Friday, September 28, 2007

News Analysis: PWC's Non-Compete Ends with IBM

In 2002, PwC sold its consulting arm to IBM for $3.5B. That transaction began a 5 year non-compete which ends on October 1, 2007. The non-compete prevented PwC from participating in IT consulting and systems integration. However, PwC could partake in other areas of business consulting such as management issues and IT advice, but not implementation. PwC now joins its former Big 4 brethren, Deloitte and Ernst and Young in being able to vigorously attack the consulting market however they want. Key points include:
  • Continued focus on trusted advisory roles in business. During the non-compete, PwC and others in this space built up significant businesses in post merger integration, valuation and corporate finance, Sarbanes-Oxley and regulatory compliance, performance improvement, etc. With IT decisions moving to the business side, PwC's long-lasting CEO and CFO relationships will transcend well into the new IT environment.
  • Expanding in IT strategy but not implementation. Expect PwC to play a 3rd party objective role in the board room on a range of issues from business to IT. With the system integration market commoditized by global SI's such as IBM, Accenture, Wipro, Infosys, TCS, etc., this industry observer would expect the operations to remain business focused and not a full range IT services supplier. Projects will focus around vendor selection, IT strategy, and independent validation and verification. This way they can play "auditor" to their former cousins who make their money on systems integration work and delivering vendor services.
  • Advisory and consulting work brings in higher margins than audit work. Audit work still pays the bills and holds the relationships, but margins are much higher on the advisory side. General Big 4 billing rates average in the $250 to $300/ hour rate. Working on a project with 12 to 15 people over 2 months quickly overtakes the annual audit fee at most companies.
  • Many alumni seek to come back. Despite the hot hiring market for resources, PwC has an advantage. Many IBM'ers are looking to head back to PwC given their experience with IBM. Along with other Big 4 alumni scattered during the last set of M&A, there's a longing to work at a private company and not at a company that talks a big game about strategy but ends up becoming a slave to the quarter to quarter Wall Street mentality. One classic post from the IBM-PwC Consulting merger days can be found at:

The bottom line
Targeting the IT consulting strategy and high-end services market will allow PwC to enter the sweet spot of the market - highest value and highest margin work. Also, it seems that given a saturated system integrator market and high failure rate, PwC would probably not enter the pure systems integration market. However, it may decide to go down the higher end of the systems integration side of the house working on projects such as BI, master data management, business process management. And even if they do, the high end services side, coupled with the relationships should put competitors such as IBM and Accenture on alert as they ramp up in the next 12 to 18 months.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved

Wednesday, September 19, 2007

Event Report: SAP Business by Design (Formerly Code Named A1S)

SAP this morning launched its new hosted offering SAP Business by Design. Some quick observations on the positive side of the spectrum:
  • SAP Business by Design runs NetWeaver. UI still runs on services and the product can access all the services in the overall SAP Enterprise Service Repository. Customers and prospects should expect SAP to fill in gaps and last-mile solutions via composites from partners. Though SAP will have to grow this new ecosystem, they've proven they can do that very well.
  • T-Rex and Max DB reduce dependence on Microsoft and Oracle. Finally, SAP stops funding Microsoft and Oracle with database cash. MaxDB is now the underlying database and T-Rex, the in-memory database (debuted in BIA), is put to use throughout the suite.
However SAP will have many areas of improvement in future releases to come. Here are some areas based on conversations with SMB prospects:
  • SAP gets the midmarket but the product still remains complex. The vendor currently leads in the mid-market by revenue ($2.563B in 2006). SAP has spent a considerable amount of research to understand this market and its requirements from a marketing perspective. Yet simplicity and ease of use still remains elusive to the vendor. Key features like easy access to reporting features, quick portal construction, and easy integration to Office could remain significant areas for improvement.
  • SAP fails to deliver a true SaaS offering. SAP delivers an on Demand solution. Without true SaaS in a multi-tenant design, customers may pay more in the long run but retain some flexibility. SAP had a top secret project (originally code-named A1N) headed by Shai to build multi-tenant and for whatever reason abandoned the project in January of 2007. However, customers may trust the fact that SAP is delivering onDemand and will expect the reliability of a trusted utility.
  • Focus on usability still falls short of industry efforts from Microsoft and Epicor. The vendor talks about breakthrough user experience. The reality: the current approach in the Business by Design product takes its WebDynpro UI to a new level of configuration and manipulation. Drag and drop features showcase better usability but the net result is still a distinct SAP experience, though it is much better than anything currently offered. In context of the market though, it falls short of the ground breaking work Microsoft Business Solutions has accomplished around roles and usability and the ease of use in process flexibility from Epicor. A move to adopt AJAX would certainly help a ton. (Editor's note: we're all tired of hitting F5)
  • Early adopters are no different from other early "hosted" SMB adopters. SAP's beta customers share similar requirements of all rapidly growing SMBs. They are growing, need rapid deployment, and impressed by the ability to deploy quickly without being saddled by IT infrastructure costs. Spending operational expense instead of capital expense remains a big driver as well and at $149 per month per user, this is a good deal compared to the full SAP ECC 6.0 offering. Nothing was special about the customer references, in fact, many of them may have received discounts or paid minimal licensing.
The bottom line
SAP demonstrates a good understanding of its requirements for the SMB market and a "hosted" offering. SAP should be commended for delivering a significant improvement in comparison to existing SAP products. Company's who trust SAP to deliver core ERP may consider this solution. However, the lack of Web 2.0 features that include user experience, mash-up support, interoperability, and true multi-tenant solution may turn many prospects away. Also, the lack of an easy Microsoft Office integration may keep prospects and existing customers from turning to the numerous SMB competitors who offer .NET based offerings with Office integration. The jury is still out on whether Shai's original strategy would have been better or whether or not Zencke's offering may at least meet SAP's stated growth goals for the mid-market.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved

Monday, September 17, 2007

Event Report: DreamForce 2007

(Image courtesy of

At this year's Dreamforce, made 4 key announcements:

  • The platform - platform as a service for companies to deploy their own apps
  • Visualforce - a page based model design tool to deliver any User Interface-as-a-Service
  • An AppsExchange milestone- the vendor delivered its 700th live application
  • Salesforce Ideas- an online innovation community and support group
Of those announcements, The had the most impact as it now opened up the platform to not only its own partners, but also any customer who was looking for a SaaS platform to build on. Like the original AppsExchange announcement which targeted partners, the opening up of the platform to customers was equally innovative because it put key SaaS development tools in the hands of innovative customers to build their own "last-mile" solutions. The net:net - the reduction of complicated software development platforms.

The bottom line remains innovative in bringing a true solutions centric ecosystem to the end user. Customers today face so much frustration in waiting for a vendor to deliver key functionality. Opening up to partners via AppsExchange was innovative. Sharing the code with customers to develop is brilliant and put one step ahead of any competitor in giving control back to the customer.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved

Thursday, September 13, 2007

Apps Strategy: SaaS Pricing Models Challenge the Status Quo

A dichotomy of software licensing and pricing philosophies has emerged. On one hand, software titans such as Oracle and SAP continue to shift the pendulum towards usage based metrics for its largest customers. These options represent metrics such as revenue and industry specific models that seek to extract a “fair value” for their contribution to an organization’s success. On the other hand, Microsoft and a host of vendors like Epicor and Sage serving the SMB market continue the push for usage based models including concurrent user which seek to limit ownership costs to the user level. SMB’s find favor with this model because it creates an apparent aura of predictability and “fixed nature” to license costs. As SaaS options gain in popularity and familiarity, I predict the pendulum will shift again (for large enterprises) because:
  • Simplicity of SaaS model puts the focus back on user based pricing. Cost per user per month highlights the elegance of simplicity. Business leaders easily understand pricing by users and not by revenue or their business success. Why should you pay a software vendor more for your success?
  • Inclusion of maintenance, support, and upgrades raises the bar. Unlike traditional models which tack on 15 to 25% in annual maintenance costs and may or may not include the apps and technical foundation upgrade, SaaS pricing eliminates this level of complexity. Users neither worry about the cost of upgrade nor worry about the testing and certification costs.
  • Current systems nearing the end of their life-cycle provide enterprises a fresh start. Many ERP systems installed pre-Y2K are now coming up on replacement. Enterprises emerge from harsh lessons, as they have paid for maintenance of unused licenses (i.e., shelfware), suffered undefined maintenance fee increases, and lost functionality credit for future releases. As companies begin their vendor selection processes, they do not want to repeat the same mistakes. SaaS pricing simplicity allows them to limit their risk while gaining the benefits of rapid deployment.

The bottom line

Though the simplicity and elegance of the model may not apply to all scenarios, prospects and customers should consider how to apply SaaS pricing models to traditional licensing and pricing contracts. Armed with this metric, a lot can be gained from limiting the cost of IT to the number of users. And thanks to SaaS, the only thing that matters is cost/user/defined time period.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved

Wednesday, September 5, 2007

Trends: The True Small Business Market

(Image courtesy of NetBooks)

Software trends come and go in cycles. Currently we're in the midst of a focus on partners, ecosystems, and the small business market. Yet, that definition of small business is all over the map. Some vendors look at 1000 employees or less. Others size by revenue and say its $500M or less.

Yet, a great conversation this past Thursday morning with Ridgely Evers, the "Father of QuickBooks", set me straight on a market smaller than SMB! Ridgely's new company NetBooks passionately focuses on what they term a "True Small Business" or TSB.

Here are some key characteristics:
  • less than 50 employees (typically 2 to 25)
  • management by a founder or owner
  • lack of "professional" management or capital investments
  • profitable and growing organically
  • focused on ease of use versus power
Ridgely proceeds to size this market at a conservative 5.1M TSBs in the US.

Based on the conversation, the NetBooks solution targets a very specialized but dynamic TSB niche looking for:
  • Easy to use solutions
  • High-touch support and deep relationships
  • Hosted solutions
  • Valued price points
With a full suite that covers production, inventory, compliance, shipping, book keeping, marketing, sales, and CRM, TSB prospects should keep an eye on NetBooks. Vendors competing head to head may want to evaluate whether a hosted model could best shrinkwrap.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved

Tuesday, September 4, 2007

How Web 2.0 is Transforming Customer Service

I thought I would write a post about the biggest trend happening in my industry in case it is emerging as a hot topic for others. When I started writing about online discussion forums as a new support channel almost 3 years ago, the examples were mostly high volume consumer companies (Tivo, Palm). Today, there are both B2C and B2B companies finding great success using discussion forums to respond to customer questions, often deflecting large numbers of agent interactions--producing a huge ROI for an online community project.

Today I'm saying this has gone from 'bleeding edge' to 'leading edge' to 'best practice,' and technology companies without a mature online community are soon to be in the minority. Though only a year ago SSPA members were curious, yet not totally convinced, Web 2.0 and online communities have now become one of, if not the, hottest topics I hear about in member inquiries. What has changed so quickly that is forcing companies to act, incorporating Web 2.0 elements into customer service operations? I call attention to these three drivers:
  • There's no more fat to cut. After 7 years of cost cutting, service management has 'done more with less' and 'worked smarter not harder' until there's nothing left to cut, streamline or optimize. Still under pressure to cut costs, a new possibility for deflecting costly live agent interactions peaks the interest of most support managers.
  • Gen Y is aging into the target demographic for more companies. The MySpace generation is now nearing 30, putting them squarely in the cross-hairs as a target demographic for more companies. And this generation prefers peer-to-peer support over corporate support; hence discussion forums emerge as a preferred support channel, and existing forums find wider user adoptions.
  • Engagement leads to loyalty. At Forrester I used a pyramid diagram to illustrate how satisfied customers become loyal customers, and this involves personalization, bonding, and empowerment. This perfectly maps to the reputation models used in communities, and surveys show that as customers move up the reputation levels from 'novice' to 'intermediate' to 'expert,' their loyalty increases with them.
Analysts love a new bandwagon, and I'm sure this is one that experts across many areas of enterprise software can ride. From my perspective, I wanted to share the roadblocks to adoption that I most commonly encounter. If Web 2.0 has yet to impact your coverage area, here are problems I'm seeing in service and support that may give you an inkling about what the roadblocks in your area may be in the future:

  • Poor integration. As with other new support channels (web self-service, email, chat), companies tend to launch discussion forums in a vacuum, not integrated to the customer hub. Customers post questions on a forum that are already answered in the self-service knowledgebase, and customers create support tickets for problems not addressed in the knowledgebase that are resolved in the forum. If you don't integrate search across both KB and forum content, you end up with duplicate (and likely conflicting) information and frustrated customers.
  • Lack of resources. Will we never learn? Companies gear up for new projects, staffing as needed, then pull off resources after go live. If customers post a question to a forum and never receive an answer, you have just guaranteed they will never use your forum again. Sure, customers should ultimately provide the mediation in a mature forum, but until that happens, plan on staffing moderators for at least 6 months.
  • Hubris. The single biggest roadblock I've seen to including Web 2.0 in support's vision? Support management refusing to acknowledge that there are experts with expertise on their products outside their firewall. I call this the "If we don't know it, it ain't worth knowing" mentality, and companies stricken with the malady are unlikely to launch or adequately fund a forum project.

Hope this is useful for all of you. I've published quite a few reports on this topic, including some real-world examples from SSPA members. Add a comment or drop me an email if interested! Thanks for reading!

Monday, September 3, 2007

Trends: What's all the fuss about True SaaS, OnDemand, Hosting?

As many of you know, there's mass confusion out there about what's really SaaS, so time to clear the air on this topic. I'm going to give this some common definitions and hopefully this will help us figure out what's what and where the trade-offs are in all these deployment options.

  1. Single Instance - (a.k.a. "On Demand"). Think traditional apps deployed one cusotmer per app or per server. Many vendors provide hosting capabilities. Customers don't worry about the IT infrastructure and retain the flexibility to modify, customize, and in most cases choose when they want to change the code. All customers can use different versions of the software
  2. Multi Instance - (a.k.a. "Server Virtualization"). Think "VMware" like. Apps deployed into a shared-web hosting environment. A copy of the app is configured and deployed into a web directory for each customer. Vendor benefit from easier to manage environments. Customers don't worry about the IT infrastructure and retain the flexibility to modify, customize, and in most cases choose when they want to change the code. All customers can use different versions of the software.
  3. Multi-tenant - (a.k.a. "True SaaS"). Apps in a multi-tenant deployments provide a single operating environment shared by multiple customers. Config files are created and deployed each time a customer request services. Customers don't worry about the IT infrastructure and retain the flexibility to modify, configure but NOT customize the code. Customers usually receive upgrades at the same time. Everyone shares the same code.
From least expensive to most expensive to run for a vendor:
  1. True SaaS
  2. Server Virtualization
  3. On Demand

Why is this important? Let's see, you choose an OnDemand solution and the vendor's costs to run the app goes up with each new customer as it has to manage the different environments. No matter how hard the vendor will try to "fit" everyone to standard configurations and deployments, that's not always possible. Flexibility has a cost. In a "True Saas" solution, the cost to add an additional customer is minimal and each customer reduces the overall cost for everyone. Ultimately, a True SaaS deployment will have the lowest cost/user/month fee. What will you do 5 years into an OnDemand scenario when you are locked in?

From most customizable to least customizable for a customer:
  1. On Demand
  2. Server Virtualization
  3. True SaaS

Why is this important? Your may have specific needs in an area where the SaaS vendor has not provided the deepest level of configurations. You can't just go in and modify the code unless everyone else wants it or the vendor's has it on the roadmap. The cost of comformity is the lack of flexibility. What will you do 5 years into a True SaaS scenario when you are locked in and the vendor won't add the feature or functionality you need?

The bottom line:
Keep in mind there are cases where one deployment option is more favorable than another. Just because you are multi-tenant SaaS doesn't mean you are better. On the other hand, when vendors tout OnDemand as a SaaS offering, then the SaaS bigotry begins. Be on the look out as more vendor provide mix-mode offerings to support disconnected modes, SaaS and On-premise, as well as other improvements in integration with stronger client side ESB's.


Editorial Note: (September 5th, 2007) Just noticed a great posting that really showcases the point here. This applies to all the vendors who did not architect for SaaS and are now playing catch up.

Wainewright's Posting on Oracle's Misconceived SaaS Strategy

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved