Run by Wall St? Cause or Company?

In light of the Yahoo! - Microsoft fiasco, fellow bloggers Larry Dignan and Vinnie Mirchandani have been asking the question whether there is too much emphasis on just one stakeholder - the shareholder. After all, shouldn't a technology company (or any company for that matter) be equally focused on the value for customers, partners and employees.

I believe that the real problem is not that of prioritization of stakeholders but a more fundamental issue: Does your company stand for something?

Larry and Vinnie discussed the following in a recent conversation:

• Technology companies cater to Wall Street interests too much often at the
  expense of good strategy.
• Isn’t what a company does for customers and developers more important than
  shareholder interests?
• What’s wrong with being a mid-size technology company if customers and employees are happy and the products–software, hardware, services–fit a need? There’s nothing wrong with it, but Wall Street would lead folks to believe that any company that isn’t acquired by Oracle isn’t worth existing.
• And why are we listening to Wall Street at all given that analysts, investment bankers and other financial wonks can’t even manage their own businesses (subslime, credit swaps, write-offs galore)?

Even as I do agree that the recent focus on shareholder's (short-term) returns is probably misplaced, the real problem is elsewhere.

What Does The Company Stand For?

The problem with Yahoo! is not just its mediocre financial performance compared to its more successful cousin in Mountain View - Google, but that Yahoo! does not seem to stand for anything and rarely arouses any passion amongst customers, employees or partners. Its a listless organization that seems to be going through the motions - see this excellent post by Jeff Nolan.
Marc Andreesen recently wrote up an article praising dual-class structure to help management teams prevent hostile takeovers. I believe this is the wrong remedy - its a cure for a disease that should be prevented in the first place: A lack of clear vision around what a company is trying to achieve.

A company (and its management team) deserve to be independent as long as they inspire confidence among investors, employees, parters and customers that the company has a vision that it aspires to that the stakeholders can commit to.

After all, what does Yahoo! stand for? A hodge podge of websites relating to entertainment, communication, search etc with no grand vision of changing our (digital) lives. There are hundreds of smaller companies that are not under any duress to be acquired because their management teams inspire confidence around a vision.

Here is a list of companies that I don't know what they stand for, and hence will not have shareholders clamoring to keep them independent if the right opportunity came along:

• BEA (Sold)
• Yahoo!
• Tibco
• WebMethods (Sold)
• IAC (Bought/Sold/Consolidated/Unbundled)

Contrast this with list with:

• Salesforce.com (Changing the enterprise software world; See my disclaimer)
• Google (Organizing World's Information)
• Amazon (Changed Retail, Now Web Services)
• COST (Concur, Omniture, Salesforce and Taleo - the SaaS horsemen, per Phil Wainewright)

The same holds true beyond technology businesses - if your company does not stand for something bigger than management's entrenched interests and egos, its not very likely to inspire shareholders to forgo a 50% overnight return.

There is a story of two labourers working at a construction site, breaking stones. A passer-by asked one labourer what he was doing. “Breaking stones”, was the bored reply. A few yards down the road the traveller came across the other labourer. This worker was different; there was a spring in his steps and a tune on his lips. So the passer-by asked, “What are you doing?” “Oh, I am helping Christopher Wren to build the greatest cathedral in the world.” The vision of the great architect, Sir Christopher Wren, of building a cathedral that was to be the pride of England, gave meaning to the labourer’s work.

So, the question is: Do your stakeholders see your company as a stone-breaking venture or as a company that's building a Cathedral?

In India, with Force(.com) !

The Tour de Force events across the globe continue to draw great attendance and interest from developers looking to build new SaaS applications. The event is yet to make its way to India but I have been traveling across India (Pune & Bangalore) meeting with partners, educating them about Force.com and Platform as a Service generally – and the response has been tremendously positive. At one of our partners in Pune, I delivered an hour long session on PaaS and Force.com – and the result was a lot of very interesting questions and interest in this paradigm shift. A similar event in Bangalore with over 100 attendees drew a similar response.

India is Ready

There was genuine appreciation about how difficult and wasteful it is to currently build, deploy and manage software applications. This is especially true for IT outsourcing firms that month after month see ISVs and IT departments of large enterprise burn time and money on infrastructure and platform, delaying and risking delivering business value to the end users.

Across Generations

India is a country of young people – over 50% of India’s population is under 25. And presenting to various audiences – I couldn’t help but wonder how many in the audience can even remember what computing without connectivity was like. The shift from client-server to SaaS comes naturally to this generation.

More interestingly, the senior executives and technology gurus – some that wrote compilers in 1980s by hand – were even more excited about this shift. The questions and discussions revolved around how to navigate this shift and understanding the new evolving SaaS ecosystems and not whether the shift is underway.

Here is a sampling of questions:

Is There a Whitepaper on SaaS?

Yes, we do have whitepapers on SaaS and PaaS. However, whitepapers are so 90s – I encouraged our audience to learn through building and engagement with the community – blogs, online forums, how-to wiki’s, informational videos.

What Kind of Applications Can I Build on PaaS?

Even as salesforce.com started out as a CRM company, the Force.com platform is being used by our customers and partners to build out applications that cover wide variety of solutions be it Finance and Accounting (Coda), Risk Management (Riskonnect), Life Sciences (Verticals OnDemand) and many others. Business Applications that are data and process driven is where Force.com provides the most value today

What about Security?

No one asked this question – so I thought I will mention it. This question that resulted from both genuine apprehensions and FUD created by certain vendors that did not have SaaS capabilities is increasingly becoming a non-issue. I think there are two reasons for this: First, as customers use more and more SaaS applications their experience invalidates the concerns. Second, initiatives such as trust.salesforce.com that educate and inform have re-assured the community of users, developers and investors.

Really?

Yes, this question was asked a few times. For example, when I explained that Force.com is multi-tenant not just for our direct customers but also for all applications written by end users and partners – and that everyone is on the latest version of the software. The response is: Really?

Salesforce.com’s success with the platform in releasing as many as 25 major releases in last 8 years – and comparing that to once in 3 to 7 years cycle for legacy software vendors also draws a: Really?

So yes, really!

The proof is in the pudding – you are welcome to get a free developer login and build an app.

First US Real-Estate, now UK : India & China - You Are Next!

Calculated Risk, my favorite blog on the mortgage mess reports from the Economist.

From The Economist: The bust begins

... finally, tighter credit and overstretched household budgets are pulling prices down.

A collective shudder ran down the spines of British homeowners on Tuesday April 8th when Halifax, a part of HBOS and the country’s biggest mortgage lender, revealed that house prices fell in March by 2.5%.

And just like in the U.S., transaction volume is declining, and inventory is increasing:

... both the Halifax and Nationwide are predicting “modest” declines in house prices this year. Forward-looking indicators suggest a gloomier picture. The number of mortgages approved for house purchase was almost 40% lower in February than a year before. According to the Royal Institution of Chartered Surveyors, estate agents have been grappling with the worst conditions—measured by the ratio of completed sales to unsold stock—since September 1996.

The housing bust is going global.

Meanwhile, in India the facade of the boom continues while the underlying fundamentals deteriorate further. Business Standard, India's leading pink newspaper reports - (and by the way, all business & finance newspapers in India are pink):

“Apartment sales have gone down by 20 to 30 per cent in Mumbai. Developers are doling out goodies like stamp duty relief, free parking and interiors to boost sales,” said Rajiv Sabharwal, head, retail assets, ICICI Bank.

Crucially, developers are not cutting prices.

“Developers can not cut prices because once you do that, it signals the start of a downward spiral. They are holding on to the prices to maintain the momentum,” said Rajesh Mehta, a leading property consultant in Mumbai, adding: “April and May are the key months as far as property deals go. If transactions do not pick up, prices of apartments will fall at least 10 to 15 per cent”.

As I posted earlier, the numbers don't look good. See my story on: India, Real-Estate and Some Numbers.

Franchises are for Pizza and Burgers, Not SaaS and Banks

I get a feeling that some mediocre MBA read a case study on franchising and the huge profits it has delivered to companies behind the big pizza and burger brands, and decided to apply it to software. Add the failed ASP model to the inappropriate franchise model borrowed from pizza and burger chains - and you pretty much can figure out the product and go to market strategy of the last generation software vendors when it comes to SaaS.

As a public service, I am providing a maturity model for these companies that aspire to be SaaS winners.

Pizza Pie Maturity Model for Franchising: Pizza and Burgers, Banks and SaaS

by avlxyz (CC)

This is a very simple maturity model. I know big companies like maturity models (see here) rather than straightforward examples. The following are the maturity levels I am proposing for those rushing to market with their half-baked SaaS offerings:

Level 1 - Pizza Delivery: Yes, pizza delivery is the first step in this hierarchy. In order for you to deliver a pizza consistently and of good quality, you need a set of tools, some training and then hire low cost teenagers - and you get the cheesy goodness of pizza, delivered to your home by a freckled teen. Most franchising opportunities such as laundromats, burger joints function well when you are delivering a simple product or service that is easy to deliver, has minimal security/quality/reliablity constraints and is easy to replicate. I recommend the INSEAD case study referenced in the MIT Sloan Management Review article.

Level 2 - Banking: As you can guess, delivering banking services is slightly harder. You need to make sure thieves can't steal your customer's money, that you provide certain level of services and if you have online banking - you need to ensure that customer's accounts are not hacked and money stolen. As a customer, you entrust valuable assets (money) to your bank and it is the trust that a bank has earned over years, if not decades that helps you feel safe coupled with certain regulations and assurances from the federal government. Banks do not have franchises - you cannot pay Bank of America $50,000 - get trained and then start operating a bank with their logo, system and processes. The reason is that the trust earned by banks cannot be delegated away nor can the brand be put to risk or diluted.

Level 3 - SaaS: Yes, SaaS is higher on the Pizza Pie Maturity Model for Franchising than banks. As with banks, customers trust valuable assets (data) with the SaaS company. The SaaS provider must earn the trust of the customers one day at a time by providing the right service levels, ensuring security and business continuity. Just as with a bank, the trust embodied in the brand of the SaaS provider is of great value - and this trust cannot be delegated in a simplistic manner. Providing software (and perhaps some training and best practices) to the SaaS Franchisees does not take care of the most critical elements of SaaS:

• Reliability: How do you ensure that the SaaS Franchisee has architected its end to end systems to provide reliable service?
  
• Security: What kind of processes are in place to ensure data is not lost?
  
• Performance: How will the brand owner ensure that the SaaS Franchisee provides the right performance?

You may be wondering:
Why is SaaS higher than Banking on the Pizza Pie Maturity Model for Franchising?

I have two good reasons for this:

1. Data Loss vs. Money Loss: Data is lost when someone performs a successful read operation without your permission. If I read your mental health records, I don't have to steal them. With bits and bytes, reading is stealing. With money, not so much. Just because you know my bank balance, I haven't lost my money. (Yes, there is loss of privacy and trust is eroded but its not the same. You don't call a cop because someone read your bank statement but if I read your critical health data you would have to call the cops.)
2. No FDIC: A small bank or cooperative can be insured by FDIC and therefore provide sufficient protection to a customer but with SaaS you are relying on the trust earned by the brand. How comfortable do you feel having your data in a Uncle Billy's HealthCare On-Demand App that runs on software from NanoSoft?
   

Reliable Platform, Trusted Brand: What you need is a reliable platform from a trusted brand in Software as a Service. A multi-tenant platform with customers sharing one single system ensures that all customers and ISVs running their applications and trusting their data with the platform are receiving the same high level of security, reliability, availability and that any issues that are discovered are resolved for all tenants.

The approach taken by some vendors to deliver SaaS without true multi-tenancy or even worse, entrust third-parties with running copies of their software takes the Level 1 Pizza Delivery franchisee approach.

What do you think? Want more debate on SaaS styles?

You may want to consider force.com Platform as a Service from salesforce.com for business applications. (Please read full disclosure at the bottom of the blog. No MBA's were hurt in the writing of this blog.)

Cloud Computing: Its Raining Ideas - Want a Cup of Starbucks?

I know I went overboard on metaphors in the title (cloud, rain, coffee) but then when you have the last few weeks like we have had at Salesforce.com, its hard to not to have your head in the clouds. I know.

So here is the scoop, if you have been living under a rock: Starbucks rolled out its website MyStarbucksIdeas.com powered by Salesforce.com (Jeff Nolan was one of the first bloggers to pick this up). The press has had nothing but the nicest things to say.

Courtesy: by emergent007

As the software guy, here are my key takeaways:

• Focus on Innovation, not Infrastructure: Starbucks could have spent its own time and resources building out the infrastructure, renting bandwidth and compute capacity etc. but it instead chose to focus on customer feedback and was able to deliver greater value to customers (and therefore shareholders), faster.
• Simple is Beautiful: Starbucks website is really simple to use. A few neatly placed icons tell users exactly what to expect. You can view the ideas without creating a login. Voting and commenting require a login which makes sense.
• Business Value: For the budding technologist who wants to be an entrepreneur - notice how a simple concept forums+voting can become a great product/service. I have often met technologists who are looking for the hard problems to solve rather than looking for simple solutions to real business problems.

If you have an idea for Starbucks, Dell or Salesforce.com, please visit their ideas sites (all powered by Salesforce.com Ideas).

If you have an idea to build an entirely new service that customers like Starbucks and Dell should use, come build it on Force.com and market it on Salesforce AppExchange.