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Archive for May, 2010

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The Gas Pump Theory of User Interaction

Posted by Bob Warfield on May 28, 2010

You can learn a lot from simple things in life.  Simple behaviors that run below the level of consciousness make decisions for us all the time.

Take the humble gas pump as an example.  Pretty simple to operate.  Yet I noticed some time ago that gas station operators were changing the order in which they presented the various grades.  They all started with Regular, Unleaded, and then Premium–basically in the order of price or quality.  Then they switched in increasing numbers to just the reverse–Premium suddenly started appearing on the left at many stations.

Why would they do that?  Because in a land whose language is read left to right, those unconscious decision makers will just press the first button and thereby purchase the most expensive and highest margin grade of fuel available.  Not everyone will do that, but enough people do that it is worthwhile for the pumps to change.

We took advantage of this phenomenon at Helpstream when we were presenting people with choices for their Customer Service.  From an economic and benefit to customers standpoint, the most advantageous ranking of customer service avenues goes like this:

  • The customer searches and finds their question was already answered.  Total self-service, quick answer to the customer, almost no cost to the organization.
  • The customer asks the Social Community their question, and it is answered in the Community.  Not quite as good, but at least the answers wind up in the Community where the next time someone can find them.
  • The customer submits a trouble ticket.  The worst.  A service agent will help this customer, but the answer is buried in the ticketing system, so the next customer with the same problem starts all over again.

So, we simply made sure that in our user interface, customers always saw their choices in that order.  We would even turn off the ability to submit a trouble ticket for a period of time or for particular customers, such as those who had not purchased platinum support.  The system worked great and we routinely had our customers report that they needed tremendously fewer agents per customer, and that customer satisfaction had increased.

The principle of Gas Pump UI Design works in a lot of other places too.  My wife is left-handed.  When we are in a crowd, at a concert or theater, I always follow her and ask her to choose the path we take just randomly without thinking about it too much.  Of course her path isn’t really random, it’s just under control of those unconscious decision makers.  As a leftie, which is the minority of the population, she makes choices most of the population doesn’t.  And we wind up in the shorter lines or getting to our seats faster than if I had let my right-handed decision makers try to go where the majority of people were already going.

This process works great for web site design too.  If you are a marketer or product designer, you need to be aware of it and taking advantage of it.  I was reminded of the principle while reading a Clicktales blog post.   I love the Clicktales product because it is a window into those unconscious decision makers.  In that article, they discovered that changing one word doubled the conversion rate for a registration form.  The problem was they were not being obvious enough and the unconscious decision maker was stalled, having to call for conscious help.  The first version of the form had asterisks (“*”) by required fields and no asterisk by the phone number.  While it is a convention, it’s too hard for the unconscious to decipher.  People would get through filling out every other field and then abandon becaues their unconscious decision autopilot couldn’t figure it out.  Simply adding the word “optional” to that field to make it more obvious doubled their response rate.

I’ll leave you with this simple thought to mull over for the Memorial Day Weekend:

What can you do to empower the unconscious decision maker autopilot to help your customers and your business?

Posted in user interface | Leave a Comment »

Time Commoditizes Every Advantage

Posted by Bob Warfield on May 25, 2010

“For over a thousand years Roman conquerors returning from the wars enjoyed the honor of triumph, a tumultuous parade. In the procession came trumpeteers, musicians and strange animals from conquered territories, together with carts laden with treasure and captured armaments. The conquerors rode in a triumphal chariot, the dazed prisoners walking in chains before him. Sometimes his children robed in white stood with him in the chariot or rode the trace horses. A slave stood behind the conqueror holding a golden crown and whispering in his ear a warning: that all glory is fleeting.”
– Gen. George C. Patton

Indeed, all glory is fleeting, as is all competitive advantage.  Steve Jobs is one of the modern-day Pattons of Tech, very much in the mold of the George C. Scott movie character.  He is a superb warrior who occasionally embarrasses himself through his ego, but who rarely loses the fight.  His thirst for more glory in the form of more crushing wins for Apple is seemingly insatiable.  But time is not on his side from many perspectives.

When left to his devices, Jobs will eventually spawn a product that completely upsets the conventional wisdom and storms the markets.  John Doer has rightly called Apple one of the four horsemen of the Internet, and Steve Jobs is surely the rider and master of the horse.

Yet the very success Jobs craves drives competitors to extraordinary lengths to take the market back.  Imitators come along and at first do poorly.  But over time, they get better and better as Apple’s advantage gets less and less.  Eventually it boils down to brand and fashion.  Sure, its a nice polo shirt, but mine has an alligator or a polo player, so it has to be better.  Time whittles away competitive advantage.  It is relentless and cannot be bargained with.  The only antidote is to keep running to produce more innovations.  Apple is actually quite good at this, but they’re poised on a teeter totter of advantage that can come crashing down quickly as weight shifts.

Because their devices are better and came first, many more people use them.  Because many more people use them, their ecosystems are more vibrant, which makes more people use them.  It’s a virtuous cycle, but it is vulnerable.

Larry Dignan says the Android Tablet Armies are starting to form.  He has a great insight in that the iPad isn’t as big an innovation as the iPhone was.  In fact, it is many of the same innovations built on a different form factor.  The world is further along at copying the iPhone, so therefore the iPad will enjoy an even shorter period of uncontested glory.

Google is already outselling the iPhone with Android during some periods.  A growing audience is getting experience with both phones, and will write about the experience.  Some people will choose the alternatives for reasons that Apple’s followers will scoff at–because they are cheaper, because they have keyboards (I know a lot of women who hate the iPhone because their long fingernails make the touch screen difficult), because they like Flash (and mobile Flash games are pretty cool), because the Kindle screen is easier to see in direct sunlight, because Android has tethering, to get away from AT&T, and on and on. 

This is the part where open beats closed just by sheer attrition, and one man, one device, and one carrier cannot claim to be more open, no matter how skilled they are at marketing.

The other thing that happens is a peculiar emotion related to Schadenfreude (pleasure derived from the misfortune of others).  We’re genetically wired to be wary of the most popular thing.  There’s too much power there that can one day be used against us.  In fact, you don’t have to watch the Tech Markets for very long to conclude it will be used against you–it’s only a matter of time.  This genetic wiring is why the underdog always has a following.  In this case, Google is doing a masterful job of positioning themselves as the good guys and the underdog, just as Apple’s share of these devices is huge and the value of their stock is soaring, even though Google itself isn’t exactly an underdog by any normal measure.   It doesn’t matter, people crave an alternative to the leader.   It isn’t safe when there is only one leader.

Startups take heed.  A long time ago a very successful VC drew a chart on a napkin that he said was everything anyone needed to know about startups.  It consisted of a line that popped up very suddenly and then grew slowly.  Meanwhile a faster growing line starts a little later, but without the big initial pop.  The initial pop represents the startup’s inspiration–the big idea that put them on the map, created most of the value, and then grew from there.  The faster growing line represents the market trying to copy and commoditize the startup’s idea for their own advantage.  We don’t necessarily know all the variables at the outset:  how big is the pop?  How fast can the startup grow?  How long will the market wait before it tries to commoditize?  How fast can it commoditize?  What we do know is that when the lines cross, the startup is changed forever unless it can create another big innovation.

You can grow a startup to a big company either because all the variables line up right (you got a really big pop, you grew really fast, and the market gave you time to build up an unassailable lead), or because you keep building with more innovation pops.  Either way, you’re running out of time faster than you think.  Time commoditizes every advantage.  All glory is fleeting.

Posted in apple, gadgets, Marketing, platforms, strategy | 1 Comment »

How Much Uptime Does Your Application Need?

Posted by Bob Warfield on May 25, 2010

I was having an interesting discussion with a friend recently about Amazon’s spot instance pricing for EC2 that prompted me to write this post.  Let me walk you through how it went, because I think it replays some of the thinking that all startups should go through about their online service.  BTW, hat tip to Geva Perry for putting me on to the spot instances, which I hadn’t noticed.

To begin with, what is Amazon’s spot instance pricing?  A spot instance is one where you bid, sort of auction style, what you’re willing to pay for an EC2 instance.  The spot price moves up or down based on availability.   For the most part, it is quite a bit less than the normal retail pricing for EC2, so one can get EC2 instances for considerably less.  I think this is a very cool model.  But, there is a catch.  Amazon publishes the spot price, which is based on the availability of unused capacity.  If the spot price goes above your bid, your EC2 instance will be immediately shut down.  Note that you don’t pay your bid price either.  Instead, you pay the spot price, which by definition has to be below your bid price right up until they shut you down for having bid too little.

Interesting model, no?  I was remarking to my friend about how excited I was about it.  You see, cost to deliver the service really matters for Cloud and SaaS businesses, and here was Amazon blazing an interesting new trail with the potential for interesting savings.

My friend’s reaction was pretty negative.  He couldn’t imagine dedicating a production application to an opportunistic model like this where his app could go down at any moment due not to some catastrophic failure, but to the vagaries of this odd marketplace.  It was a brief exchange, but I almost wondered if he thought it unsavory to do that to his users.

The thing is, most developers and businesses automatically assume that whatever software they are offering has to be up 24×7, five “9’s”, and with 100% efficacy.   But is that really true? 

No doubt it is for some apps, but probably not for a lot of apps.  How do you know what is needed for your application?  Your customers will tell you, but not because you asked.  If you do ask, of course they want 100% uptime.  They may even insist on it contractually.  However, your service has almost certainly gone down and been unavailable.  They all do, sooner or later.  It has probably experienced outages that are so short, nobody noticed, or perhaps very few did.  BTW, read the fine print carefully on those five “9’s” Cloud SLA’s.  They’re all riddled with exclusions.  For example, they may exclude outages caused by their Internet service provider.  They may exclude outages lasting less than a certain length of time, or outages that had a certain amount of lead time warning.  Those businesses have spent time understanding what their customers really demand and what they can really deliver. 

Getting back to the story at hand, you’ve probably had outages.  Let’s say you had a 10 minute outage.  How many of your customers noticed and called or wrote?  At Helpstream, when this happened, and it was seldom, a 10 minute outage would generally net contact by 1 to 3 customers.  This despite having nearly 2 million seats using the software.  The contact would boil down to, “What’s going on, we can’t access the service?”  Usually, the service was back up before we could respond with an answer, and the customer had already lost interest in the outage.

Does this mean you can bombard customers with 10 minute outages with impunity?  No, absolutely not.  But in this case, a rare 10 minute outage was not causing a lot of trouble.  Now look at spot pricing and Amazon.  It typically took us 3 or 4 minutes to spin up a new server on EC2.  So, if we had to convert all servers from spot price to normal instance pricing, that could be done in well under 10 minutes of outage.  Consider that the worst case and consider that it might happen once every six months or so.  What are some better cases?

There are many.  You could envision cases where only part of the service was down, or perhaps where the service simply got a little slower because some, not all instances were using spot pricing on a highly distributed “scale out” architecture.  While you may have an app that couldn’t tolerate a 10 minute service outage, how many couldn’t tolerate being slower for 10 minutes out of every 6 months?

Or, consider an opportunistic scenario for giving customers a better experience on a mission critical application.  Take my old alma mater, Callidus Software.   Callidus offers a transactional piece of enterprise software that computes sales compensation for some of the world’s largest companies.  Take my word for it, payroll is mission critical.  The transaction volumes on the system are huge, and a compensation payroll run can easily take hours.  We used a grid computing array of worker processors, up to 120 cpu’s, to compute a typical run.  These were restartable if one or more died during the run.  Can you see where this is going?  If the whole grid were done with spot priced instances, and the whole grid went down for 10 minutes, it would simply delay the overall run for 10 minutes or so.  Not great, but not the end of the world.  Now suppose Callidus offered 50% faster payroll processing because it could afford to throw more cpu’s at the problem.  Buried in the fine print is a disclaimer that sometimes, even as often as once a quarter, your payroll run could be delayed 10 minutes.  Yet overall, your payroll would be processed 50% faster.  Does anyone care about the rare 10 minute delay?  My sense is they would not. 

My hobby involves machine tools, and machinists are constantly upset with drawings that specify too much precision in the part to be machined.  It’s easy for a young engineer to call out every feature on the drawing with many digits of precision.  But, each digit costs a lot more money to guarantee because it means a lot more work for the machinist.  Up time is the same sort of thing.  Specifying or offering SLA’s that are excessively harsh is very common in the IT world, but there is a cost associated with it.  The moral of the story is, don’t just assume every service and every aspect of every service has to have five “9’s” of availability.  Consider what you can do by trading a little of that away for the customers or for your bottom line.  Chances are, you can offer something that customers will like at a lower delivery cost.  Assuming your competitor’s haven’t thought of it, that might just be the edge you’re looking for.

Posted in cloud, saas | Leave a Comment »

Facebook Working Overtime to Earn People’s Ire

Posted by Bob Warfield on May 23, 2010

The wife just walked in after having delivered number one son to an appointment to report that Facebook was all over the local radio station.  It seems that consumer advocate Leo Laporte is unhappy with them first over privacy (natch), then over making it hard to delete your Facebook page, and finally over deleting content on people’s Facebook pages.   It seems Laporte laboriously wnet through the pain to figure out how to delete your Facebook page and passed on the news on a web page.  A station back east picked up the link and put it on their Facebook page.  Next thing you know, Facebook deletes that link and the S**tstorm starts anew for Facebook.

I can’t make this silly nonsense up, Scoble is seeing and blogging about the same thing.  The comments around this stuff are radioactive.  Apparently Facebook has felt free to delete all kinds of things.  As my wife says, when people wake up and realize they don’t really own their content on their page, Facebook does, they are going to be pissed.  The other thing she rightly points out is she can’t believe Facebook’s employees are busy on the weekend doing this stuff.  Working overtime to earn people’s ire is not a great customer satisfaction strategy!

I don’t care how smart the Facebook people and Marc Z. think they are, nor how many people use Facebook, when it reaches a point where my wife hears this stuff on the radio, they’ve got a problem that needs fixing urgently and needs not to get broken again.

Posted in Web 2.0 | 1 Comment »

Jealous Chipmunks and Machiavelli on Entrepreneurial Success

Posted by Bob Warfield on May 19, 2010

There is much to be learned from history, despite our feeling that each day is a new one.  Entrepreneurs need many things to succeed, but a solid grasp of people is one of the more valuable.  Ironically, there are a few professions that make for strange bedfellows where this is true, and politics is one of them.  Perhaps one of the more infamous experts to the rulers of his day on the nature of people was Machiavelli.   Below is a series of brief quotes from the Master that inspires us on the matter of facilitating change and entrepreneurial success…

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.”

People in general do not appreciate change, despite their great protestations to the contrary.  Those who prefer it are the very young and the Early Adopters who are evidently bad targets on which to base a business for they are not numerous and often do not possess large budgets.  Huge empires persist without apparent innovation precisely because the desire to keep the status quo is almost unreasonably powerful.  Therefore, as entrepreneurs, understand that you are proposing change, and this will not be received easily.

Yet change can be very valuable too:

“One change always leaves the way open for the establishment of others.”

This is of course what new companies count on.  A change in the market, a paradigm shift as the larger changes are called, does indeed leave the way open for other changes.  Those empires built on the power of inertia (another name for Brand, perhaps?) may be displaced by the usurpers surfing the winds of change.  The trick, then, is to identify the most palatable change for your customers that will facilitate the further changes you will need them to make in order to secure your success.  The so-called “Land and Expand” sales strategy of selling to a small department to gain success that leads to wholesale adoption is one example.

“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage. “

Change can be mistaken for an obstacle, but obstacles are also change catalysts.   SaaS and Cloud computing have soared ahead on the back of the obstacle of the bad economy because it forced organizations to consider change.  I knew a talented Vice President of Sales one time who said he preferred to sell to organizations that were either going gangbusters or that were in dire trouble.  He also preferred selling in extremely good or extremely poor economies.   Both conditions represent change of one kind or another, and thus opportunity.

“Men are so simple and yield so readily to the desires of the moment that he who will trick will always find another who will suffer to be tricked.”

Advantage is more easily gained through the desires of the moment rather than long-term aspirations.  Strategic sales are great, but they have to pan out quickly.  Predicate your plans for long-term success on your ability to help your customers win in the short-term.  SaaS offers a prime example of this lesson.  Customers are ahead on budget for years relative to what it costs to buy on-premises software.   But ultimately, the SaaS company will be ahead if it can keep the customer happy long enough.

“Where the willingness is great, the difficulties cannot be great. “

John Wayne put this a bit more bluntly when he said, “If you’ve got them by the balls, their hearts and minds will follow.” 

First seek great willingness to act and then identify what change you can foment from it.

“The one who adapts his policy to the times prospers, and likewise that the one whose policy clashes with the demands of the times does not. “

Once having embraced change, be aware that change also changes.  What was a revolution becomes the status quo.  What was willingness becomes complacency.   Always be on the lookout for new change and new sources of willingness that can provide further fuel to your engine of growth.

“No enterprise is more likely to succeed than one concealed from the enemy until it is ripe for execution.”

When you must invoke change, do so under the cover of something less threatening.  Recently funded Northscale presents a great example of this principle.  Ultimately, they would like to get everyone to change to NoSQL databases, but this is a pretty extreme change to contemplate.  Instead, they are exploiting the willingness to undertake a much smaller change in the form of adding Memcached to your conventional SQL database (BTW, that Memcached article remains a long-term popular post on this blog).  Once having convinced you to make that change, their software now sits in a position to facilitate the further changes to go the whole NoSQL route.

“Men rise from one ambition to another: first, they seek to secure themselves against attack, and then they attack others. “

I love Seth Godin as a man who has a solid grasp of people and isn’t afraid to share it.  This advice from Machiavelli to focus on fear first is something Godin agrees with because there are no jealous chipmunks:

Chipmunks, wolves and other wild animals rarely get jealous. The number one emotion among wild animals isn’t vanity or happiness: it’s fear.

Fear is everywhere in the animal kingdom, because fear is a great way to stay alive. Fear is hard-wired into successful species… it doesn’t need to be taught.

You guessed it, we’re wild animals too, a lot of the time. Marketing that preys on fear (buy duct tape!) has the shortest path to follow to success, because the public can’t wait to get scared. An entire portion of our brain (the same brain the lizard has) is dedicated to fear. And it can’t wait to spring into action.

Capitalize on the fears your customers have, because fear creates a willingness to act and that willingness can be harnessed for change.

“Never was anything great achieved without danger.”

Avoid the Lizard Brain, as Seth Godin calls it.  As an Entrepreneur intent on fomenting change, you can’t afford it.  The Lizard Brain worships the status quo out of fear of change.  It is the one that ensures that men first seek to secure themselves against attack and only then can their thoughts turn to attacking others.  As Godin says:

Want to know why so many companies can’t keep up with Apple? It’s because they compromise, have meetings, work to fit in, fear the critics and generally work to appease the lizard. Meetings are just one symptom of an organization run by the lizard brain. Late launches, middle of the road products and the rationalization that goes with them are others.

To some extent, all of Machiavelli’s advice can be read as taking advantage of your opponent’s Lizard Brains while preventing your own Lizard Brain from interfering with your success.  You must defeat your customer’s Lizard Brains in order to win, and you must quiet your own Lizard Brain in order to suit up and win that battle.

Posted in business, strategy | 2 Comments »

Amazon Stealing the Cloud

Posted by Bob Warfield on May 17, 2010

I saw a spate of recent articles that had some pretty amazing statistics and news bits on Amazon Web Services and competitors.   In no particular order:

–  A survey of 600 developers by Mashery reported that 69% of respondents said Amazon, Google, and Twitter were the most popular API’s they were using.

–  Even the Federal Government is turning to the Amazon Cloud to save money.  Sam Diaz reports the move of Recovery.gov will amount to hundreds of thousands of dollars.  We found tremendous savings at Helpstream from our move to the Amazon Cloud.

–  Derrick Harris at GigaOm suggests its time for Amazon to roll out a PaaS to remain competitive.  As an aside, are you as tired of all the “*aaS” acronyms as me?  Are they helping us to understand anything better?  BTW, I think the move Harris suggests would be the wrong move for Amazon because it would lead to them competiting with customers who are adding PaaS layers to Amazon.  They should stay low-level and as language/OS agnostic as possible in order to remain as Switzerland.  Let Heroku-like offerings be built on top of the Amazon infrastructure by others.  Amazon doesn’t need to add a PaaS and they don’t need to add more value because they’re afraid of being commoditized.  As we shall see below, they are the commoditizers everyone else needs to be afraid of.

–  Amazon and Netflix jointly published a great case study and announced Netflix would move more infrastructure into Amazon’s Cloud.  I had a chance to talk to the Netflix folks early on about their Amazon activities.  Smart people.  Amazon needs more big organization and big brand case studies to accelerate their Cloud dominance.  Big loves to follow what Big does.

–  A wonderful post on CNet talks about Goldman Sachs’ findings for the Cloud.  There were a ton of them including:

          – A ranked list of apps moving into the Cloud.  Web Conferencing and Salesforce Automation were #1 and #2.  No surprise.  Accounting and Billing were #3, which I found a big surprise, but it only makes sense, especially for billing.   This was one of the fastest growing categories as well.  A lot of discussion among folks I talk to has centered around the idea that particularly accounting might be the last to go because there is little value add, the data is sensitive, yada, yada.

          – The majority of SMB’s now have a “SaaS first” policy, they prefer it.  This was only surprising to me as a blanket declaration.  I had seen first hand that SaaS companies no longer spend much time convincing customers, “Why SaaS?”  The market is way past that stage.  Many of the respondents to Goldman’s survey indicated they were using SaaS in this economy for TCO reasons, to save money.

          – And now the Amazon bits:  Amazon.com is used by 67 percent of the survey respondents. It is clearly the out-in-front leader, despite being a “newcomer” to enterprise IT. For internal clouds, VMware’s leadership remains pronounced, with 83 percent of respondents using its virtualization technology.  Platform-as-a-service layers are gaining momentum, dominated by Amazon’s Elastic Compute Cloud, or EC2, service, with 77 percent of respondents choosing EC2 as a preferred partner, well ahead of Google.  These share numbers are why the title of this post is that Amazon is stealing the Cloud.  They represent remarkable share and momentum.  They also reflect that, much like SaaS, the world is less and less worried about whether to embrace the Cloud and more and more getting on with it.  The weak economy has really accelerated these trends due to the perception that SaaS and the Cloud are big money savers.

–  UK firm Netcraft finds that the Amazon Cloud hosts 365,000 web sites.  Evidently a number of firms have discovered that web hosting is a great commodity use for the Cloud.

–  PC World asks why Amazon doesn’t charge more for its service.  They conclude that AWS is looking to build economies of scale and set low prices that act as a barrier to entry for new competitors.  Like I said, Amazon isn’t afraid of being commoditized for they are the commoditizers.  Even if they kept their prices fixed, and they keep lowering them, Moore’s Law as well as economies of scale would enable them to deliver the service at increasingly profitable margins.

What does it all mean?

If nothing else, Amazon has a pretty amazing lead over other would-be Cloud competitors.  And they’re building barriers to entry of several kinds:

–  Nobody but Amazon has the experience of running a Cloud service on this scale.  They can’t help but be learning important things about how to do it well that potential competitors have yet to discover.

–  There is a growing community of developers whose Cloud education is all about Amazon.  Software Developers as a group like to talk a good game about learning new things, but they also like being experts.  When you ask them to drop their familiar tools and start from scratch with something new you take away their expert status.  There will be a growing propensity among them to choose Amazon for new projects at new jobs simply because that is what they know.

–  Economies of Scale.  Consider what kind of budget Amazon’s competitors have to pony up to build a competing Cloud infrastructure.  A couple of small or medium-sized data centers won’t do it.  Google already has tons of data centers, but many other companies that haven’t had much Cloud presence are faced with huge up front investments that grow larger day by day to catch up to Amazon.

–  Network effects.  There is latency moving data in and out of the Cloud.  It is not significant for individual users, but it is huge for entire applications.  The challenge is to move all the data for an application during a maintenance window despite the latency issue.  However, once the data is already in the Cloud, latency to other applications in the same Cloud is low.  Hence data is accretive.  The more data that goes into a particular Cloud, the more data wants to accrete to the same Cloud if the applications are at all interconnected.

It’s going to be interesting to watch it all unfold.  It’s still relatively early days, but Amazon’s competitors need to rev up pretty soon.  Amazon is stealing the Cloud at an ever-increasing rate.

Posted in amazon, cloud, saas | 17 Comments »

Forrester Full of Balooney

Posted by Bob Warfield on May 15, 2010

I had to laugh when I read about a new Forrester report that claims “curation” is a proven model for success based on the iPhone market.  The analyst is arguing that less choice is better.

When you have 200K applications available and the app developers are complaining about the noise levels they have to get through for consumers to find their apps, how can you discern this “curation?”  How do you conclude it has added value?

Balooney.

Posted in saas | Leave a Comment »

SAP + Sybase: Sy-Who?

Posted by Bob Warfield on May 13, 2010

I spent all of about one hour trying to psych myself into writing a post about all the great things SAP could accomplish with their $6B acquisition of Sybase, and then I woke up.  The deal just simply makes no sense, and as fellow Enterprise Irregular Vinnie Mirchandani said:

I wish SAP had not done this. They have enough on their plate without adding another layer of complexity and chaos to distract management.

This deal is a classic example of a wounded elephant crashing through the jungle, wanting to change the past, and having the resources to make a stab at some semblance of that distorted vision through an acquisition.  The only reason I could maintain a quasi-coherent notion of the deal being a positive for as much as an hour was that I’m old enough to remember when Sybase and SQL Server were the same thing.  Had SAP acquired SQL Server, they might have a shot at displacing Oracle from a significant portion of their installed base.  But Sybase is not SQL Server and has not been for a long time, and it is just as much a fantasy that they could buy SQL Server as it is that Sybase will make enough difference to offset the distraction and confusion.

Let’s deconstruct this scenario where SAP goes into their installed base and unplugs Oracle in favor of Sybase.  First thing to remember:  SAP’s installed base by now is probably the most hidebound, kept-in-place-by-momentum, risk averse, change averse, and ponderous group that could be.  They have spent millions (if not billions) of dollars and thousands of careers weaving together the SAP quilt of highly customized and interconnected modules.  Much of that interconnection has involved directly accessing the database schema which creates further brittleness and resistance to change.  Moreover, the Business Processes that depend on SAP software are not casual its-okay-if-it-breaks-for-a-time processes.  They are Mission Critical. 

Meanwhile, Sybase has a 3% market share.  Did these customers of SAP pick the Market Leader or the failing also ran that had faded years ago when they bet on SAP?  Yet, because SAP got out their checkbook and blessed it (” Oh no, this is not the least successful DB you ever heard of” spoken as “These are not the droids you’re looking for”), these very same customers will line up in droves so they can thumb their noses at Larry Ellison.  As Johnny Dep would say, “Fuhgeddaboutit”.   These SAP customers are not Sybase customers.  Their reaction will be “Sy-Who?”  Heck, by the time the German Engineers get done making this new old product worthy of German SAP Engineering so that it fits into that intricate patchwork I described and can peacefully coexist with the Oracle that is already there without requiring a boil the ocean wholesale change, the ice pack will have melted and we’ll have bigger fish to fry.

“But wait,” the SAP faithful will say.  “This was never about the database, it’s about the mobile market.”  Larry Dignan’s excellent article reports various SAP executives justifying the deal on the basis of mobile:

SAP co-CEO Bill McDermott said:

We see a huge emerging market for the real-time, unwired enterprise. With this strategic move, SAP becomes the number one provider in this market, a significant first mover advantage for our strategic growth ambitions.

Jim Hagemann Snabe, SAP co-CEO said:

This acquisition falls right in line with our three pillar strategy of on-premise, on-demand, and on-device software…Now, with the acquisition of Sybase, we will secure our leadership in on-device, further cementing our ability to bring information to users anytime, anywhere, and on any device. As mobile applications for consumers have changed the world, the way people live and communicate mobile applications for the enterprise will have an equal profound impact in the way they work. We want to make sure that SAP solutions can be accessed from all leading mobile devices.

$6B so some ERP dweeb can see how many widgets moved from Warehouse A to Shipping Container B on his iPhone?  And this will restore SAP’s fortunes?  Really?  Three pillars of on-prem, on-demand, and on-device?  Geez guys, shouldn’t you actually build two of those three before you rest the mass of your big software company on that three-legged stool?

This is one of those deals like hooking Sarah Palin into the Presidential campaign to combat Obama that I’m sure sounded great in the smoke-filled back rooms, but just doesn’t work in the cold light of the day.  The only thing worse is they may go on to acquire even more trinkets to build out an entire IT stack.  Do we think SAP’s business is largely about signing up lots of new projects that can afford to consider a new stack because they’re rebuilding their whole IT infrastructure?   And here is where I wish I could write what Lewis Black conveys so eloquently in his comedy routines, “<lubba lubba lip noises>, Um, No.”

Okay, enough harsh rhetoric.  This is not the first company that bought another company because the current buzzwords and green crystals its executives were spouting fit the buzzwords and green crystals of the acquiree.  And, it certainly won’t be the last.  SAP is clearly a product-driven company, whereas Oracle has become, with the aid of its Financially-minded Execs, a numbers-driven company.  It is interesting to see how the two strategies compete in the marketplace.  And, there is some gritty reality deep in the details.  Sybase has some pretty decent engineers.  For a long time the engineering world preferred its products to Oracle, but then Oracle got very pragmatic and numbers-driven and built a database that just simply worked better.  In the end, the propellor heads couldn’t ignore that.

What should SAP be doing instead? 

If they’re going to be product-driven, they should focus on product.  It’s too late to change that culture anyway.  Oracle is a win at all cost culture.  They keep score.  They are not proud of what they have to do to win.  They don’t care, and BTW, it isn’t enough that they win, you have to lose.   They sit out there with their market cap-driven tractor beam and periodically drag a new software company planetoid into their maw to feed the reactors.  They are relentless and implacable in that uniquely Asian way that Larry has so effectively patterned himself after.  SAP juxtaposes that by arguing you don’t want a numbers-driven patchwork of poorly integrated acquisitions (hence you can’t combat that with a poorly integrated acquisition!).   They argue you want a suite that is integrated with the precision of Teutonic Surgical Steel.

To beat the Oracle machine with products requires a generational leapfrog.  A paradigm shift.  A reason to believe that the answer is to buy more expensive Teutonic Surgical Steel.  Performing that paradigm shift with their conservative audience will require intricate choreography that lets customers consume the elephant a bite at a time.  Lots of moving parts have to be fit together with precision.  That’s okay.  SAP knows how to do that.  They have built their company by doing that.  But they have to get on with it.  Time is a wasting, and all of their myriad forces are not precisely aligned to the thousandth of an inch of machine tool precision needed to get it done.

The paradigm shift that needs to be harnessed to this task is the shift to Cloud computing.  Forget simple SaaS.  SaaS ala Salesforce.com will be done, played out, and passé by the time SAP can organize their market through enough of a Cloud transition to make a difference.  What’s bigger than SaaS?  Transitioning a major organization’s mission critical systems to the Cloud a bit at a time and while running flawlessly is tantamount to uploading the neural network of a human brain to a computer without losing the person’s soul along the way.  That’s what we’re talking about here.  The good news is SAP owns the data.  The critical systems of record are theirs.  They also own some wonderful pieces of technology.  In teasing apart an orderly transition to the Cloud, the important thing is what to sequence to move things.  There are latencies in communicating data between the Cloud and the Corporate Data Center, so we need to move relatively loosely coupled components wholesale.

The innovations and paradigm shifts needed to figure out all the problems associated with safely moving a giant SAP patchwork into the Cloud will fund multiple hugely profitable companies.  There are likely some extremely valuable acquisitions SAP could be making along those lines, but they are probably not obvious.  If you told me they were buying Akamai, or some obscure web video provider, because those companies know how to move cubic terabytes into and around the Cloud, it would make more sense to me than Sybase.

BTW, were it me, I would start with analytics.  If you’re already building data warehouses from transactional data, move the warehouses into the Cloud and do it well.  A good data warehouse is an excellent beachhead from which to expand your Cloud invasion.

Posted in strategy | 2 Comments »

Great Read for Small Businesses and Startups: The Referral Engine

Posted by Bob Warfield on May 10, 2010

I loved John Jantsch’s book, “The Referral Engine“.  Like the book jacket says, it’s about teaching your business to market itself.

It’s funny, but I expected the book to be about something else from the title.  I guess I had visions of multi-level marketing when I heard the word “referral”.   While the strategies and tactics the book espouses would be very effective for MLM, they will also be effective with any business.  In fact, a great many very successful businesses are doing just exactly what Jantsch proposes.   What’s really different here?

There is a growing consensus (finally), that the Old School marketing approach of simply browbeating customers into buying is no longer working very well.  Send them enough spam, make them watch enough Super Bowl ads,  control the shelf space at the super market so they have fewer choices, and they will buy.  Businesses with this mindset (and it is still the prevailing view) think that their biggest problem is figuring out how to extend the consumer enough credit to buy even more.  But as I said, it’s not working.  Newer generations are growing up savvy to it and older generations are tired of it.  The Internet above all has made it easy for everyone to see more choice and to tell each other what they think about the companies they deal with.  Carpet bombing ad campaigns are seen as less and less effective in the wake of all this.

Jantsch provides an alternative with his Referral Engine concept.  His proposition is that great companies have great customers who will help you get the word out.  The book is all about how to treat customers so they care in the first place, and then how to get systematic about enrolling their help.  Like a lot of great business books, it is a quick read, but one that is chock full of great idea bites.  You’ll want to either keep a highlighter handy or plan to go back through the book to find ideas directly applicable to your business.

Since getting into the whole Internet thing professionally, I’ve made a real study of the Social Dynamics.   There is a “give to get” mentality there that is needed for best success.   People often ask me what the secrets are to doing business on the Internet, and there are two things I tell them.  First is that there really are no big strategic secrets.   The Internet is just people, so treat it like you would people and you’ll be okay.  The second is the “give to get” thing.  Authors like John Jantsch and Seth Godin (another of my favorites) have made give to get into a real platform for doing business.  Companies like 37Signals or Smugmug have built this mindset deep into their cultural DNA.  For many small businesses, operating this way is entirely instinctive.  It may not occur to them that everybody doesn’t automatically know how to do it. “The Referral Engine,” simply deconstructs “give to get” in a very readable and approachable way to try to break it down into a system that one could implement for their business in a systematic way.

What are real world examples of give to get?  We’re all familiar with companies like Zappos or Netflix.  They’re definitely in the give to get business in terms of how they treat people.  But one could conclude that these are very large companies that have the benefit of huge budgets.  Will it work for smaller companies?  Of course!   Jantsch illustrates numerous examples throughout the book.  Stories like:

– A remodeling contractor that would offer to throw an Open House so the homeowners could show off their new remodel after every project.

– A painting contractor that sent each customer that referred another customer a hand-written thank you note together with a lottery ticket. 

– A window washing company whose employees did such a great job customers always felt compelled to tip them.  Whenever that happened, the employee would pull out three referral post cards and ask the customer to address and sign them on the spot.

So much of the referral business is knowing when to ask and how to ask your customers for referrals.  As all of the examples above point out, it’s give to get.  You can’t ask until the customer is feeling generous.  When you do get to that point, there is a very narrow window of time, and you have to ask in a way that provides maximum convenience or even more giving to the customer.  Importantly, each section of the book ends with a point-by-point action plan framework any business can use to give it a try.

Highly recommended!

Posted in Marketing | 1 Comment »

The Problem with Software Patents

Posted by Bob Warfield on May 8, 2010

Software patents are a disaster for innovation.  The system is asymmetrical, in the sense that it is very expensive to defend against a patent suit.  At the same time, it is very easy to get a patent on almost anything, including things people have no business getting patents on.  I have a friend who was given a patent on a number, for example.  Fred Wilson called my attention to a video that is a great documentary on what’s wrong from the side of granting bad patents.  My friend’s number patent came about because he followed the letter of the law as described by the video and described some particularly complex mathematics that defined the number.

The asymmetrical nature of the expenses is such that there is a huge disparity in cost to defend versus cost to prosecute.  The last time I was involved in a patent suit with patent trolls (companies whose sole purpose is to use overly broad patents to extort payments from anyone they can, trolls don’t make anything except law suits), our counsel advised us that it would cost us $1M just to get to trial, so any settlement short of that was reasonable.  When I asked what it would cost the plaintiff to get to trial, the advisor suggested a couple of hundred thousand dollars and probably lays, since our patent troll was actually a public company with lots of cheap attorneys on staff and a cookie cutter system of prosecution.  This particular patent advised that any system that connected some sort of rule or program to a database infringed their patent.  By that definition, their patent covered SQL itself.  When I inquired why we couldn’t overturn the patent as overly broad, I was told this was the worst possible defense because it was the most expensive.  It would have cost us an estimated $4 million, and we had to consider the likelihood we might still lose the case.  The cost to get one of these overly broad patents granted?  $10-15K at most.

The supposed argument behind patents is that they foster innovation.  There are visions of big companies crushing the little guy and stealing her Intellectual Property.  Isn’t that what the system is supposed to accomplish?  This protection does not extend to any innovation.  Something trivial or obvious is not supposed to be protected.  There should have been some cost or sacrifice needed to create something very non-obvious before protection is extended.  Let’s tease this problem apart.

Someone writes a great script, “Gone with the wind.”  If it were patented, no one could ever create another script that remotely resembles that one.  It would be nearly impossible to write about the humanity behind the Civil War.  We don’t want that.  Those qualities were not the expensive part of creating the script and they are not unique or particularly non-obvious, although the elements may have been combined in relatively novel ways.  Still, the outline of the essentials could be made available in a brief Cliff’s Notes.  On the other hand, it wouldn’t be right to just take the script, grab some new actors and a camera, and make a new movie that was identical from the standpoint of the script.  The essential ideas can be easily conveyed in the Cliff’s Notes, but you can’t really produce the script from the Cliff’s Notes.  In fact, you’ll get a script that is different enough that it doesn’t infringe.  Therefore, the value is mostly in the literal copy, so it is the literal copy that should be protected, because that is where there was a considerable investment made there in writing the script.  Someone trying to get from Cliff’s Notes to script will spend just as much effort.  Note the asymmetry of effort and attaching the value to where the effort is.  We call the form of protection against literal copying a “Copyright,” and it is fair and reasonable to have copyrights to protect the creator of the script.  There are lots of media that behave like this and are most appropriately protected via copyright. 

Now consider mechanical devices and machines.  It can be devilishly hard to conceive of the mechanism, to test it, and to ultimately have to build a number of prototypes to discover empirically what really works.  Recall Thomas Edison reminding us about all of the perspiration versus inspiration.  Minor variations on the original design can work just as well, or close enough that the value of the invention is greatly diminished by the “almost copy”.  Just as important, once you know the original invention, it is much easier to make a minor change and call it a new invention and have it succeed.  So such things need something broader in terms of protection.  You really can capture enough in the Cliff’s Notes to deliver most of the value of the invention so it can be knocked off and the original innovator loses their Intellectual Property which the knock-off artist has benefited from.  Hence this kind of IP needs protection of the Cliff’s Notes that extends more broadly to anything similar to Cliff’s Notes.  That’s what a patent is.

Here is a diagram that hopefully makes clear these relationships:

IP Protection

IP Protection

 It’s really the right hand quadrants, those that cost to manufacture, that need the protection of a patent.  If I invent a new kind of fastener, for example, the philips head screw, it’s very easy for someone to take an example screw, make a slight change in the shape of the screw driver, and steal that IP.  Maybe theirs crosses like an “X” instead of a “+”.  That’s not fair, so we give broader protection.

On the left, we can run off copies very cheaply.  Anything that boils down to media goes here.  The protection has to be focused on the actual literal bits, because if we let them be copied, we give away the IP.  Consider I case where I actually had the source code of your program.  I can’t just copy it, so I determine I want to rewrite it in another language.  BTW, I can’t really get away with this any more than I can evade music copyright by having a different band play the same song.  But, that effort to rewrite in another language, get it right, have the software run just as fast, avoid introducing any new bugs, and so on, is expensive.  It is not an easy thing at all.  Hence we don’t need to work as hard at protecting it.  Protection goes where it is easy to take unfair advantage.

And of course we want to avoid granting monopolies (because that is what these legal devices do) to IP that is both easy to conceive and easy to reproduce.  If it’s so easy, it is obvious, and deserves no protection.  The other odd quadrant is the top right, which has elements of both.  An integrated circuit perhaps needs both copyright and patent.  I’m not familiar with that industry, but I would expect the layout on the masks is copyrighted and the various innovations needed to get the chip to work are patented. 

When we give broad protection like patents to software (or potentially music and books), we wall off via monopoly very large amounts of IP territory.  This includes territory that the innovator never needed or perhaps intended to protect.  Territory that doesn’t matter in the least to extracting the value of the invention as it was originally conceived.  Such accidental monopolies are not good for innovation and are just legal lottery tickets equivalent to ambulance chasing.  This kind of protection should be eliminated as there is little evidence software patents are stimulating any kind of innovation whatsoever and lots of evidence it hinders innovation.

Posted in business | 5 Comments »

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