What a great time to be thinking about the future. Seriously.
This is my last column of the year, and traditionally I try to forecast some movements in the market for the year ahead. This year it takes a special kind of fortitude to even read a piece like this, let alone write it, but if you think about it, this really ought to be a good time for prognosticating and for optimism.
I think it’s good to remember that we are always in an economic cycle. Sometimes the cycle is favorable and sometimes, like now, you have to sail into the wind. Fine. Economic cycles begin and end with innovation, and we are at a turning point politically and economically and perhaps even in technology — time for innovation.
New Business Processes
While you and I have had a ringside seat at a great turning point in enterprise computing — I speak of the shift from client-server to on-demand — over the last 10 years, most people have taken everything in stride. The computer boots, you use your favorite applications, and when things don’t work, you call tech support — that’s what most people know.
We know that on-demand or SaaS (Software as a Service)-style computing has made huge progress in the last 10 years to the point that it is ready to take on any business IT task presented. The Economist recently opined that coming out of the recession, SaaS would gain new followers simply because it offers better economics. I can’t argue with that. I could have written the article.
However, it’s not just on-demand or SaaS computing and low cost that will drive the rebound in our little corner of the world. There will be new business processes to support with automation, and the default implementation technology is now on-demand, and the smart money will be on the on-demand platform for all that it can provide. Moreover, a host of cloud-based social applications have been knocking about for several years, and the coming economic upturn should be the opportunity they need to be more tightly incorporated into enterprise computing.
When the economy is humming along, there is an unwritten presumption that business should stick with what it has. Maybe a company enhances its deployments, but very few stick their necks out to try something revolutionary. We call them “early adopters,” and they have been the ones who have so far adopted social computing, on-demand and Platform as a Service.
I think that’s all up for grabs now, but before you take your last dime and buy Salesforce.com stock, think for a moment about the moment we are in. That the on-demand revolution has crested is not seriously debatable, but definitions matter, and specifically, the definition of on-demand will be severely tested in the year ahead. Why? Because the vendors who have not fully bought into the new paradigm will either have to or find ways to extend the old paradigm, and that’s what I think will be interesting in 2009.
The Makers and the Extenders
Who are the paradigm makers and the paradigm extenders? It’s an interesting list, yours might be different, but here’s mine:
The 800-pound gorilla. They invented on-demand computing and promoted it aggressively for the last decade. Now, with Platform as a Service, they are doing for developers what they did for application users. The team to beat, they’ll keep the pedal to the metal in 2009 and they will be amply rewarded for it.
This is an on-demand company with a hybrid business model, meaning that their product is fully acclimated to the Web but they still sell like an old-line software company. They have a partner channel at the same time that they offer open source. Their partners look like they’ve really ingested the Kool-Aid, so good for them. Sugar is not as far along as Salesforce, but they seem to be doing most of the right things in their market. I expect they will become more platform-like in the year ahead and offer some competition to the leaders.
Like the monster in some horror movie, you can’t kill these guys (good thing too, because the monster comparison is a bad one). The Oracle team, which is the old Siebel team with some upgrades, has discipline, developers, product and a lot of Larry’s money behind them, so I expect them to be an increasingly important competitor in CRM and beyond.
Oracle is a traditional software company in many ways, and applications chief Anthony Lye has been walking a tightrope to bring the conventional applications along while playing up not only on-demand but new social applications as well. Lye has played his hand well, and his efforts to extend the conventional software paradigm make some sense. For example, Oracle, like Microsoft, has broadened the definition of on-demand to mean not only multi-tenant but a variety of single-tenant and few-tenant versions hosted in their data centers. This is unavoidable given that some companies still avoid multi-tenant solutions for idiosyncratic reasons. I expect that 2009 might see more of a clash of definitions as on-demand, SaaS, etc. become even more popular and companies like this try to blur or expand the definition.
If Oracle and Sugar represent companies with hybrid technology and business models, Microsoft and SAP look like companies struggling to extend a paradigm that has seen the sun set. The conventional software business model, like heroin, is a tough thing to give up, and for every step forward these companies take, it seems they take one or two back. Microsoft has debuted Microsoft Dynamics Live applications to good reviews, but they also do things like offering a plethora of choices for on-demand and on-premise deployments. More troubling to me was a recent cover story in Wired magazine on Ray Ozzie, which talked about a cloud operating system. Say what? Making a cloud OS is like trying to patent the air you breathe. In 2009, Microsoft could benefit from a bit more focus on the market and committing to real on-demand.
SAP, on the other hand, is highly inventive and entrepreneurial, or at least they’re good at starting things, especially on-demand initiatives. SAP has a tougher space to play in with ERP (enterprise resource planning); however, they haven’t helped themselves with their false starts, and I wish them well trying to put a big idea together and deliver it, hopefully in 2009.
Like most of the companies in this piece, NetSuite has both front and back office applications. Unlike the others, I think the company has a clear focus on a single delivery model. Like any ERP company, implementation is tough for the simple reason that there is a lot of input required to define business processes. NetSuite has the cash it needs to build out its implementation, service and support capabilities, and they are working on all of it. They need to ignore the ups and downs of the market next year and continue spending some of the loot from last year’s Dutch auction IPO. If they do, they can come out of the downturn in a strong position.
All of the other companies are more alike than not, but Sage seems different from all of them. The company sells through a partner channel, has tons of overlapping products and is bigger than most — not counting Sequoias like Microsoft, Oracle and SAP. Sage has less on-demand presence than all of these companies, but the combination of its products and its business model seems to work. There is nothing hidebound about Sage, they just adapt to new wrinkles in the market at a rate that matches their partners’ abilities to absorb change, rather than the marketplace’s ability to generate it. In 2009 Sage will be in the process of changing its products to meet some of the challenges of the on-demand world and to adapt to the special needs of its partners.
I could write more, but this is already too long. In the first quarter, I will look at emerging companies and the new business processes many of them will be offering as we start the cycle anew. Happy Holidays!
Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant’s research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and Web site. He is working on a book and can be reached at [email protected].