Archives for May 2007

New Meme: Software is Free, Service is Not (Book Review)

admin · May 30, 2007 · Leave a Comment

I recently received a complementary copy of the book, “Software is Free, Service is Not: The Dawn of Service Networks” written by ex-Oracle executives and co-founders of OpenWater – Mike Rocha and Tim Chou. The authors make the argument that most proprietary software used by businesses today is already paid for, and that the open source movement reflects the reality that software is (relatively) free. So, most of the value added by software vendors is in providing service for the software. However, the service business is treated as a poorly run cash cow rather than the core of the business as it should be. The authors drive a lot of their arguments from their experience at Oracle where Tim claims growing the advanced services business by a whopping 61% from 2000 to 2004 while other lines of business shrunk or stayed flat.

The business problem that Tim and Mike set out to solve is as follows: Businesses are spending $2.7 Trillion (yes with a t) per year to support software. And the authors have figured out a way to substantially lower these costs while dramatically improving the service.

The core thesis of the book is that support is run poorly today due to fragmentation of information and people. They envision a world where software support would be as easy to use as consumer oriented services like Google, Ebay and Amazon. The technological breakthrough that they plan to leverage for defragmenting people and information to provide this new level of service is semantic web. The contention is that although semantic web has had limited success in the broader internet, by confining the problem space to software support it would be possible to tag (add metadata to) the existing information currently trapped inside vendor portals, community forums, etc. and then be able to run sophisticated queries that return meaningful results.

The other aspect of the new service networks would be to leverage social computing – think MySpace meets Dell dude (support guy). In addition to tagging the knowledge base, the service network would create comprehensive profile of individuals in the service network. The idea being that you shouldn’t have to go through layers of people to get to that one person that already knows the answer to the question.

In all, the book makes for a very compelling read and I recommend you obtain a (complementary) copy by going to their site. The vision of the future they paint seems highly desirable and plausible in not so distant future. The question is how soon can we get there – the challenges are rather significant and I am not sure (semantic) technology can overcome some of these barriers. Here is a few:

Lack of incentives for some players: It is not clear what incentive software vendors have in plugging into this new service network. The valuable service that ISVs provide and revenues generated from this source would incent them to improve their service but not necessarily plug into an uber network.
Dependency on semantic tagging: I am always skeptical of businesses that require the world out there to be tagged. I do agree with them that this problem is somewhat simplified from the technology perspective due to domain-specific nature. I personally think that they could also leverage a service like the Amazon Mechanical Turk to get human beings to tag what machines cannot.
Competing with free: From where I sit, there are two kinds of customers – one that want a single throat to choke, global, around the clock support and are willing to pay for it; and the other that wants free software, is willing to spend time putting it all together and relies on free support (in terms of dollars spent directly) by accessing help forums and search engines. The service network envisioned by Mike Rocha and Tim Chou may end up competing with free rather than enterprise support by established vendors. Yes, that market is probably big (even bigger) but it is hard to compete with free.

All in all- the book makes for a fascinating read and even if you don’t believe in a new era of service networks, the facts and anecdotes shared by the authors and their insight into the software and support businesses is worth a read.

The authors have formed a startup(OpenWater) to bring their vision to reality. The fact that they are willing to put their money (or convince someone else of putting their money) where the mouth is makes this an even more interesting book to read. Its not just a theory – we will find out over next few years how right or wrong they are.

What do you think about the upcoming revolution in support? Is it plain old outsourcing with a web2.0 pitch? Is semantic web for real?

(See disclaimer at the bottom of the page).

News:Tivo, Apple TV, SlingBox, Scientific Atlanta to live near a water heater

admin · May 29, 2007 · 1 Comment

Yes, the time has come for all these devices that I have put up with in my living room – the cable box, the DVR/Tivo, Apple TV, SlingBox, storage backup, cable router, and even the gaming server (PS2/XBox) – to move out. They have made themselves a bit too comfortable over the years pretending to be part of my decor and furniture. The cute colors and silver containers are not fooling me anymore, the tangle of wires is a dead give away. You do not belong in my living room. The Businessweek story A File Server…in Your Living Room? notwithstanding.

Growing up, I recall how the air conditioner, the water heater, and even the washing machine were all conspicuously visible and tolerated. But in due course of time, they stopped being status symbols and we wanted them out of where we can see them. The same is true (or getting there) for these modern computing devices in the garb of gaming and entertainment.

We have all read the stories reported by business media on Apple v Microsoft (C|Net), Microsoft v Sony (USA Today) fights to dominate the living room. My living room! How dare they even try?

Here is what I am giving them and in 18 months from now, they better adapt or they will not be welcome in my shopping bag anymore:

Rack in my heater or laundry room with lots of Ethernet cables. Heck, I am willing to pony up cash for Gigabit Ethernet or whatever upgrades you want.
An infrared relay mechanism between my living room and the ‘laundry server room’ so that some devices that need to be operated by remote controls of today will still work. But plan to switch to Wi-Fi (or Bluetooth) as the communicating technology with the devices – I never really was a big fan of having to point my remote in the right direction just to switch channels.
Plan to integrate your displays with my (big screen HD) television. This is already true for most devices but those that have not yet paid heed, remember that I cannot see your device’s puny little display in the laundry server room.

Just like a good Carrier split air conditioner that sits out in the sweltering heat, your devices must learn to serve the master (me) without asking me to re-arrange my furniture. Kapish?

Dyson and SaaS: That kind of a person!

admin · May 26, 2007 · Leave a Comment

One of my favorite bloggers is Seth Godin and he recently told this story of why a consumer refused to buy a Dyson vacuum cleaner because she probably doesn’t think of herself as that kind of a person – the kind that buys expensive vacuum cleaners. His key point was that consumers don’t just buy a product but also a self-image. Here is an excerpt:

My take: Craig’s friend didn’t see herself as the kind of person who would buy a Dyson. Sure, she might use one, especially if it was free. But buying a weird, fancy-looking vacuum is an act of self-expression as much as it’s a way to clean your floors. And the act of buying one didn’t match the way his friend saw herself.

So many of the products and services we use are now about our identity. Many small businesses, for example, won’t hire a coach or a consultant because, “that’s not the kind of organization we are.” Wineries understand that the pricing of a bottle of wine is more important than its label or the wine inside. The price is the first thing that most people consider when they order or shop for wine. Not because of perceived value, but because of identity.

I have come across similar thinking when talking about SaaS – some customer CIOs see themselves as the kind of company that doesn’t do SaaS while others see themselves as the kind that does. And this approach seems to extend beyond SaaS to open-source, web2.0, Oracle, Windows, LAMP and so on. So think about it – do you make decisions based on how you feel about your self (or organization) rather than objective analysis of the business problem and merits/demerits of the solution?

Here are some questions to ask to see if you are biased by self-perception:

Do you eliminate certain products from consideration early in the decision process based on the licensing type (open source, subscription)? Or do you take the time to truly evaluate the TCO including hidden costs in time and support?
Do you put up with limited functionality because you like what the company stands for (don’t be evil/share)? Conversely, do you beat up on a good product or refuse to sing praises of a great product because it happens to be from the wrong vendor?
Personally, do you feel better eating a sandwich at Subway than a salad at McDonald’s?
Do you think you would have bought an mp3 device with vendor lock in for all the content if it came from Microsoft?
Does ‘Made in China’ have a meaning for you? Have you ever reflected on what ‘Made in Japan’ meant 30 years ago?
Do you assume hand-made leather shoes and custom tailored suits from UK are superior to those made by craftsmen in developing countries?
When I says rich people’s kids do you think of Paris Hilton or Warren Buffet’s kids? How is this related to your perception of what being rich would do to you?

What kind of a person are you? The kind that has no bias? Or the kind that can’t see her bias?

Predicting the end of Salesforce?

admin · May 24, 2007 · Leave a Comment

Fellow Irregular, Joshua Greenbaum has posted this excellent note entitled Siebel 2.0: The end of Salesforce, and it follows up on an earlier post by Phil Wainewright How is AppExchange really doing? I recommend you to check both of these out.

Here is a quote from Josh:

The parallels (with Siebel), unfortunately, regarding Marc’s claims for App Exchange, his one strategic ticket out of his current mess, are a little too similar. Marc has been making lots of exaggerated claims about App Exchange, the value of the VC money that has been thrown into App Exchange, and other issues regarding how well his company is really doing. I’ve written some about this, others like Phil Wainewright have weighed in, and a few more in the blogosphere (Sinclair Schuller in particular) have also noted the credibility gap that Marc is building for himself.

In my not so humble (and probably biased) opinion, the following are the key flaws of Salesforce’s current strategy:

The move from SMB to Enterprise helps them target some big fish but in the medium to long run they end up competing with Enterprise software experts.
Along the same lines, the move to Enterprise results in bringing on-board the DNA of large enterprise software companies and thereby destroying the innovator’s edge.
AppExchange technology is new, untested and despite the best marketing it takes many years, sometimes decades to build out a real platform.
No VC I know would bet their company’s future on another company’s future success as a platform. The law of conditional probability and risk management principles makes it an unattractive move. This is not to dispute that some companies are glad to have free ‘ads’ posted on Salesforce’s website.

None of this is to say that some niche players are not building customized screens and integrations to Salesforce but that is true for all applications that are somewhat successful, be they on-demand or otherwise. By way of example, check out the solutions page for most AppExchange vendors like Business Objects and you will notice that they have integration solutions for SAP, Oracle, Siebel, PeopleSoft in addition to Salesforce.

(See disclaimer at the bottom of the page.)

Prosper is growing exponentially

admin · May 19, 2007 · 2 Comments

I have been following Prosper for quite some time now. In my earlier posts, I have said that the size of the market could be 10s of billions, if not higher. The miracle of exponential growth associated with network effects seems to be kicking for Prosper finally. It recently crossed $60 million mark i.e., the members of Prosper have borrowed and lent over $60 million in last 20 months but the remarkable statistic is that the growth from $40 to $60 million has come in just 3 months.

The growth is not just remarkable, it appears to be accelerating. As Kevin Kelly wrote in Wired (10 years ago):

The Law of Exponential Value Success is nonlinear

The chart of Microsoft’s cornucopia of profits is a revealing graph because it mirrors several other plots of rising stars in the Network Economy. During its first 10 years, Microsoft’s profits were negligible. Its profits rose above the background noise only around 1985. But once they began to rise, they exploded.

Federal Express experienced a similar trajectory: years of minuscule profit increases, slowly ramping up to an invisible threshold, and then surging skyward in a blast sometime during the early 1980s.

The penetration of fax machines likewise follows a tale of a 20-year overnight success. Two decades of marginal success, then, during the mid-1980s, the number of fax machines quietly crosses the point of no return – and the next thing you know, they are irreversibly everywhere.

The archetypical illustration of a success explosion in a Network Economy is the Internet itself. As any old-time nethead will be quick to lecture you, the Internet was a lonely (but thrilling!) cultural backwater for two decades before it hit the media radar. A graph of the number of Internet hosts worldwide, starting in the 1960s, hardly creeps above the bottom line. Then, around 1991, the global tally of hosts suddenly mushrooms, exponentially arcing up to take over the world.

Each of these curves (I owe Net Gain author John Hagel credit for these four examples) is a classic template of exponential growth, compounding in a nonlinear way. Biologists know about exponential growth; such curves are almost the definition of a biological system. That’s one reason the Network Economy is often described more accurately in biological terms. Indeed, if the Web feels like a frontier, it’s because for the first time in history we are witnessing biological growth in technological systems.

Do you think this model applies to Prosper? Do you agree that Prosper may get as big as Ebay? Or bigger?