The On Demand Journal

Seven

The new book, Seven, is now available for purchase. Seven is a follow on book to The End of Software, which predicted the rise of software delivered as a service. Now that this transition is happening Seven provides a framework for the producers and consumers of software to take the next steps. Seven is written with a chapter focused on every functional area: R&D, Operations, Sales, Marketing, Finance HR. In addition, You'll also find lots of campfire stories from people who did these jobs at leading companies such as eBay, Salesforce.com, Webex, Netsuite, Oracle and many others.

Click here if you'd like to purchase a copy.  Also, if you're interested, an early version of an active book is available at www.softwareseven.com. It's under construction, so you should come back often and see how it's changed. If you have any comments please feel free to email me.

Mabel and the Cloud

Jim Morris, who is Dean of Carnegie Mellon West, invited me to speak at Sofcon 08.  The conference was on the Mobile Future and speakers included David Pogue; columnist for The New York Times, and Bob Iannucci; Senior Vice President, Chief Technology Officer, Nokia.  When Jim asked me to speak - I told him I didn't know much about mobile, other than of course, I have a mobile phone. But nontheless he convinced me to say yes.  I took the opportunity to reflect on mobile computing and also learn from some great people. You'll soon be able to see the video of the presentation but here is the gist of my thesis.

Mobile computing (in particular the massive success of the iPhone) is happening. Google says more search is coming from the iPhone than any other mobile device; Bank of America has said 30% of their mobile banking transactions are coming from an iPhone. The ability to deliver the full web experience coupled with a flat data rate plan have been two particularly important key success factors. Special thanks to Bob Borchers, who is Senior Director, Product Marketing for iPhone for educating me. For those that haven't seen his rap Hit Me On My iPhone it's worth checking out. I spent some time with Michael De La Cruz, SVP CRM, SAP and his personal opinion is that it won't be long until half of the 30Million SAP users will be accessing SAP thru mobile devices.

Of course, none of this is particularly new news. But what is interesting to think about is - what's the implication on "the cloud".  An iPhone is about 1/10th as powerful as a Mac laptop, which is by the way 1/10th as powerful as a Mac server.  So if we're going to get rid of our laptops and move to mobile devices - you could make the argument - the cloud, the computing infrastructure needs to be 10x larger.  Beyond the simple math - there are four reasons why demand for services will be larger.

1. Mabel will work in a service business.  Most enterprise/business software was developed for transaction processing (debits, credits, general ledger, parts inventory); and around manufacturing companies (consider the history of SAP). But today 80% of the US workforce works in a service business: financial services, health care, software, etc -- they all don't manufacture anything but instead work with information.  Enterprise 2.0, a term coined by Andrew McAfee at Harvard Business School, is "is the use of emergent social software platforms within companies, or between companies and their partners or customers.". Many companies are experimenting with FaceBook, executive blogging, wikis as a means of discovering this emergent social software platform. But we all know email as a means of running service businesses is dead. I spent some time talking about Openwater Networks and how a service network blends social networking and enterprise search- so that information and people can work together. If you want to think of a simple example from the Consumer Internet consider Flickr.  Flickr without the people is a photo database.  Flickr without the information would be a chat room --- together -- well you get the point.

2. Mabel Knows where she is. This is a big difference that mobile devices know where they are. Bob Borchers said that this feature has been slow to take off because of fears of privacy loss.  I spent some time talking with Anne Bezancon, Founder & CEO, 1020 PlaceCast about the technology they've just unveiled. 1020 was founded to bring information about place into the ability to target ads that are more relevant to the mobile user. 1020 argues that it's more than latitude-longitude. Place is also context - not only where, but when. One good example is if you know you're at the Oracle Arena and it's during a Warriors game the ad you see might be much different than if you were there the next night during an Amy Winehouse concert.  All of this can be done without knowing who you are - just the context.  And remember most of this computing will need to occur in The Cloud.

3. Mabel can talk.  While you can put your laptop up to your ear; or wear a headset. A mobile device was built for talking.  Many advances have taken place in speech recognition and synthesis.  Thanks to Steve Pollock co-founder and EVP at Tuvox I had them listen to simple demo of the technology at work for AMC movie theatres. If your thinking about The Cloud, you'll clearly see how much more computing is required to deliver this kind of service.

4. Mabel has a camera. As a somewhat amusing (although apparently in the mobile circles, often used) example of the usage of a camera I walked the audience through a system that is being used in Japan that allows a consumer in a grocery story thru scanning a 2D bar code to know the complete history of a head of cabbage.

My argument is that all of these reasons are going to lead to a Cloud that is much much bigger. I left them with an interesting statistic.  On an average day the NYSE processes about 10 million transactions, Visa processes about 100M transaction, Google processes about 200M transactions (and uses 500,000 servers to do this).  There are 3,000 million phones in the world. If everybody scans a head of cabbage once during the day how big will The Cloud need to be?
 

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Sloan Wars

A few weeks ago Jim Roth, who is attending the 10-month Stanford Sloan Program invited me to give a lecture to his MBA class. It's curious that MIT also has a Sloan program -- are they the same Sloan?  Anyway Jim took my CS309A class last quarter. All of the essays he and others in CS309A wrote were put together in a document called "The Beginning of Software 2008". You can download a PDF for free, or buy the printed version at cost.

I took the opportunity to deliver a lecture loosely based on a forthcoming book called "Seven". I heard Werner Vogels talked about it on a conference call last week. Seven is a follow on book to "The End of Software". But rather than try to convince you that software delivered as a service is going to happen the book takes the point of view that any software business needs to figure out how they are going to move to on demand delivery -- the only question is how.  The book is structured around seven software business models (from traditional to the Internet) and has a chapter dedicated to the major functional areas - sales, marketing, finance, R&D, operations, HR.  Each of the chapters contains campfire stories from people who had the experiences including Aaron Ross, who ran lead generation for Salesforce & Lynn Reedy who ran all of operations and R&D for eBay.  More on the book when it comes out, which should be in May.

Pebble Beach 2.0

The folks at CSC invited me to speak at an executive conference they had at Pebble Beach a few weeks ago. So as you can imagine it wasn't difficult to say yes. While Pebble Beach was beautiful and the event as high class as any from the good old days I was even more fascinated that the topic was going to be Enterprise 2.0.  As with many of us I thought this was an overused buzzword that was beginning to fade; but instead discovered there was a lot of interest and much discussion.

Don Tapscott, author of Wikinomics, led of Day 1. While he made many points perhaps the one that stuck with me was the changing demographics of the workforce.  And furthermore the implications on businesses of what it means to attract and retain this next generation.  Perhaps the best story was what email meant to the Facebook generation.  As the story goes one of Don's younger colleagues wanted to meet a certain young lady. Don said - "Why don't you send her an email?" -- the response was -- "Why would I do that I don't want to marry her.."  Clearly every business represented in the room has to think about the implications of the changing workforce.

Day 2 had both Doug Neal, a research fellow at CSC and Chris Turner, CTO at Unilever articulating how they were seeing enterprises becoming next generation enterprises. In Chris's case he talked a lot about his plans for Unilever. Clearly P&Gs usage of mass collaboration to drive innovation is influencing everyone in consumer packaged goods.  I was the closing act of the play -- if you're interested in the .ppt - it's here.  I did take some time to have the group use wiki technology to build an online book as just a glimpse into the implications of Enterprise 2.0

SAP, DealerTrack, Stanford

I had arranged to have Hasso Plattner be the lecturer a few weeks ago, but he had a last minute change which resulted in Rahul Sood, Senior Vice President, Portfolio Strategy Group and Scott C. Bolick, Vice President, Portfolio Strategy Group doing the lecture. I was impressed with their understanding of the domain. The slides are available for download.  Finishing out the series was Mark O'Neill, who is the Chairman and CEO of DealerTrack.  DealerTrack represents to me a clear advantage of the SaaS model. With a lower cost way to deliver solutions, and a network that can deliver it to more people you are advantaged by specialization. We have seen this in the Consumer Internet, the Google search bar being a great example.  Moreover, DealerTrack has built a "information superhighway" to 22,000 dealers that will enable them to deliver even more specialized product.  Mark had a great example when he talked about how the service department in these dealers have no software to assist them in scheduling and inventory management. Today when you arrive with your car a human makes decisions on who to assign to your car, they hope they can get the parts on time, and you don't know when the car will be done. If the manufacturing of cars worked this way... well you get the picture. Mark's slides are also available for download.

Golden Age

Last week Ann Winblad came to Stanford and lectured on SaaS from her vantage point as a venture capitalist. The slides from her presentation are here. Hummer Winblad has been investing in software companies since 1989 and has made investments in companies like Employease, Intacct and Omniture. More recently they've invested in Elastra and Baynote. From her vantage point she sees this as the "golden age of software". We're done with platform changes - the Internet is a platform and new software is being invented for that platform.

On an amusing note I happened to notice that Brian Behlendorf's photo on Wikipedia is a photo that was taken in the CS309A class a few weeks ago. Whoever took it and posted it - I'd be curious who you are...

As some of you know I have written a few articles for Webex. They published one I wrote on Service 2.0. If you're interested it's in the Webex Magazine.

Finally Mike Gregoire, President and CEO of Taleo, lectured yesterday. His background is EDS and Peoplesoft, so he's certainly seen the traditional model of software. I was struck with their rather low spend on sales and marketing and relatively high spend on R&D. Many of us wonder if the cost of sales and marketing will be too difficult for SaaS companies to overcome. He is certainly showing that a company can grow and show a profit. They just did a secondary offering - targeting a 20% pre-tax margin. If they can combine that with good growth it will help show others how this might be able to be done. Interestingly they have 2 separate products for the enterprise (where they service Bank of America, The Gap, Intel) and a second product specifically tuned for the SMB-space.  Just to get a sense of scale he said JP Morgan Chase hires 1,000 people a week.  Perhaps avoiding a one size fits all model is enabling them to get their sales and marketing economics to be better.  Michael made many interesting points, but perhaps the one that stuck with me was that to innovate in software you need to change the data model, changing the data model requires upgrading the application - upgrading the traditional application is so expensive that in the end companies are seeing no innovation in their software.

Lettuce and Software

Brian Behlendorf of Apache fame did the lecture yesterday. He reminded everyone of his famous quote - "software is less like gold and more like lettuce" . In other words software grows out of use in time, whether because the product itself requires updates due to problems, requires changes to meet end-user needs, or whether the IT infrastructure has changed and the product needs to keep up with these changes from an integration viewpoint. The net result of this change vector is that end-users need continual service, and a business model based on servicing these needs is sustainable. Unfortunately most of the open source software companies, while innovating in development methodology have fallen back on the same old bronze, silver, gold support models. But given they are not the sole owner of "bug fixing" the old paridigm of making money on charging a high margin support tax isn't working. Will they be as innovative in redefining service?

He made several interesting points in his talk about the value of collaborative global development versus the traditional model. One of the students in the class just updated his blog with what he got out of the lecture. Next week we're having Ann Winblad lecture. She'll be talking about SaaS 2.0. The abstract follows:

Venture investors began investing in SaaS companies as early as 1998. As witnessed by numerous successful outcomes; from acquisitions to IPOs, the validity of SaaS is no longer in question.  The question is no longer what is a SaaS company, but what comes next?

Sun, Schwartz, Movies..

Last week Jonathan Schwartz kicked off the CS309A Class at Stanford. His talk was entitled: "All Software is Media: Market Disruption and 21st Century Business Models". Jonathan made the point that once upon a time server companies, movie companies owned distribution channels, and distribution channels made all the difference. Today post-Internet, distribution channels have changed significantly and companies can no longer depend on the channel to protect their businesses. So in the age of open source, downloadable movies and music, what are the new business models? Will it all end up looking like a razor/razor blade model (e.g., your cell phone?).  This Tuesday Brian Behlendorf, who was one of the founders of the Apache project, founder of Collab.Net will come share his views on the new models for open source and the implications on SaaS/On Demand.

Stanford Class Starts

This will be the third year the Software on Demand seminar series is being offered. We have an interesting lineup of speakers from the founder of SAP, to a guy who was the subject of an entire chapter in The World is Flat, to the founder of a leading fashion and lifestyle website for women ,to a founder who has traveled to the edge of space.  We will also have the CEOs of three of the Nifty Nine public on demand companies (Kenexa, DealerTrak and Taleo) and CEOs of companies that are in stealth to an almost $14B public technology company. The full agenda will be up on a Stanford website shortly. But for those of you interested the speakers are:

Jonathan Schwartz
CEO of Sun Microsystems

Brian Behlendorf
Founder & CTO of Collab.net

Michael Gregorio
President and CEO of Taleo

Rudy Karsan
President and CEO of Kenexa

Nova Spivack
President & CEO of Radar Networks

Samir Aora
Chairman and CEO of Glam Media

Hasso Plattner
Founder of SAP

Mark O'Neill
Chairman and CEO, DealerTrack Holdings

The Reinvention of Software

If you've been reading this blog you'll already know that I have believed that if you want to know what's next for business software - just look at the Consumer Internet.  Paula Klein, Executive Editor of Optimize magazine invited me to write an article that was published in the June edition. One of the points I made in the article is that specialization matters. Nowhere is this more obvious to me than using Blackbaud as an example. Blackbaud is the market leader in software for non-profit organization.  I recently joined the board there and am eager to help move them to the world of SaaS/On Demand. But as for me, I'm interested in how the world of non-profits is evolving and how can software and networks transform the supply chain that moves capital and resources to those less fortunate.

Giving USA Foundation at Indiana University's Center on Philanthropy recently released a report on giving.  Americans gave nearly $300 billion to charitable causes in 2006, setting a new record.  Individuals gave nearly 80% of the total with 65% of households with incomes less than $100,000 making a contribution.  With the aging of the baby boomer generation and any significant shift in international giving the amount of capital that could be put to work in the coming years is staggering.  My hope is that with the clever usage of principles we've already seen reshape the supply chain in retailing (see Amazon) and the increasing understanding of the mechanics of communities and social networks (see Facebook),  Blackbaud can produce innovations that continue to make it more an more efficient to redistribute wealth in the most productive way possible.