Aug

27

Oracle’s 20% price hike (rock) + Slumping economy (hard place) = where do you go?

Filed Under business, cloud computing, problem-opportunity, regular reads, saas, technology, things to ponder about, trends, web 2.0 | Leave a Comment

A snip from an interview with Red Hat’s new chief exec:

Q: What’s your biggest surprise since starting at Red Hat?

A: I think I finally get the joke. I was a senior exec and, like every other senior exec, I had a huge IT budget. Mine was as large as Red Hat’s revenues last year. You sit there and say: “Why are my IT costs going up, but I’m getting less and less functionality?”

Every IT professional says the same thing: “My lights-on costs are going up. But — wait a minute — I bought a laptop, and it cost me half as much as it did three years ago, and my costs are going up?” I get the joke now.

If you look at the S&P 500, seven of the top 20 companies are tech and, other than Google, they’re not high-growth. But they’re just printing money because switching costs are so high. There’s this incredible amount of residual goodwill to Red Hat because we’re seen as an alternative to that. Oracle announced a 20-something percent price increase just as the economy starts heading south. How can you do that unless you’re pretty sure nobody can switch? High switching costs led to infrastructure cost creep. Once you get hooked, you can’t get off.

I chuckled as I read this. The switching cost problem sounds like the case between AT&T and Bell Atlantic in the 1980’s, which I coincidentally just recently blogged about recently.

Those who cannot remember the past, are condemned to repeat it.
— George Santayana, in his book The Life of Reason.

I think the comment about Oracle’s 20+% price increase is certainly good news for on-demand SaaS/cloud computing players - to disrupt the market. As companies start tightening their belts, the pay-per-drink model would inevitably look a lot more enticing.

Even when placed between a rock and a hard place (between the US economic slump and technology behemoths’ Oracle-style price increases), the numbers show that companies still can’t afford to cut back on technology spending. Technology is a business competitive advantage.

According to research firm Gartner, “It can be hard for a business to stay ahead if its technology is falling behind. That is one reason that despite an uncertain economy, worldwide information technology spending is on track to reach $3.4 trillion in 2008 — an 8 percent increase over 2007.”

PC sales (especially laptops) are surprisingly stronger than expected, according to S&P’s Equity Research. “The latest evidence came from the Aug. 19 earnings report from Hewlett-Packard (HPQ), which said unit shipments of PCs rose 20% from a year ago”

The bottom line is that businesses can’t afford to be without technology. And with such pricing pressures, online business apps are just much easier on the wallet. $50 per user/year for Google Apps, or $350 user/year MS Office.

Granted, Enterprise Web 2.0 still has a long way to go to fill the shoes of traditional on-premise apps, but I am confident that more innovation will come (I certainly plan on being a part of that innovation!), and SaaS/cloud computing/Enterprise Web 2.0’s benefits will be too good to ignore - and eventually, its benefits would exceed those from the traditional legacy on-premise apps.

From CNNMoney/Fortune: Merrill Lynch estimates that online business applications will grow to a $95 billion market within five years. The market for online office software is “wide open,” said Guy Creese, an IT analyst with the Burton Group.

“My lights-on costs are going up. But — wait a minute — I bought a laptop, and it cost me half as much as it did three years ago, and my costs are going up?”

Yeah. It doesn’t make sense.

Aug

11

Reaggregating SaaS/PaaS results for a competitive advantage

Filed Under cloud computing, innovation, paas, problem-opportunity, regular reads, saas, technology, web 2.0 | Leave a Comment

In a previous post, I discussed how cloud computing and the Grameenphone microfinance endeavor fit into a McKinsey article about the benefits of unbundling production from distribution. This weekend I decided to revisit the article again just to see if I would see anything differently this time around.

The world is indeed getting flatter. The article’s section on “Tapping into a world of talent” talks about how technology today fosters interactive online collaboration which in turn enables companies to outsource increasingly specialized aspects of their work and still maintain organizational coherence.

[…] technology permits them to decentralize innovation through networks or customers, it also allows them to parcel out more work to specialists, free agents, and talent networks.

Top talent for a range of activities-from finance to marketing and IT to operations-can be found anywhere. The best person for a task may be a free agent in India or an employee of a small company in Italy rather than someone who works for a global business service provider. Software and Internet technologies are making it easier and less costly for companies to integrate and manage the work of an expanding number of outsiders […]

This trend should gather steam in sectors such as software, health care delivery, professional services, and real estate, where companies can easily segment work into discrete tasks for independent contractors and then reaggregate it. […] Competitive advantage will shift to companies that can master the art of breaking down and recomposing tasks.

Globalization is inevitable, and increased competition means keeping businesses on their toes, which in turn translates to increased benefits to the consumer. In short, it’s healthy for both consumers and producers (unless you’re just lazy).

In a way, this also parallels SaaS/PaaS. Look at the SaaSCon sponsors list for a glimpse of some of players out there. There’s no shortage of on-demand providers filling gaps in the cloud-computing/SaaS value chain and gaps left open for disruption by on-premise incumbents.

Each cloud computing/SaaS vendor mostly specialize in one verticle and strive to dominate that niche-delivering a continuous stream of value (innovate or die) for less (save customers money or be undercut by your competitor). Jeff Bezos has explicitly said it before that with Amazon AWS, he wants to innovate there by reducing operating expenses, increasing efficiencies infrastructure through economies of scale, so that (here’s the important part) “.. the cost savings can be then in turn be returned to the consumer.” Ok, so I paraphrased, but he said it in a video clip somewhere online and I can’t seem to find it right now.

The point here is that he’s trying to save the consumer money (and that’s a great brand promise!) The jury is still out on that one, given that AWS is still relatively young, but if anything else - it’s a makes a good sell (who doesn’t like to hear that their vendor is actively trying to save them more money?), but ok .. I’ve digressed too much on Bezos. I just can’t help liking people (and companies) who genuinely want to help others (the customers) be successful, so that they themselves can be successful too. Pay-for-performance? Pay-per-drink? Cloud computing? ;)

Just to name a few vendors:

  • Google Docs -> on-demand “MS Office”
  • Amazon AWS -> on-demand computing power, storage.
  • Salesforce -> on-demand CRM
  • CODA -> on-demand finance application (built on Force.com!)
  • NetSuite -> on-demand ERP
  • WorkDay -> on-demand HR, payroll, procurement, business intel, ERP

Odds are that your company is already using some kind of on-demand solution for one of its functions, even if you do not realize it.

The way I see it, if you think of each of these functions as discrete tasks with each farmed out to a particular SaaS vendor, then the need for the reaggregation for each of the function’s results is obvious. I agree with the article that companies that succeed in recomposing these tasks would hold a competitive advantage.

It would allow executives to conduct business at the speed of thought (asking questions like “how can I reduce operating expenses here today, can I realistically turn the ship around fast enough in anticipation of this tectonic shift/change in competitive landscape”) - as opposed to the speed of “how fast can I line up all the columns in this Excel spreadsheet from that tabular data in the PDF spreadsheet and .. hmm, it would be really nice if I could overlay on this the results from some SQL queries.. oh wait I have to get those from John in IT first ..”

The $200-300Bil business solutions market is open for disruption by Platform-as-a-Service.

Web 2.0 - all grown up and ready to change the way we do business.

Jul

26

Mobile data adoption on the rise

Filed Under geeky, ideas, innovation, microfinance, mobile, problem-opportunity, regular reads, stanford, technology | Leave a Comment

Some mobile data trends (numbers + commentary):

  • Total mobile data revenues for 2007: US$157 Bil
  • Total mobile data revenues for Q1 2008: >US$49 Bil, 42.7% y-o-y increase. Of this, non-SMS data made up approx US$17.46 Bil (35.6% of total data revenues)
  • Mobile data revenues is now almost 20% of mobile operator total revenues
  • 40% of world’s data revenues come from APAC (>US$20 Bil in Q1 2008)
  • Fastest growing is EMEA, which despite only representing 2% of world’s data revenues, is growing at 91.7% y-o-y to US$927 Mil. This acceleration is aided by the 321% y-o-y increase of HSPA subscribers
  • Operator that generated highest non-voice revenues this quarter is Japan’s NTT DoCoMo (US$3.6 Bil), overtaking China Mobile (US$3.5 Bil)
  • As a % of overall revenue, Filipino mobile operator Smart Communication is the world’s market leader, and the only carrier to depend on non-voice revenues for > 50% of its income *I wonder how much of this is attributed to microfinance and mobile payments i n that region, hmm ..

And as always, I’d like to extrapolate some meaning from raw numbers, so let’s go.

Obviously, the trend clearly indicates that your cell phone is becoming more of a general purpose computing device (like your desktop PC, as opposed to a single-purpose device that makes phone calls only), with more rich features that PCs don’t have (e.g. GPS and accelerometer), and it’s all hooked up to the wonderful internet.

Action items: First, we have to get out of the habit of thinking of cell phones as desktops, because the use-cases are completely different; treating them as such is the clearest way to die. Second, with mobile devices becoming more powerful (computationally, Moore’s law), having more storage (cost of storage trending down, Moore’s law), internet connectivity improving (coverage, speed, cost, again, Moore’s law), and throw on top of that added new hardware features (GPS, accelerometer, etc) .. this sounds to me like having richer and more powerful tools in a technologist’s problem solving warchest — so bring on the problems, bring on the opportunity.

I chuckle as I write this because this reminds me of what Stanford University’s president John Hennessy once mentioned in an interview, about his prediction of what would happen in mobile technology down the road:

  1. Information at any where, at any time, on any device
  2. A user experience that works well, independent of what that information is: Be it a Google map, stock listing, web site, email, etc. Making that convenient and natural, and seamless
  3. Imagine walking in a brick and mortar store and wanting to buy a product. I want to look up my phone and do a price comparison on the product and know what people are saying about it. I want to do that in 5 seconds. Today, I have to open a browser, visit a review site, search, etc. (too much work)

The iPhone is clearly one of the pioneers in making that happen, especially with the iPhone app store. I have previously commented on why I think the iPhone app store is very much Apple’s competitive advantage, and as much as I root for Google’s Android, it remains to be seen how the Android incarnations would address the iPhone platform threat.

With mobile carriers having trouble increasing revenues from voice, you betcha they are thinking of every single way to make money from mobile data. I have also previously written a rant about iPhone/AT&T’s data pricing strategy (there’s nothing wrong with the strategy per se, I’m just a price-sensitive geek at heart).

Now’s a good time to be a mobile app developer .. there’s money already being pledged for the BlackBerry platform (US$150 Mil) , Google Android platform (US$10 Mil), and the iPhone platform (US$100 Mil). I can see mobile carriers snapping up these mobile app startups to further bolster their mobile data revenues. Technology IPOs are almost non-existent today, much to a Silicon Valley VC’s annoyance, so exits via acquisition to a mobile operator would make sense for mobile app startups.

I’m passionate about innovation and problem solving with tech, and I can’t wait to see more new applications in mobile given these trends. The question I try to ask myself given these stats above are, “what else is possible today that wasn’t yesterday?” Think it about it.

If I were to wish for anything, I should not wish for wealth and power, but for the passionate sense of the potential, for the eye which, ever young and ardent, sees the possible. Pleasure disappoints, possibility never. And what wine is so sparkling, what so fragrant, what so intoxicating, as possibility!
–Søren Kierkegaard

To go off on a slight tangent, it’s interesting to note that a Filipino mobile operator is the world’s market leader in depending on non-voice revenues. I wonder how much mobile payments contribute to their revenue stream, and how much of that is related to microfinance. If anything, I think that could be a classic BoP example because it would illustrate another example to bust the myth that corporations cannot make a significant and sustainable profit in selling to the poor.

If I was all the other mobile carriers looking to make more $ from mobile data, I’d be watching this Filipino carrier, Smart Communications closely to glean some lessons.

Click here for the full story of the stats above from cellular-news, and regional breakdown of revenues.

And I’ll end this blog post with vivid taste of possibilities for mobile — a very cool Android project in the making called Enkin. Do check it out!

Jul

20

A laundry list of business problems (opportunity)

Filed Under entrepreneurship, problem-opportunity, product management, silicon valley, startup, things to ponder about, web 2.0 | Leave a Comment

“Every problem is an opportunity, and the bigger the problem, the bigger the opportunity. No one will pay you to solve a non-problem.”
– Vinod Khosla, on big problems and big opportunities.

The one thing I’ve come to admire about Paul Graham (using “Paul Graham” as a synonym for Y Combinator itself), is that he’s turned into quite a force to be reckoned with - aligning, match-making problems with teams and solutions, cranking up accomplishment cycles. Seems to me that these days, he has access to all sorts of real-world business problems, and conveniently enough he also practically has an army of technology entrepreneurs ready to take a bite out of any gauntlet that he throws down.

I love that quote from Vinod Khosla above, and I’m always on the look for problems, because I see them as unmet needs, and I love disruption - David vs. Goliath style take-on-the-incumbent fights. PG has recently written up on ideas for startups that he’d like to fund, so reading this list was definitely a must for opportunity-seekers, and you know what .. even if it’s not a problem that you can see yourself solving, it’s good to be aware of the problems out there in your adjacent industry.

I find #6 interesting:

More variants of CRM. This is a form of enterprise software, but I’m mentioning it explicitly because it seems like this area has such potential. CRM (”Customer Relationship Management”) means all sorts of different things, but a lot of the current embodiments don’t seem much more than mailing list managers. It should be possible to make interactions with customers much higher-res.

When I think CRM, I think of Salesforce.com, simply because well, who doesn’t associate CRM with Salesforce? ;) What I really like about Salesforce.com is how they have opened up their platform for 3rd party developers via AppExchange. Why is this such an important strategic move?

They realize that now that they are a huge company serving a huge customer base, there’s bound to be a subset of their customers whose needs are either over-served or under-served, and thus these customers will be ripe to be poached by smaller and more agile startups. Thus, the bigger Salesforce gets, it’s only a matter of time before their core market gets nibbled from say, the low end, .. which would force Salesforce.com to then shift focus on the higher end of the spectrum (and keep going higher) until the nibblers now become this real threat of displacing the incumbent.

Thus, by opening up their platform to innovation, they can capture the “long-tail” of features needed by their customer base and actually meet them. Imagine you are running some obscure business in a very niche vertical. You need CRM, but you also need this 1 extra feature very specific to your business. You now have the option to installing the “addon” to meet your needs. Other (most) companies who don’t care about this addon don’t need to install it.

What Salesforce.com has also effectively done here is allowed their SaaS bread-and-butter be customized specifically to each customer! This is powerful, because most people think that SaaS is just a web app, and because it’s served from the same web server to all customers, customization is difficult.

Software customization/personalization is also way to segment your market and extract more value from the different segments. And all of this, for free to Salesforce.com because they don’t even need to hire developers to build stuff — the platform is open to any 3rd developer. In short, AppExchange is one of Salesforce.com’s competitive advantage that builds network effects over time (like eBay), further solidifying their dominance on the market.

The iPhone too, has a developer app market place. And this too, will be a powerful force to be reckoned with by iPhone competitors over time.

Back to what PG was saying, “It should be possible to make interactions with customers much higher-res.” I wonder what he means by that exactly, but then again he did say that this list was intentionally vague. I can at the very minimum at least conclude that he sees an opportunity for innovation in CRM, which I do too :)

Paul Graham’s list of problems: http://ycombinator.com/ideas.html