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Weapons of mass disruption

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12th Feb 2007
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By Stuart Lauchlan, news and analysis editor

Last week’s Credit Suisse Disruptive Technology Conference saw the leading applications vendors setting out their stalls – and generally taking the opportunity to have a dig at their competitors.

Oracle chose to field its secret weapon – the elusive Safra Catz, co-president alongside the more publicly-recognisible figure of Charles Phillips, but perhaps the company’s biggest gun outside of Larry Ellison himself. Bizarrely, Katz spent the first few minutes having to deny she was in line for the CEO hot seat at arch-rival SAP, something she vehemently denied.

“I am completely befuddled by SAP’s strategy,” she says. “If they are going into the mid market, we welcome them. We’ve been there for a long time. They are coming from the very high end. From what SAP says, they basically sold them out. So now they’re going downmarket and they’re going to sell to people who don’t know them. I cannot wait for them to implement their new product.

“We know who our customers are. They spend way too much on IT and only a fraction is on software, the rest is on sewing it together. It’s not about the software, it’s about the labour - the dirty little secret of the software industry. Our customers not only want that in ERP and CRM but in the core software. We’re never going to spend $600 milion to enter a market with customers we don’t even know. Who will be next in charge at SAP? I don’t think it matters. Dumbing down their software – good luck!”

But surely both Oracle and SAP are suffering from poorer than expected results? Is that down to macro-economic factors or can the blame be laid at their doors? “SAP missed Q4, Q3 and Q2 – it’s not macro at all in their case, it’s all down to them,” insists Catz. “Our own quarter, what was that about? I gave our guys every chance to say it wasn’t their fault. The reality is that our guys stood up and said ‘I ran out of runway’. That’s why we have a plan to make sure it doesn’t happen again. Is it the economy? Could be we would be the last to know. The reality is that when you look at SAP, three things happened. During the Oracle-PeopleSoft merger, they looked like a safe bet. But that‘s over and welcome to what really big competition feels like – not that much fun!

“Secondly, they told you most of their customers bought mySAP.com. We don’t charge necessarily for upgrades. All of their customers bought, but didn't necessarily deploy. They also told you that [there would be] no products until the next decade. So no new products, they go to a different market. Old SAP was predictable, but it’s a new predictability that isn’t necessarily what you want.”

“We have the database. Everything else that we do involves the database. All the apps pull database and they pull middleware. We are never comfortable. We never settle on the winner’s turf. We’re too paranoid – even if the guys behind us are way behind us, we’re always moving. We were nowhere in middleware, we are now a legitimate player. What’s going on in apps? We are a legitimate number 2. SAP is very proud that they are twice the size of us. But they were five times our size, so they should not be so proud. We will not be satisfied until we are the size of them. ERP helps us sell CRM, which helps sell our database and middleware and analytics.”

More acquisitions

So if it’s all about the size of the product footprint, will there be more acquisitions? If customers have their way, there will be suggests Catz. “After we bought PeopleSoft, customers said 'do us a favour and buy Siebel,'” she claims. “I can’t walk around events with CIOs without them saying buy X or Y. I find rumours fascinating. We buy what makes sense at the right time. It depends on what’s there and what we’re thinking at the time. If we don’t make money out of it, we don’t buy it – period! My shareholders are looking for earnings per share numbers.”

Will a potential future acquisition include Salesforce.com or one of the software as a service (SaaS) start-ups? “Salesforce.com is not the only company in the on-demand space,” says CEO Marc Benioff. “The on-demand market is the fastest growing part of the enterprise software market today. There is strong momentum. There are many companies in this market. There are a lot of new and exciting companies. Every type of software will soon be seen in the same multi-tenant, tiered system that Salesforce.com has pioneered.

“We have to do a lot of education around multi-tenancy. A lot of the heavy lifting was done by the consumer industry. When you log on to Amazon.com, they don’t create a store just for you. That’s called multi-tenancy. We’ve focused on that. Customers need to understand that the architecture is fundamentally different. It’s like having a home that’s entirely yours and one where you share services. In the internet age, it’s cheaper and less risky to operate in the multi-tenant environment.

“Multi-tenancy means we can deliver a scalable solution. We have customers who have 15,000 users on the same basis tenant of the system. We don’t want to be locked into one part of the market. We can show a wide variety of implementations. We have some of the most coveted customers in the world. If you look at a Cisco or an ADP or a Sprint, you can see very successful implementations in these very big companies. The key here is, when did SAP or Oracle announce a CRM win of any size of this range.”

Are historical obstacles to on-demand in large enterprises fading away? “Nobody wants to be the first,” says Benioff. “That’s why the proof points are so important. I always show a slide of the implementations. It’s important for enterprise CIOs to see that other people are doing this and they’re not going to be first. It takes time. We have those proof points where we didn’t have those before.”

New age database company

In fact, Benioff sees Salesforce.com’s role as rather simple. “All we are is a big database,” he says “We are storing ten terabytes of data or so for our customers. We have more than 500,000 people there putting on data. Our core competency is managing data. We are a new age database company. We have applications that run on that database. Our job is to put more and more data into that database and create stickiness. All of our work is very analogous to Oracle’s PL/SQL in that you’re encouraging to build more and more applications. We are an information mangement system and service. That is all we do. We think that this is the information age and that managing the information on the internet is a very good place to be.”

But with Salesforce.com now one of the fastest growing firms of its type, is there a danger of moving too quickly? “When I was at Oracle, I learned you can grow too fast,” recalls Benioff. “We had forgotten to provide customer success and commitment to our own employees. It was growth that was a disservice to the company. We want to grow at the right pace. We want to seed our marketshare. We are comfortable in our current position. We want to keep our eye on the customer.”

A newcomer to the SaaS market is SAP – personified at the conference by SAP’s Shai Agassi who talked about the firm’s move from being a one dimensional to a multi-dimensional firm. “We were a single dimensional company. The more functionality we added to the existing product the more money we got. We added a second dimension when we did the platforming of SAP. These were huge decisions. We decided to go and build our own platfom because there was no compatibility between existing platforms. We are now focusing on the simplification of SAP which is the third dimension.

“Core one of our business is ERP – this goes into tens of thousands of customers. We’re seeing a migration towards a service-oriented suite. The wave of adoption is now about 4,000 mySAP ERP with around 10,000 by the end of this year. Core two is the rest of the suite – CRM and so forth. That’s another revenue generator. Around that is the platforming like the application server. We have had zero percent market share but now seeing 60 percent of our customer base saying that NetWeaver will become the application server of choice. We are now the number one Java middleware.”

Agassi says SAP has changed the way it ships to market. “We were on a train of releases that happened every 18 months. These were massive upgrades. Consumption is determined not by our ability to innovate. A European CIO said we were allowed to touch the core of the software once every five years, but that he needed to innovate every three months or so. So now we have a core that stays stable for five years, then we ship out an enhancement package every six months and you can use as much or as little as you want. You can only do this because you have one stable core – if you have seven different cores because you’ve bought up the industry, then you can’t do that.”

But can SAP compete in SaaS? “Different guys said the same things about SAP back in the 1990s – we were too big, too clumsy. They all work for Larry today,” counters Agassi. “If you are a niche vendor you will be marginalised. Look at Siebel. Tom Siebel did not want to go to a full applications suite. It’s not always the first one to switch on the lights that stays longest at the party. When we come into a party, it becomes a different party. When we come in with a solution for an industry, it is not a point solution in the sense that the requirement in mid market is more than just general ledger.”

But Agassi still repeats the familiar SAP mantra that customers need to be able to move their SaaS applications back in-house and makes this a major selling point for the firm’s strategy. “You can’t do that with Salesforce.com,” he argues.

Find out more about Stuart Lauchlan

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