Multi-tenancy is Better for You - the Customer

Lately, the topic of multi-tenancy and single tenancy has again come up for discussion. A leading on-premise vendor recently argued in favor of single tenancy by saying: "The bad thing with multitenancy is when it goes down, you guys write about it on the front page. I don't want to be on the front page for anything bad."

Let me explain what this means for the customer versus the vendor by using an analogy.

Airplanes carry a lot of people. When they go down or even have a small scare, they make front page news. This, over the years, has made aircraft manufacturers like Boeing and airlines that run them prioritize safety and trust over every other bell and whistle feature.

Motorcycles are different. One goes down, a person dies. But it doesn't make frontpage news.

So what's safer? Which mode of transport is actually safer for you?

(Hint:Airplanes are one of the safest means of transport while motorcycles are the least safe - even though airplanes make headlines.)

Trust First

Multi-tenant software businesses work very hard to keep the systems up and running, to keep them safe, to earn and retain the trust of their customers - prioritizing it over bells and whistles. It took Google all of less than an hour to recover from the badware problem - because many of its customers were simultaneously impacted - and fixing one customer's problem meant fixing it for everyone. Imagine, a similar problem in your favorite OS, and how many days of patching and fixing it would take to deliver the fix.

Single-tenant software is good for the vendor. Your instance goes down, you and only you are impacted - even if its down for hours or days. The vendor can resolve the issue at the earliest or at leisure - with no risk to its own business either way! Your fortunes are tied to only yours - not the vendor's and not of others.

As Dirty Harry would say: Do you feel lucky? Well do ya punk?

Barry Diller is Right - Stop Laying Off People

Barry Diller speaking at the Reuters Media Summit opined that companies with healthy revenues and profits should not add to the economic misery by laying off people at exactly the wrong time - when its hard to find other jobs.

There is a certain perversity to the recent layoffs. In good times, smart companies like Google and Microsoft like to hoard talent - living up to the classic "Let's get the right people on the bus and we can then figure out where to go" theme. And it has served them well, mostly. Most graduates of my engineering college that I knew ended up at Microsoft and Oracle in early to mid 90s and this decade every one seems to have landed at the Googleplex (except the really really smart ones ;) ).

The current economic crisis has adversely affected every industry - even the one's that have little to do with mortgages, credit default swaps, or derivatives. But it seems like its the season to cull the ranks, stop questionable projects and trim the fat. While every business deserves the right to manage its workforce, it does seem rather cynical to be trimming fat that many businesses have been carrying for years. The question is not why but why now?

As Barry Diller points out:

The idea of a company that’s earning money, not losing money, that’s not, let’s say ‘industrially endangered,’ to have just cutbacks so they can earn another $12 million or $20 million or $40 million in a year where no one’s counting is really a horrible act when you think about it on every level. First of all, it’s certainly not necessary. It’s doing it at the worst time. It’s throwing people out to a larger, what is inevitably a larger unemployment heap for frankly no good reason.

Are businesses laying off people because they don't have to justify the lay offs? Is it because sacrificing 3% of your work force is the equivalent of modern day sacrifice to please the Gods (on Wall Street)? Is it because what you as an executive are supposed to do?

My question is - what exactly do these companies stand for?

This question goes to core of long-term viability and building great companies. When I think of Google, I know it stands for 'organizing the world's information and making it easily available'. When I think of Apple, I know it stands for products that work and are appealing to the end-user. When I think of Dell, I think of getting value for my money and good quality products without unnecessary frills. The failure of Yahoo!, me thinks is that it has failed to find a mission for itself - and is in a me too race with Google. This is what the new CEO Bartz must fix first. Coming back to question of mass layoffs, its time businesses tried in good faith to find a way to keep as many people gainfully employed as possible.

So while the executives at most companies are asking one hard question: how many people can I lay off without adversely impacting my prospects? Let me suggest a few others:

• What does our company stand for?
  
• Does my product deliver real value so that customers will buy even in dire times? If not, why not?
• How many board members and executives are delivering 10 or 100x what my average sales engineer is delivering? If not, why is he still here?
• If I cut the salary of my top 10% earners by 20%, how many fewer people can I fire? How many more can I hire?
• How do I take advantage of the current sale on talent? Buy low sell high?
  
• Can I tweak my compensation package to reflect what's more dear today (cash) and what's less valuable (stock)?

What do you think?

(All opinions expressed here are personal. Read full disclaimer on my blog website.)

Satyam CEO Exposes Faux Capitalism

Fascinating. Incriminating. Disappointing.

Satyam's CEO has written a mea culpa letter to the regulatory authorities indicating a fraud of epic proportions that included inflated cash balance, fake earnings and more. He said, the scheme reached "simply unmanageable proportions" and he was left in a position "like riding a tiger, not knowing how to get off without being eaten." CNBC referred to it as the "Indian Enron" on air today.

The Tiger Got Away
by zeeshan Nasir (creative commons)

This will cast a long shadow on not just Indian IT companies but on all Indian companies, and perhaps other emerging market companies in general.

The sad reality is that this company is not alone. I suspect worse frauds by other Indian companies in the "Tier-2" category. Even Tier 1 companies like Reliance, DLF and Unitech appear to have used tricks to inflate assets. By way of example, a lot of companies in India bought land in villages (at very low prices) and as real estate value went up, they showed value of "land banks" as assets on their books. Reliance, the largest Indian company, earlier last year had an IPO for Reliance Power - a company with virtually no assets but plans to build several power plants. The Reliance Power IPO was a classic dot-com era style offering - there was very little there except a shell company with ambitions.

Expect to see more of this from India, and perhaps other places.

Glass Half Full

But all is not lost. On the positive side:

• This makes companies like Infosys and Wipro even more valuable. They are truly well managed and ethical compaines. For years, Wipro and Infosys have had to live with potholes and hostility from local governments because they refused to bribe local politicians.
• India has a process and regulatory system that while not perfect, still exists. I don't expect similar companies in China to do a mea culpa. It will be interesting to see how Indian regulatory bodies deal with this.

Finally, it was my fear of bubbles and inflated balance sheets that made me write this post on Indian Bubble - my most popular post ever. The myth of a billion consumers waiting to buy condos and mobile phones can be laid to rest for now. India is a huge economy for many opportunities but it has not repealed the laws of gravity - everything that goes up too fast must come down.

What would Warren Buffett do?

All these scandals from Enron to Madoff to Satyam are making us investors feel like we live in Alice's Wonderland where its hard to trust anything.

So, what would Buffett do? One can only learn from his writings and interviews. It seems like his method of relying on people and signing multi-billion dollar deals based on relationships, family history, etc. is a far more trustworthy system than relying on a gaggle of for-profit, near-term oriented auditors, advisors and all.

And from an investor perspective - the misalignment between shareholders and management keeps getting wider. I have often said that I prefer founder-owned and run companies because I trust them to do what's best for the long-term interest of the business. With Raju and Satyam, I have to question that assertion - it seems owner-manager-founder can also sink ships - although as he claims (and yet to be proven) he made little money from this as he hasn't sold his stake - in his letter he claims he has not sold any Satyam stock over several years.

A Few Rhetorical Questions:

• How do I know which companies to invest in given that managers and board members are for-hire and short-term oriented?
• How do I assess risk when everyone seems to be willing to lie for a fee?
• Am I better off with owning a Subway franchise (a common theme amongst first-generation immigrants) than investing in public companies? Are we going back to days of tangible ownership of assets?
• Final Question: Are shares no different than CDOs in that they are no longer promises that can be fairly evaluated, valued or trusted? If we can't trust shares, is our modern economy built on CDO-like bubble?

What do you think? I am curious.

All views expressed here are personal opinions. As with all my posts, please read my disclaimer at the bottom of the page.