Thoughts On The Tech Industry

What do Facebook and Muhammad have in common? Well if you can’t bring the mountain….

Recently, I had a chance to sit in on a Digital Media session at the Asia  America  MultiTechnology Association conference.  The panel was led by Mark Stevens of Fenwick and West who did his usual masterful job of teasing out some interesting tidbits from his panelists. They included Tim Kendall the Project Manager of Facebook's recently botched Beacon introduction, Yoon Lee of Samsung,  David Richter of DivX and Chris Corvalho of Lucas Films.

Needless to say there were a variety of views represented. They ranged  from US and Asian cultural differences that help explain variations in consumer electronics  adoption rates, to snide remarks about how this coming CES will once again be the year of the Digital Living Room  - something that seems to be a continuously moving target.    

Although I found some of these topics interesting, the real morsels of insight came from several points made by Tim Kendall of Facebook. These provided a few key signposts of how we may see Facebook evolve as it attempts to monetize its 58 million users.

Tim kicked off with a relaxed apology for the Beacon privacy debacle, echoing some of the points made by Mark Zuckerberg in the press recently.  As he said in his mea culpa,   "Beacon may go down as Facebook's biggest screw up."  He hoped this was the worst mistake they ever make.  They certainly learned a lesson from it. You might think this would have damaged Facebook, but so far it appears to be mostly a PR gaffe.  As comScore Media Metrix recently reported, Facebook had 20M visitors the week of Beacon’s announcement and 22 million for each of the two subsequent weeks.  It then rose to 25 million the week of November 25^th. We’ll see how the December numbers shape up.

One of the key points Tim made was how Facebook will evolve from a community site to a community that you can take with you as you travel the web. Imagine for a minute, as he explained, that you’re a member of the Facebook community. You decide to go to Netflix to pick up a video, say, Tom Cruise in Top Gun.  When you land at Netflix you identify yourself with a Facebook ID. Then before you finalize your selection, you decide to see who else in your community has seen the film and what they think of it.  Hmmm, more context, more relevance, more ad dollars. Repeat across multiple websites and presto, you have some serious incremental ad revenue.

So "If the mountain won't come to Muhammad, Muhammad must go to the mountain.” Or in Facebook’s case, if we can’t squeeze enough dollars out of our site alone, let’s take our revenue generation engine to the places where we can monetize the community to the hilt.

I’ll follow up in another blog entry or in an upcoming Milestone Group Quarterly with a discussion of 5-6 other key initiatives that Tim talked about. In the meantime, let us know what you think.

PaddysValley Tour Silicon Valley

Chris, Gary, Krishnan and I just hosted 25 Irish entrepreneurs in the Web 2.0 space who humbly refer to themselves as 'PaddysValley'.  They are visiting/touring the Valley this week to network, understand how to best raise capital, how to build/scale their Web 2.0 businesses, how to partner (and to shop given the €/$ exchange rate!)  Their trip this week to the Valley includes visits with Microsoft, Google, Facebook, Seesmic, SocialText, Ning... and Milestone Group!  It was really exciting to hear how switched on and plugged in this group was.  I applaud them all getting organized to coming across and making the investment, it'll pay dividends for all of them in the months and years to come.  I got a Guinness out of the deal, t-shirt that is.  Next time I'm in Europe, I'm definitely making a trip to Ireland to meet up with this group again, and collect on a 'real' Guinness, the one with the fancy shamrock foamy bit on top!  Good luck PaddysValley, you're all on the right track!

Digital... Virtual... Personal... Mobile

I listened to Carly Fiorina speak the other day at a gathering of IT Industry folks who share, perhaps, some common political interests as well.  In my opinion, she's a pretty interesting speaker, and obviously quite intelligent.  We heard some references to Carly's tenure at the Hewlett-Packard Company, and there were certainly some not-so softball questions about the results of her work there.  But she handled it all quite easily, and I think most would say, with aplomb.

There was a lot more to Ms. Fiorina's message than technology and industry.  There have been a number of rumors floating around over the last year or so that she will enter the political arena.  Carly's message last week indicated to me that she's heading there post haste.  Without divulging my political orientation - anyone that knows me has no doubt about that - I have to say that I agree with what she said, and I liked what I heard.  It is refreshing to hear an industry leader with a consistent political view.  I believe I've heard many whom seem, at times, to be contradictory.

One of the views presented was in regard to the accelerating pace of outsourced business offshore -- There are many Americans who have voiced strong opposition to this trend.  While I'd like to see my fellow citizens all happily at work, I think outsourcing is good for our economy - particular for the IT Industry.  As Carly said the other day - We need to encourage those who come to the U.S. for their higher education to stay, and to contribute to our ability to innovate and grow -- that's the ticket!

Is anyone really wondering at this point?

At M.R. Rangaswami's Software 2006 last week, I participated (merely as a facilitator) in a breakout session that included a number of companies currently outsourcing their software product development. Motorola, Microsoft, Openwave, Mirapoint, and Zinnov were the companies represented.

What's interesting today vs. just a few years ago is that it's not an issue of whether to outsource product development or not. It's a matter of with whom and where, and for what. There is a tremendous amount of competition for this work today -- several offshore product development outsourcers were not only present at Software 2006, but actually sponsors. This event can certainly be the kind of place where the outsourcers have a feeding frenzy. Software companies of all shapes and sizes, disciplines and focus are all in attendance.

So are there then any software companies today that are actually wondering whether they should outsource? I can't imagine it. In fact, if you take a look at the enterprise, virtually every Fortune 1000 company in America is looking at the same thing. These folks write a lot of their own software, and it's a significant cost to corporate America.

The battle for outsourced software development has begun. There are many, many players. The big guys have taken notice, and they're in the game too. It will be interesting to see which companies emerge as the leaders and winners. One thing to take notice of: Those that focus soley on software product development, as opposed to the others that outsource anything you might want to do (from business process to IT to Marketing to...) should have a leg up. Building software requires some highly refined processes and a significant amount of discipline. Focus should determine the winners.

SaaSsy

At the SaaS Conference in Napa, sponsored by OpSource this past week -- and it was interesting to hear virtually every speaker refer to the "SMB" market-- that segment of customers for whom all of us has expected Software as a Service to be most useful and attractive.  But on the other hand, there are few vendors that truly develop their products for the SMBs.  The granddaddy of 'em all, Salesforce.com, surely does not.  In fact, the one company present at OpSource's excellent event that truly does a lot for small and medium-sized businesses is Microsoft, the "Evil Empire." 

Look at the feature sets of the various SaaS products today, and see how they're all really engineered for large organizations.  In many cases, the capabilities needed most by the "little guy" are only available in the "Enterprise Edition" of the product - the version that just isn't affordable for SMBs in most cases. 

So, many of the successful players in this segment are selling drugs.  "Try my Team Version today;  it's inexpensive and it will make you feel great.  Oh, you like that?  Well, what you really need is the Enterprise Version.  It has what you need.  Every day.  I'll be your source."

Is SAP "Honest"?

.....was a rhetorical question posed by none other than Shai Agassi, at last Wednesday's Enterprise Services Forum in San Jose. SAP gathered 350 executives from ISV companies to talk about their Enterprise Services Model for business, and more importantly, to discuss how SAP was going to partner with ISVs in their "Powered By Netweaver" world.

Which brings us to the 'honesty' question.

Listening to the presentations, it seemed the primary thought process was winning over the masses of ISV executives in attendence: virtually every one of the SAP executives who gave presentations invoked all sorts of reasons why it was difficult to work with SAP in the past, but the world (and SAP) have changed, and ISV's should make educated decisions on partnering with SAP today.

The case they make is compelling: SAP has been fairly aggressive in courting partners in the past year, and I believe that window will start to close in the next year, as the IBU leaders in vertical & functional groups define their solution maps; necessitating ISVs to quickly evaluate those "white" and "yellow" spaces in solution maps; make a business case for 'go / no go'......before the "train leaves the station" (a phrase echoed a number of times).

George Paolini, former Sun and Borland exec, is leading the Netweaver Partner strategy. Given his success in building Java: the technology community; awareness; and adoption from scratch, he seems a good choice to develop another community from ground zero: Netweaver.

Some thoughts on driving cost effective sales with SAP:

- Cost of sales is very high within SAP; think about presenting at key events (Sapphire, TechEd) and get in front of thousands of clients for a finite fee

- Critically evaluate the available solution maps first; don't waste time where a big "red" zone indicates that SAP has that part of the solution covered

- Identify specific "Industry Value Networks": groups of partners in specific verticals, and evaluate opportunities to provide value / solutions within that ecosystem. SAP thinks 'vertically', so business process applications that fit within an specific industry framework are going to get the most attention.

What's Hot In Security....

Last week saw us hosting another luncheon roundtable, this time for CEOs of companies operating in the data security environment. Our panel was comprised of three local venture capital investors, who shared their thoughts on a number of wide-ranging topics.

Provocative questions by the moderator elicited divergent and interesting points of view. 
What’s hot? What are the best, current exit strategies? Who is ultimately responsible for the security of data in motion and at rest?

Exit strategies: Well, IPO didn’t get many votes…it will be an exit strategy for only a very selected few, those who have something unusual to offer and the performance to back it up. In this era of heightened regulation, the added annual cost of being a public company is estimated to be between two and four million dollars. The additional personal liability issues and scrutiny make this seem a fairly unappealing way to raise money. M&A activity has picked up, and will increase as the large number of private companies in this space begins consolidation.  The security market is said to have potential of at least $1 billion…but is fragmented, and has many sub-markets. Ultimately, as security becomes commoditized and the bigger companies like Cisco, Computer Associates and Juniper, recognize the need to offer security as part of their enterprise solutions, security will be built in rather than added on. Is there an appetite for taking companies private? Yes, the panel says, but the cost is high and the mechanics daunting.

What’s hot? According to these VC’s it's policy management, identity management on appliances, policy enforcement, and new flavors of authentication. Managed security services are beginning to catch on, too, as customers tire of multiple point solutions to protect their data.

Whose problem is security? Does responsibility rest with consumers, or is the onus on the Amazons and Googles (and Citibank and Wells Fargo) to protect their customers? The question didn’t get a definitive answer…it appeared ultimately to be “both”. But the prevailing wisdom says that if merchants who cater to consumers don’t take this on, the business benefits will decline as consumers become more and more protective of their privacy.  Threats to privacy and identity theft have become more creative and organized.  Banks in particular are beginning to feel the heat, particularly with a trend toward financial institutions being held liable for online fraud that victimizes their customers.

Bottom Line: The number of companies serving this segment of the market will continue to grow—it hasn’t crested yet. But be looking for consolidation as enterprises and consumers grow more impatient with the overhead of multiple solutions. At the end of the day, we all want to turn on the computer like we turn on our cars—hear it start up, know it’s running, and that it will transport us where we want to go without incident. We don’t want to have to run a diagnostic test on the tires, then the steering wheel, then the windshield, then try to figure out why the wipers won’t turn off after the test.

 

 

Insights From Our Recent CEO Roundtable In The Business Analytics / Data Management Space

We had the opportunity to host a CEO roundtable this past week for 20 CEOs of privately held software companies in the Business Analytics and Data Management market space, along with three panelists who are executives at major BI / ERP software companies. This event provided some great insights into the continuing evolution and consolidation of this software sector.

(note: these roundtables are informal, limited seating events for CEOs only, so I am not going to share any names or specific quotes. Nice try, but sorry....).

So, what is happening now, what will happen, and what DID happen in this space? In our not-so-scientific analysis of topics raised and discussed (guess I should be utilizing an appropriate stochastic algorithm to better defend my position? just wondering....), we observed a few timely trends:

Open Source: Most agree that open source is here to stay, and that it will comprise a part of the technology stack. Will it be part of the business intelligence / analytics applications layer? On that topic, our panelists as least did not see as much need or opportunity. Clearly, there are companies that are building out the database / DW part of the stack now with open source, and making a case to drive down the TCO. The general consensus is that open source is 'here to stay'; it is simply a factor in product strategy for the major BI / ERP players.

Software as a Service: Software as a Service (or SaaS) has not caught on in the BI space, compared to other sectors like CRM / SFA. Our panelists, and some attendees, have not heard of any significant interest from customers for this type of service. It could be a function of risk management; keeping confidential information such as HR records and financial projections inside the firewall. However even for BI applications that allow sales and marketing staff to better understand their customers and to optimize sales efforts, the market has not shown much interest in the way of a services model. We think that this could be a 'sleeper' opportunity that has not really come up yet in this software sector, but could very well in the next 12 months; perhaps focus on the SMB market.

EPM /CPM / BPM: BPM, or Business Process Management is the fasting growing segment in the BI / Data Management market sector. Growing out of departmental process management initiatives, the key driver now is to integrate across the enterprise, and to provide scorecards, reports, and other "C Level" deliverables with more confidence, so that predictive modeling and optimization initiatives are really based on the most complete and highest quality set of data available in the enterprise.  Clearly, scorecards and reporting have driven the growth of the BI market, but now it is more imperative that these deliverables are utilizing all relevant data, which gets us to the next trend....

Data Integration: Data integration is not nearly as 'sexy' as scorecards and BPM, but it is clear that to deliver on the promise of true enterprise level process management, one needs the middleware (or 'plumbing' as affectionately termed by one of our panelists) to pull the disparate data sets together, to ensure minimal latency and high data integrity, and to build in redundancy. We think this is where there is significant opportunity for ISVs to fill "white spaces" in the major BI / ERP software company solution maps.

Operational BI: Also called "Democratization of BI" ( I used that term, and was told by one of our panelists that he coined that it......darn). Business Analytics for the masses, or at least knowledge workers or line managers whose duties are not necessarily to 'slice and dice', but to do more "mundane" things like: sell products, build organizations, and build mindshare. These users are not the traditional BI users that reside in the CFO or CEOs office; they have very specific needs, and want tools to deliver on exactly what they need to see. This is the area where unstructured data management may come into play as well: what information (structured, unstructured, spatial, whatever) is required to perform one's job well?

Faster, Cheaper: Of course, driving down the TCO of BI solutions is first and foremost in the minds of clients. What opportunities are there for ISVs to drive down costs and to improve performance of their BI solutions? Data query optimization, open source, ensuring data integrity; even portability of data sets all were discussed as opportunities to provide more value to customers

All in all, a great event; lots of good energy and a generally positive outlook for growth. We will be hosting another two of these roundtables in the BI space later in the year; the next will be in September. Potential topics  include: exit strategies, views from the analysts, and views from the investors. Stay tuned.