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Sunday, February 24, 2008

Microsoft Needs A New Mojo

Just arrived back in the valley after a short international tour, to see this NYTIMES note suggesting that Microsoft should look at SAP for a buy-out.
The reasoning : Microsoft does business software well. Approximately half its revenue comes from business customers for its e-mail infrastructure, database systems, developer tools, Office productivity applications and other mainstays. It has also assembled, through acquisitions, a fledgling line of enterprise software that it calls Microsoft Dynamics. Microsoft would like Dynamics to be viewed as competing head to head with the No. 2 name in enterprise software, Oracle, or the No. 1, SAP of Germany. For the moment, however, Microsoft Dynamics’ parity with those big names is nothing more than wishful aspiration.

Me think not.
Reason : Laggards coming together to create another monster.. The very purpose of Microsoft wooing yahoo is because, MSFT is concerned with losing it's desktop dominance to web based application and needing to protect it's domain there. I am also not an enthusiastic supporter of consolidation of enteprise software.The earlier reasoning for looking at SAP was clearly aimed at a few large customers but to straddle them in the enterprise space. When years back , Microsoft mulled a potential acquisition of SAP, the expectation was that Microsoft would a leadership position in back-office applications among the Fortune 500. Information published then gave some perspective. The documents released in the case, which can be downloaded here, include a PowerPoint presentation dated Jan. 5, 2004, in which Microsoft outlined its rationale for buying SAP- without doubt a costly proposition ( that time the price expectation was in excess of 50 billion USD), With SAP, Microsoft saw the chance to strengthen its relationships with multinational companies and computer services firms, and the opportunity to promote its Windows products among SAP's 20,000 customers. The document, marked highly confidential, uses an elaborate set of code names, referring to SAP as "Sagittarius," Oracle as "Ophiuchus," PeopleSoft as "Pegasus," and Microsoft as "Mensa." So what’s the solution for MSFT – Money can give it a limited upside – rejigging their DNA to be more open, innovative and a winning attitude in all things that it enters could be the key. They can however look at a small scale pointed acquisition like salesforce.com to create new avenues of entperprise business. Why not start now and try again on Search, Mobile infrastructure and Ads – who knows – history renewed /relaunched product launches have created history in the business world in the past – it’s a tough, rough and a long road ahead – it’s worth travelling. Microsoft needs only one strategy now -thats the strategy of fast and flawless execution.

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Wednesday, February 20, 2008

The IT Spending Downturn

First , IDC and Forrester Research lowered their forecasts for global IT spending in 2008. Worldwide IT marketgrowth is now predicted to be 5% from 6% by IDC; and 6% from 9% by Forrester. U.S. IT market growth is predicted to be 4% from 6% by IDC; and 2.8% from 4.6% by Forrester. ChangeWave’s latest corporate IT spending survey points to a negative growth rate for the 2nd Quarter of 2008, and confirms that U.S. business spending has already entered into a recession.
Changewave survey finds that nearly one-in-four respondents ) say their company’s ITspending will decrease (or there will be no spending at all) in the 2nd Quarter – 3-pts worse than the previous survey. Only 15% say spending will increase – an unprecedented 9-pt drop from previously.

Amidst all these things, we also see that customer appetite for innovative technologies and delivery models seems to have not diminished. IDC’s Albert Pang finds that customer win announcements from enterprise applications vendors came in at a steady clip throughout the month of January 2008 suggesting that deals were still being consummated.
Offshore headquartered service providers may not be hit says Everest Group. The rationale : In bad times, companies tend to go in for bigger pieces than smaller ones. For example, if a large retailer is was doing $5 million with one vendor, they would now prefer to do $10 million. If it was $25 million, it might go up to $50 million. While you won’t be able to track this for individual clients, what you will see is that SWITCH companies will start reporting more $50 million- $100 million deals than last year.
Earlier, I wrote that captives are imploding. Everest Group now confirms that the proportion of work done by captives is reducing compared to that done by third-party firms but that doesn’t mean captives are not growing, but points out sellouts are getting more difficult than anticipated.

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Saturday, February 16, 2008

The Growth Story Of The Online World

Every new development will have a hypergrowth period in its lifecycle. The online commerce world seems to be experiencing this right now. Look at the growth in recent times of online commerce and the answers would be self revealing. Clearly, the Internet is no longer a niche technology—it is mass media and an utterly integral part of modern life. If one looks around, it is obvious that almost no aspect of life remains untouched by online media. More than 85 percent of the world’s online population has used the Internet to make a purchase—increasing the market for online shopping by 40 percent in the past two years—according to the latest Nielsen Global Online Survey on Internet shopping habits. The study further adds, Globally, more than half of Internet users have made at least one purchase online in the past month.

Look at the datapoints here. Two years ago around 10% of the global population( 627 million) shopped online. Today the number has increased by about 40% (875 million). Books/Clothes/Shoes are seen as the fastest growing internet buys and "Visa" is seen as the most popular credit card payment method.Paypal is used by a quarter of the online shoppers.The highest percentage shopping online is found in South Korea, where 99 percent of those with Internet access have used it to shop, followed by the UK (97%), Germany (97%), Japan (97%) with the U.S. eighth, at 94 percent. More than 70 percent of Indians and more than 60 percent of Irish and UAE Internet users said they bought airline tickets/reservations on the Internet in the last three months. I had in the past written about the brisk pace of growth of online air ticket sales in India - this is a key benchmark for for how emerging economies having a fast growing online population would embrace online commerce.

Heady times all around right - No says Forrester. As the US economy makes its way through a difficult 2008, eCommerce companies will face hardship as they encounter significant cutbacks in consumer spending. Forrester anticipates that year-over-year online retail spending will reach its lowest point ever in 2008 — approximately 17%. Companies will do the best they can to mitigate the effect of the sluggish economy by embarking on initiatives such as international expansion, where the weak dollar may prove to be a boon. But most eBusiness professionals at retail companies will realize that the verdict for the year has, for the most part, been written — and that they will be better served by looking forward to customer-enhancing initiatives such as enhanced multichannel integration and rich Internet applications (RIAs), which will position companies to take advantage of stronger consumer spending when the economy does turn around. In a forecast report, Forrester finds that US online retail reached $175 billion in 2007 and is projected to grow to $335 billion by 2012. B2C eCommerce continues its double-digit year-over-year growth rate, in part because sales are shifting away from stores and in part because online shoppers are less sensitive to adverse economic conditions than the average US consumer. Despite the continued growth of the channel, online retailers face several challenges to growth: Online stores are broadly perceived as a second choice for shoppers, online retail is becoming increasingly seasonal.

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Thursday, February 14, 2008

Disrupting The Disruptors

Software-as-a-service vendors find the biggest disruption is with regard to the workforce. Financial disruption comes second - The traditional sales team and revenue recognition culture also play a part – used as they are to up-front revenue recognition. Channel sales, maintenance revenue stream –all add up to a certain degree of disruption. The partner ecosystem characteristic also suffers a dent in the SaaS world.
Over time, business undergo constant "sustaining innovation". This is basically a straight line incremental enhancement to the existing product to meet higher and higher level needs. Sustaining innovations help market leaders maintain brand dominance, and are how they maintain differentiation and price margins through the early years. They optimize their operations from market research to supply chain management to manufacturing to marketing and distribution to support this continuing evolution, minimizing their costs and building up expertise. Sustaining innovations do not create markets, but they do protect and grow them
This article highlights the magnitude of disruption happening to the SaaS disruptors.

A new software service economy is rapidly unfolding and is causing disruption in the software industry. Ironically, some of the first victims of this new economy may be some pioneers of the software-as-a-service movement. We are now at point where implementers of SaaS capabilities are being disrupted by newer SaaS capabilities. Services that are built largely from other services are a reality, and offer many clear advantages.
The move to SaaS applications built on SaaS is a much more profound shift than the move from on-premise applications to SaaS applications. The software industry is beginning to display characteristics that mimic the supply chains and service layering that are commonplace in other industries like transportation, financial services, insurance, food processing, etc. A simple set of categories like applications, middleware and infrastructure no longer represents the reality of software products or vendors. Instead of a small number of very large, vertically integrated vendors, we are seeing an explosion of smaller, more focused software services and vendors.

Many forward looking SaaS firms look to constantly evolving highly leveraged cost model and focus on broadbasing offerings and creating a new ecosystem of partners – for the technology stack and for supporting varied business processes. Clearly SaaS winners are one who find ways to to combine their strengths with other entities – and that include managing Software/services “collision” well.


Monday, February 11, 2008

The Anatomy Of A Failed Enterprise Implementation

Fellow enterprise irregular Michael Krigsman has a great writeup on a failed ERP implementation and how it critically affected business performance. Obviously tremendous efforts have gone behind publishing the note. While, I do not know enough about this particular seemingly bothched implementation, Michael's findngs are very insightful. While he highlights the responsibilities of both the vendor and customer in making ERP initiative successful, I want to highlight the finding,

"The ERP problems were managerial, not technical, in nature. The list of ERP and data problems cited in the filings suggest poor project management, rather than technical issues, were at the root of the difficulties. Since the division of labor between customer & vendor IBM is not made clear in the filings, it's impossible to discern where responsibility lies".

In my view, process view, so critical rarely gets constant attention during the implementation cycle and change management - we call it the soft track and is often the hardest to acheive. These make a huge difference. Amongst various other things, the key success factors for any enterprisewide implementation include :

1. A rigorous focus on business processes and enough efforts to get the requirements first. Often, Platform centric capabilities seem to restrict adoption of an enteprise system - that's where the process view helps amongst other things.

2. Business to have reasonable expectations on implementing enterprise systems. Get to the facts in terms of lifecycle costs and expected benefits. Never rush into signing a deal unless both the vendor and customer are in a state of full readiness. Go the whole hog in assessments of investments, efforts and timeliness of these. Get sensitised to the fact that any short circuiting of these can have consequences - marginal to drastic. Extend this to cover all the phases of the engagement and that incudes post implementation phase.

3. Management support in a timely basis, project management, resource co-ordinations and quick decisions are non-negotiables in large implementations and strong change management processes put in place can help some of these bind together in mostly unknown ways. Keep and eye-on-the ball and never allow it to be dropped during the course of the implementation.

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