firm involved with a SaaS install.  Cost overruns are percieved as much less likely.  SaaS companies are honed around the idea that the service has to be cheap to install else the other economics will make no sense, so they’ve spent a lot of time fine tuning this process.  Having seen both models myself, I think this one is more than just perception.  If nothing else, the SaaS company can insist on and get Best Practices around nearly every aspect of implementation since it takes place with their personnnel largely in their data center.

SaaS has a Better Risk Profile:  Turn it Off Any Time

Interestingly, this comes up from IT as often as the Business.  IT appreciates being able to just turn off the SaaS service and move on if things aren’t working.  In the On-premises model, there are huge sunk costs, not the least of which is the up front license fee, but there’s also hardware and a whole host of other charges.  Most of the money is spent before the service is ever seen working or delivering value.  My friend Chris Cabrera of Xactly is fond of saying (as have other SaaS CEO’s) that you have to earn the business again each and every month with SaaS.

What’s Unsaid:  Business Often Wants to Minimize IT Involvement

Another one that should not be surprising to anyone who has sold in the Enterprise:  Business and IT often don’t get along very well.   There are a host of reasons for it, some fair, some not so fair, but the fact is that many on the Business side feel that internal IT is expensive, hard to deal with, and produces mediocre results at best.  More than one clever SaaS sales person has fanned these flames to take advantage of the rift when selling their solution.  The trouble is, unless the application in question requires almost no integration (Sales Force Automation, anyone?), the SaaS vendor will have to deal with the IT folks anyway.


So there you have it.  After talking to some sales people, I am more convinced than ever that SaaS is here to stay, despite whatever Harry Debes might think.  I suspect there are probably a host of other reasons I did not uncover that go to why SaaS sells so well.  We can continue to debate the profitability question as Harry Debes and Sarah Lacy are wont to do, but it seems to me there are SaaS companies out there showing this is also less of a problem than we’re led to believe.  I leave you with another great article for exploration:  Penny Crossman’s WSJ piece on the “almost meteoric rise of SaaS on Wall Street.”  Surely success in the fickle and extremely risk-averse world of financial instituations is a good sign for the future of Software as a Service.

Related Articles

Jeff Kaplan chalks Debes’ rant up to arrogance.

Posted in business, saas, strategy | 2 Comments »

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