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Archive for December, 2010

Borders Books In Trouble Due to eBooks

Posted by Bob Warfield on December 31, 2010

There was a point when our family went to a Borders or other bookstore at least once a week and sometimes twice.  We would invariably spend up to $100 a trip.  No more, and it seems like others have curtailed their book-buying visits too. 

I just read that Borders has not been paying publishers in an effort to deal with its debt.  The article blames the problem on e-books, but that can’t be the whole story.  Many of the books I used to love to purchase just aren’t very good in the e-book format–coffee table books and magazines filled with color photos are very much in that category.  It used to be interesting to try to judge how the tastes of the public were changing by watching the various sections at a Borders grow or shrink.  Remember when computer books took up 3 or 4 entire aisles and magazines devoted to computing of one kind or another took and entire rack or two?  That was at the peak of the first dot com era.  It was awesome being able to walk in and pick up the latest cool books, even relatively rare textbooks that I used to have to go to specialized bookstores to find. 

Then all of a sudden something started happening.  Bookstores started taking more and more shelf space for cheap paperback fiction.  Then they started spending more and more time pushing the expensive just published hardbacks and the bargain basement clearance items.  The CD and DVD sections started taking over more and more space.  I was recently in a Borders where these non-book media were as much as 40% of the floor space.  I’m a gearhead/car lover, and there used to be huge sections of color books on every imaginable car.  They’re all but gone.  The last time I was in a Borders the car books got one narrow bookshelf.  Did the public really lose interest in cars to that degree?  Maybe, but somehow I doubt it.  I have a very broad range of interests and every single section got decimated and reduced.  There seem to be a few exceptions, but not too many.  Still plenty of cookbooks available.  It looks like, but I couldn’t swear to it (haven’t spent time there since we finished remodeling our house) the architecture and decorating sections are decent.  The inventory in every other area I’m interested in has reached a point where I’m no longer interested in looking–I already know I’m unlikely to find anything I haven’t seen and already bought. 

As I mention, there are a lot of books that I don’t like to consume as e-books.  Anything that is a coffee table book loses most of its impact.  I prefer textbooks that are paper.  It’s largely just the fiction, biographies, and light business books that I consume as e-books.  Maybe I’m just an odd bird, but heck, e-book readers, much as I love ‘em, haven’t penetrated to that great an extent to account for the demise of a retailler like Borders.  My suspicion is they got greedy and quit serving the customer.  They forgot Sun Tzu’s admonition not to attack the enemy (e-books) where they are strong (cheap fiction). 

It’s a shame really.  I’m waiting to see who will step up to take over and do bricks and mortar books right again.  Maybe it can’t be done, but I doubt it.  Meanwhile, I’ll just have to order those kinds of books from Amazon.  It sure isn’t the same though.

Posted in saas | 1 Comment »

What’s With These Microsoft Patent Trolls?

Posted by Bob Warfield on December 30, 2010

Paul Allen and Nathan Myhrvold: what’s with these ex-Microsofties now turned Patent Trolls?  Was there something in the water at Microsoft or what?

Paul Allen and Nathan Myhrvold: Patent Trolls

The Trolls that Stole Innovation's Christmas

I’m reading lately about Allen’s efforts to bring to bear a portfolio of patents filed by Interval Research, a company he founded once upon a time.  Myhrvold has a whole company apparently devoted to Trolling, called “Intellectual Ventures.”

I don’t get it.  You have two ostensibly technical guys.  Both are wealthy beyond most people’s wildest dreams.  What is the thinking that causes a man in that position with those credentials and experience to decide to be a patent troll?  They can’t possibly need the money.  It can’t possibly escape them that a large part of the technical world abhors what patent trolls do, so they’re not doing it to polish their reputations or leave a legacy.  There is a certain irony that Microsoft has always had a reputation for copying others rather than innovating and now ex-Microsofties are doing this.

I don’t really have an understanding of what would motivate a person to head down this path.  There is some kind of lame argument that Intellectual Ventures “defends their model by claiming credit for helping to build a liquid market for invention and aiding the small inventors who might otherwise be at the mercy of large corporations.”  You have got to be kidding me.  You guys are the large entities that small inventors are at the mercy of!  Somebody please, there has to be someone out there that knows these guys, tell me why?

If you wanted to actually preserve innovation, take the Open Source route.  Take all those patents and make them available strictly to small startups for free.  Charge small fees to large organizations that want to use them and only large organizations and use the fees to pay for more.  Or ask that anyone that uses one of your patents has to cross license their patents for others to use for free.  Gather your best and brightest and see how fast you can Open Source the interesting patentable ideas for the bottlenecks in the innovation road ahead.  Better yet, start a Political Action Committee to abolish software patents altogether.  Or get with your fearless leader Bill Gates and start a foundation to do some good in the world with your wealth.  Donate all the patent fees you charge large organizations to a charitable foundation.

Heck, go start some companies and create some real value, some real innovation, and some jobs for people other than lawyers.  We could use them in this economy.

Posted in saas | 1 Comment »

Helping Managers Visualize the Right Decisions

Posted by Bob Warfield on December 30, 2010

Recently, our family took a vacation and benefited from all kinds of information available for spur of the moment decisions from my iPad.  The silly thing was constantly out and being consulted for something, and it made a real difference to our trip.  I have no doubt that

Visualizing the Competition

Graphic for Visualizing Your Competition (HT to @Sheynkman!)

 we got to try better food, stop at more interesting places, and generally be more spontaneous without ever getting lost than we ever could have left to our own devices no matter how many travel guides we could purchase and study before the trip. 

I couldn’t help but wonder how to inject this kind of value into every day decision making at work, so this week’s IBM InfoBoom sponsored post is dedicated to that idea.  Check it out!

(Be sure to check out Sheynkman’s post that also inspired some of my thinking as well as the cool graphic I’ve used for the article.)

Posted in saas | Leave a Comment »

Improve Your Blog Reading Signal to Noise Ratio

Posted by Bob Warfield on December 26, 2010

Since I subscribe to almost 200 blogs, it’s critical for me to keep a high signal to noise ratio.  In other words, the posts that show up in my reader need to be things I really want to read.  If I’m spending all my time separating the wheat from the chaff, then I’m wasting my time.Improve your blog signal to noise ratio

The week between Christmas and New Year’s is when I like to try to improve my S/N ratio on my blog subscriptions.  I do this by eliminating subscriptions that aren’t paying off for me.  It’s also a time when I subscribe to a bunch of new blogs knowing I’ll turn right around and knock them out again if they don’t perform.

Finding the subscriptions that don’t pay off is something you want to do carefully and methodically.  Being an engineer, I like a metrics-based approach.  Fortunately, Google Reader’s “Trends” function provides plenty of worthwhile metrics.  What I was searching for was some idea of the ratio of “useful posts” to “worthless posts.”  Percentage of posts read is pretty easy to come by, but I wind up reading a lot of posts that turn out to be worthless for my interests.  A better match is posts I share to my share feed (you can subscribe to it, here is the feed).  This works because I religiously share all the useful posts I find.  So, we just want to divide the number of shares by the total number of articles over a particular length of time.  Longer time is better.  This gives me a “useful post” percentage.  We’re not quite done yet though.

Next, I make up a spreadsheet that has three columns:  blog name, # of posts, and usefulness percentage.  I then make up a fourth column which uses a formula:  number of posts time one minus the usefulness percentage.  This tells me how many “worthless” (remember, worthless is in the eye of the beholder as almost any post is useful to someone) posts each source is producing.  I rank my subscriptions in descending order on this number.  Lots of useless posts represents lots of time wasted.  This year, my number one entry was Techcrunch, which only had 14% useful posts and a rocking 552 useless posts out of 642 total posts for the period I reviewed.  That’s a lot of worthless posts clogging up the old reader.  What if these posts are solid gold and it’s worth it to wade through the chaff?  This is where you have to think back and ask yourself whether that’s been your experience, and whether there is some other blog that will up the gold stories with a better Signal to Noise ratio.  In my case, I was pretty sure that one of my other “Bulk Feed” category blogs such as Techmeme, GigaOm, or ReadWriteWeb would pick up any stories interesting enough to be worthy.  Based on that confidence, I deleted Techcrunch from my feeds and moved on with the analysis.

To be effective at pruning your blog sources, you have to decide why you’re reading them in the first place.  For me, a blog is either providing breaking news or analysis and insight.  Lest there be any doubt, Smoothspan readers should be here for analysis and insight.  I don’t write often enough to provide you with breaking news.  However, if you read my Google Reader Share Feed, you’ll find the breaking news that I think is important.  I keep my feeds organized in Google Reader in folders that represent the “big picture” categories I’m interested in.  You’ll find folders corresponding to entrepreneurship, social computing, technical software development, sales and marketing, and experiments.  Experiments are blogs I watch to learn something from but that I don’t intend to watch forever.  Perhaps it’s a style thing I’m trying to study.  Keeping things by category makes it easy to check the best signal to noise performers in each category too.

Finding the right blogs is a matter of deliberate research as well.  If you find a subject that interests you and is important, you need to do two things.  First thing is to drill down on the links available in whatever blog posts you’re already reading.  More often than not, those links are the original sources that have inspired the blog author to write.  Getting access to the wellspring sources is good for you too.   Second, get onto Google and search like crazy.  No better way to learn than an hour or three each week spent deeply researching some topic and being on the lookout for useful blog links to add to your list.

Lastly, keep some perspective.  I mentioned I have a category called “Bulk Feeds”.  These are blogs that throw off tons of posts.  They have multiple writers each of whom wants to post every day.  As I mentioned, Techcrunch had 642 posts during the time I considered.  I can subscribe to a lot of single blogger feeds even if they post every day and not get to 642 posts.  The thing is, it’s usually the single bloggers that convey the more valuable information, with all due respect to the big guys.  You’ve got to winnow your Bulk Feeds every so often to make more room for the valuable individual bloggers that have the real juice.

The thing about the Internet, is that in a low friction information exchange medium, you have to be prepared to travel out the edge to find the really good stuff.   You need the leaves of the tree.  By the time it gets to the big branches, let alone the trunk, you’re far removed from where the real action is.  It’s more fun adventuring out by the leaves anyway!

Posted in strategy, Web 2.0 | Leave a Comment »

America: Built by the Little Guys, Not the Big Ones

Posted by Bob Warfield on December 22, 2010

Not enough young machinsts?

I correspond with quite a lot with friends in the Manufacturing world, as one of my big interests aside from software is building things.  Come to think of it, that’s really my interest in software too!

For a long time there has been a great hue and cry about the demise of Manufacturing in the US.  It’s been a victim of outsourcing, fewer and fewer new entrants to key careers like being a machinist, automation killing jobs, social pressures around whether blue-collar manufacturing jobs get the respect they deserve, the scarcity of good vocational programs, and so on.  On the one hand, the big manufacturing economy seems more and more hostile to its professionals.  They want to outsource overseas, pay as little as possible to button pushers on soulless assembly lines, insist on credentials over wisdom and experience (ask a room full of grizzled veteran machinists what they think about the new kid just out of Engineering school some time), and all the rest.  Plus, some of these corporations have been very poorly run and they want to make their workers pay the price through layoffs and other wage cuts.

On the other hand, it’s a great time if you’re an entrepreneur who wants to be a small business owner.  Why?  Because a talented individual can start a manufacturing business in their garage and turn out amazing products.  Because the Internet makes it possible for that individual to reach an audience they never could have 10 or 15 years ago.  It also makes it possible to draw on the wisdom of your peers in ways you never could have years ago, using forums like this one, for example.  Because the software needed to do world-class manufacturing can be run on a PC in the home office.  And above all else, because if you can imagine it, you can actually create it for the most part.  Here in Silicon Valley, we’re used to the idea that a couple of developers in a garage can create world-class software, but the idea they can also manufacture world-class products is one that hasn’t yet sunk in.  The technology has come a long ways, and I believe it will make a difference in ways we haven’t yet seen.

Where my kids are concerned, I’ve tried to teach them that the heroes are the small businesses and small business owners.  I live in the heart of Silicon Valley, and there are companies large and small.  I have to say, the folks that own their own businesses and are just off the edge of where the hyper competition spotlights shine are the happiest people I know, and they often make just as much money as all but the über rich who start companies like Google.  I’m not talking about just software developers, I’m also talking about friends with blue-collar businesses like building contractors (talk about a hard hit industry, but if you have a reputation as a craftsman, you can still make a good living) or jobs many find boring, like accountants.

It’s not a popular point of view, but I believe America wasn’t built by the Big Companies, but rather by the Little Ones.  After all, small businesses create most of the jobs in our economy, and every country has Big Companies.  In many industries the biggest companies are not US companies.  But having the “get out there and build something for yourself spirit” is what really makes the difference.  We admire people like Henry Ford and Bill Gates, but we shouldn’t admire them for how big their companies got, but rather for how they conducted themselves to put their small companies on paths to greatness.  Microsoft is as big as its ever been today, but it isn’t the same company it was when Bill Gates started it.  The list of Big Companies that are mere shadows of what they were as Small Companies is long and there are not too many cases where the Big Company is a better company than the Small One it used to be.  Vinnie Mirchandani bemoans “Cash Cow Disease“, where investors think the Big Companies should quit innovating and start passing out their profits to shareholders.  Given how poorly many of them seem to perform later in life, maybe they should stick to their Cash Cows and leave the rest for the little guy.  It’s intriguing to think about which strategy would yield a better economy.

So take heart, entrepreneurs in all walks.  The New Year is coming.  What new Small Company will you start?

Happy Holidays!

Posted in business | 1 Comment »

CIO’s: How Will You Avoid Social Silos?

Posted by Bob Warfield on December 21, 2010

I’m a firm believer that maximizing the ROI of your Social efforts in the Enterprise requires deeply integrating your Social Platforms with your Enterprise Software Platforms. 

The major Enterprise Software players are well aware of the importance of Social Software as well as the advantages of deep integration for ROI.  This is why we have SuccessFactors acquiring Cubetree, Salesforce investing heavily in Chatter, and so on.  Indeed, a lot of the uniqueness of Salesforce’s Chatter is it’s integation with business process.

There’s just one problem: if every Enterprise Vendor is going to acquire and build a social platform, how are we going to tie them all together and avoid Social Silos?

It gets worse.  To really maximize the value of your Social Platforms, you need to involve not just employees, but also your customers and partners.

Working through a set of requirements questions CIO’s should be considering for their Social Platforms is the topic for this week’s Smoothspan Sponsored InfoBoom post.  Check it out!

Posted in business, enterprise software, Web 2.0 | Leave a Comment »

Google or Microsoft Should Buy Delicious

Posted by Bob Warfield on December 17, 2010

What a circus Yahoo has become, and not in a good way.  As often as Arrington is over the top in his snarky posts, his latestYahoo is a Train Wreck and Should Sell Delicious to Google or Microsoft about Yahoo is so on the mark that I’m even going to use his train wreck picture here, just to emphasize his point about Yahoo being in total disarray one more time.  Yahoo being screwed up isn’t exactly news, so why bring it up again and beat the dead horse? 

Well, because this time it’s personal.  You see, I use Delicious a lot and Yahoo seems to vacilate between intending to kill it versus intending to sell it.  Delicious is my second most essential blog research and information learning “todo” list.   The first is probably Google Reader, where I subscribe to nearly 200 feeds, but Delicious in many was is just as important and harder for me to replace.  You see, I do tons of research on the Internet when I get interested in a topic.  A lot of it doesn’t come to me in my RSS feeds, it comes through search, links others share, Twitter, and all the rest.  THOSE links are the ones I put into Delicious along with tags and notes to myself about why the link was interesting.

Delicisous has become my information archive for Samuel Johnson’s second kind of knowledge:

Knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it.

That second kind is pretty handy, and getting handier all the time as I get older.

So what’s the poor Delicious community to do?  First, Yahoo’s handling of it has been ridiculous.  Announce you’re sunsetting it without any real PR plan.  Apparently lose the team in the process.  And then come back and announce, “Oh by the way, we’re not killing it, we’re selling it.”  Whichever Yahoo exec failed to choreograph a better set of messages than that needs to be fired.  Today.  Seriously.  That’s ridiculous handling of the event and the asset.

As for selling it, I’m all for it, but there are only a few candidates available who make any sense as buyers.  Delicious has a fair amount of traffic, I’m sure.  2 guys with a credit card, time on their hands, and access to the Amazon Cloud probably can’t afford to keep it running and stable long enough to monetize it.  We need a white knight that is a real playa to step up.

Why should they do that if Yahoo couldn’t make a go of it?

Well take a look at Delicious and ask yourself how you’d make a go of it.  Here’s a web site where people tell you what web pages they like, and they do so proactively.  They do so because they obviously expect to like those things for long enough that they may refer back to them.  Here’s a site that has tool bars that reach out into many different web browsers and cover a lot of territory.  Here’s a site that helps others vector on to lists of links made by people with similar tastes. 

Now Google has managed to make a riculously almost sinfully successful business out of simply understanding what people are searching for.  A search is much more spur of the moment and requires a lot less investment than creating a bunch of bookmarks in Delicious.  We don’t get to follow up and see which searchs are traversed a second time very easily, an indication of even more interest.  We don’t get to see people running down lists created by others with similar interests. 

Are you seriously telling me there is no way to monetize this thing with advertising?  If so, you’re just not doing it right.  As I look at my Delicious page, I see not one single ad or other attempt at monetization.  That’s pathetic, Yahoo.  The medium is perfect for advertising and you aren’t even trying to make a dime off it before giving up.

That leads me to Google or Microsoft.  Both have excellent search technologies.  Both could monetize Delicious very quickly, Google probably even moreso than Microsoft.  I have often wished that Delicious was integrated with my Google Reader.  Heck, I’d like it even better if it integrated with Google Reader and G-Mail.  Can you imagine being able to privately tag web pages, RSS feed items, and email messages? 

That would be a very cool thing!

Think about what wonderful stickiness that would create too, Google.  I know you gotta love that, although as I see these services come and go stickiness worries me more and more.  Google and Microsoft, you know you could monetize this sucker, and you know Yahoo is in no position to dictate terms.  Come on.  Step up.  And Yahoo, get on with your train wreck, but sell this jewel off to a good home and don’t be too proud about how much you want for it lest you manage to squander your chance to sell and wreck the train further.

Related Articles

Mathew Ingram rants about focus being a good thing for Yahoo.  But focus on the wrong things, an inability to execute even the most basic communication strategy about these decisions, and the apparent lack of coherent strategy for what to focus on that leads to real value will continue to kill the company just as surely as a lack of focus. 

Posted in business | 1 Comment »

The Cloud Keeps Companies and Software Young by Simplifying Complexity

Posted by Bob Warfield on December 13, 2010

Two of my fellow Enterprise Irregulars, Michael Krigsman and Naomi Bloom recently published dynamite posts that got me thinking.  Michael’s post asks whether Salesforce (and by extension, the rest of the Cloud world) can retain its youthful Mojo, or whether they will, “sacrifice customer delight to features, functions, process, and conformity for its own sake and, dare I say it, greed.”  Naomi goes a step further and predicts that Enterprise Software companies that don’t embrace the new technologies involving mobile, social, and cloud will wind up in the Dinosaur Graveyard.  Both posts are must reads.

My take on all this?

The needs of the Cloud have fundamentally changed how the software works.  Naomi delves into this in her post, and I spend more time in my sponsored InfoBoom post discussing how the Cloud helps Simplify Complexity.

I’d like to present a couple new terms while I’m at it:  “Complexity Debt” and “Legacy Debt”.  I add the word “Debt” to these two in the same spirit that we use “Debt” with “Technical Debt”.  Like financial debt, these are sources of friction that build up over time and slow us down if we allow them to get out of control.

Check out the InfoBoom post for more.

Happy Holidays!

Posted in cloud, saas, strategy | 1 Comment »

Heroku Signals Force.com Wasn’t Working

Posted by Bob Warfield on December 8, 2010

What a radical thought.  How dare he splash cold water on Force.com during Dreamforce!

Hear me out.

Like many, I read the news that SFDC would be acquiring Heroku, a Ruby on Rails in the Cloud startup, for $212M.  Perhaps unlike many, the news really bothered me.  It didn’t smell right, and here is why:

Marc Benioff has been beating the drums for Force.com for some time now.  He has said more than once that it is the company’s next great growth driver.  Their next $1B business, in other words.

Flash over to Techcrunch’s Robin Wauters saying, “That’s one hell of an exit for the startup, which was founded in 2007 and has raised only $13 million in funding.” That is one hell of an exit.

I’m not saying Heroku isn’t worth $212M.  After all, the Ruby on Rails market is hot, hot, hot, and they’ve got a Cloud solution for it.  But so does Engine Yard.  So it isn’t like Heroku was the only game in town for RoR.  In order to be willing to pay up for an acquisition, valuation falls into two schools. 

First, you can look at it as build versus buy.  Whatever it is you are acquiring, and it’s typically either market share or technology, what would it cost you to build it organically and how much of a premium would you pay to just write a check and have it done immediately through an acquisition?  Acquisitions in this kind of model are the sort we see in the public markets from the likes of Oracle and others.  They lead to 30%, 50%, heck, sometimes close to 100% premiums (though that usually means there are elements of the second buying rationale at work).  But they don’t lead to valuations like this one.

The second buying rationale is that the acquisition is strategic.  What exactly that means is in the eye of the beholder, but to the purchased entity, it represents a nearly blank check.  Whatever pain is going to be fixed hurts so badly that almost any cost pales by comparison.  The buyer typically feels they have to do it because they have no choice.  Often these kinds of strategic acquisitions come about due to competitive situations.  The original Palm sold for circa $60M to 3Com, and Starfish, a relatively weak competitor, sold for not long after to Motorola for well over $200M on the theory that if phone companies didn’t get some smarts about computers and software the computer industry was going to crush them.  BTW, phone companies, have you noticed that this did indeed happen?  Just because we’re talking “strategic” doesn’t mean it has to be crazy and just because I’m paranoid doesn’t mean the whole world isn’t out to get me.

But there is no competitive imperative here.  When I asked what would make Heroku so strategic to profitability challenged Salesforce, I could only come up with one answer:  Force.com wasn’t working.

Now before I get 86 kazillion comments telling me how great it is and how many are using it, let me explain what I mean by “working”.  There is no doubt that Marc Benioff can line up folks to share a stage and talk about how great it is.  There is definitely the smattering of big names willing to hold up their hands and say that they are using it.  But “not working” means it was not on an organic growth curve that was going to make it SFDC’s next $1B business any time soon, or maybe at all.  If it was flying off the shelves at the rate the company’s other products seem to, then I can’t see how it would be worth paying the kind of valuation they did.

Force.com has had a number of issues that hamper its adoption and Salesforce is doing a good job defusing some of them.  One huge issue was the requirement to adopt wholesale a completely proprietary set of development tools.  Database.com and other unbundled capabilities over time will eliminate that objection entirely.  I can write applications that use Database.com in just about any toolset I care to.  This kind of unbundling, and focusing on the data, was exactly what I recommended in my post, “Sell the Condiments not the Sandwiches.”  I feel good about having gotten that out before the word on Database.com was available.

Another issue has been that of needing your PaaS vendor to be Switzerland.  The Swiss do banks, and that’s about it.  If you run a manufacturing business, you don’t have to worry that when you put your money in a Swiss bank it will suddenly give some other manufacturing business an unfair advantage over you.  I’ve written quite a lot about the need for PaaS vendors to be like Switzerland, and Salesforce is not.  Amazon is, though it makes you wonder if a book vendor would want to host there.  Still, Netflix has hosted there and is in the media business which may be quasi-competitive.

But the last issue is a doozy, and it will be the Litmus test for Salesforce and Heroku.  Simply put, Salesforce charges app prices for their platform offerings and that’s too much.  The world has been complaining about being nickeled and dimed with ridiculously high prices for additional storage and other commodity capacity for years with Salesforce.   I already commented that Database.com’s $10/user per month for authentication is way too expensive.  Dennis Howlett calls it a non-starter.  I think Salesforce is starting to understand, and I say this in light of their recent move to offer more Freemiums, like Chatter.  But they need to move a lot faster.  In that sense, Heroku is an important Litmus test from two standpoints.

First, it is priced today as a platform should be.  Will Salesforce take those prices up, or leave well enough alone?  If they leave the prices alone, they have a testbed to explore platform price elasticity with.  We’ll have to leave the question of whether they can be trusted to leave prices alone in the long run for another time.  What I will say is that they don’t seem to behave like Amazon, which lowers prices constantly.

Second, Heroku lets them explore that price elasticity while insulating the premium pricing of their existing offerings.  If I’m right, and Force.com isn’t working, that doesn’t mean there isn’t something there still to protect.  If nothing else, it is a customization and integration vehicle for the CRM app.  That part is working, even if it isn’t a billion dollar business in and of itself.  They may not want to disrupt that revenue stream until Heroku has fully demonstrated that the price elasticity will make it worthwhile.  If so, that’s a prudent strategy.

Last issue:  Salesforce is somewhat trapped in their pricing by a lot of factors.  For one thing, they can’t introduce a second billion dollar business that is dramatically less profitable than their core CRM business.  That won’t lead to higher stock valuation.  Second, they are paying a huge Oracle tax.  This is where I laugh when people paint Database.com as a competitive dogfight with Oracle.  It can’t be a competitive dogfight until Salesforce gets the Oracle monkey off their backs.  Every unit they sell results in a kickback to Oracle at Oracle’s chosen pricing.  The more they win, the more Oracle wins.

Now here is the really crazy thing: getting off Oracle is no easy thing.  Salesforce runs a pretty lean ship with respect to R&D.  They don’t have a lot of engineers sitting around who can build a Force+1 platform on an Open Source database.  But Heroku is built on an Open Source database.  Could this be the second strategic reason to buy Heroku?

Time will tell.

Posted in business, cloud, strategy | 3 Comments »

Salesforce’s Database.com: Fat SaaS Here We Come!

Posted by Bob Warfield on December 7, 2010

Salesforce is skating to where the puck will be ahead of the other players once again–there’s a reason they’re so much bigger than the rest of the SaaS players.  This time it’s all about their latest development in the hotly contested PaaS (Platform as a Service) market.  They’ve introduced a fascinating new offering called “database.com” (what do you suppose they paid for that domain?). 

What is this database.com offering?

Larry Dignan pegged it best, among the various posts I read.  He says it’s a full frontal assault on the incumbents like Oracle, and that Salesforce is building out a stack, only the stack is delivered as a service that lives in the Cloud.  That’s exactly what’s happening.  Imagine writing software that talks to your database server via an API.  That part isn’t hard, because that’s how it already works.  Now imagine that you don’t own the database server; it lives in the Salesforce Cloud and you rent.  They take care of it and promise to use all the tricks they learned scaling Salesforce.com to make your database scale like crazy too.  Pretty cool!

The initial responses from the rest of the blogging world are also interesting:

- Phil Wainewright says they’ve squashed all the little PaaS players.

- Klint Finley reports that Progress software is building out drivers (ODBC, etc.) so your apps can directly call Database.com as their DB.

Sam Diaz and many others are focused on the Oracle rivalry.  Can this be good for Oracle’s share price?  Will their database hegemony finally start to crack?  And what does it mean to the budding NoSQL world?

Obviously there is a lot of crystal ball work to be done here, and a lot of study of the available information.  Most of all, we’ll have to wait to get our hands on Database.com before we can really understand what it means.  But I did want to finish this post by talking about Database.com’s relationship to what I’ve been calling “Fat SaaS”.

We’re moving beyond the debate about SaaS versus On-premises.  On-prem isn’t dead, but it sure isn’t getting any stronger, while the SaaS world keeps gaining momentum.  The truth is that it is a superior model.  There used to be a lot of feeling that IT was afraid of it, and that this is what was holding it back.  But we’re starting to see considerable evidence IT not only doesn’t fear it, but that they’re embracing it wholeheartedly.  More importantly, we’re seeing the SaaS world start to move beyond simple questions (to multitenant or not to multitenant is actually a pretty simple question) and onto how to evolve to the next level.

Fat SaaS is a model that pushes as much business logic into the client as possible and leaves the server-side largely acting as a data store.  Given the availability of rich User Experience tools like Adobe Flex with AIR (for creating desktop apps), as well as the onset of the mobile app phenomenon, together with the difficulties of scaling in a multicore world, it’s a logical development.  After all, if you survey an Enterprise, do they have more cpu’s tied up in client devices, or in servers?  Which cpu’s are more over worked and which ones have more bandwidth available?

I’ve written about the Fat SaaS idea before, and I think it’s one of the logical next developments we’ll start seeing like crazy.  Database.com just opened the door to making it even more logical, because what else would talk to such a thing but a Fat SaaS application?  Doing a bunch of centralized number crunching won’t be nearly as happy as a Fat SaaS app with the inevitable latency that comes with having your database in a different Cloud than the software that’s consuming the data.  The client is already used to that being the norm.

Now, getting back to Phil Wainewright’s proposition that it has squashed the other players, I don’t think so.  It may be hard on the little players, or it may not.  Remember, Benioff is trying to out-Oracle Oracle.  But even Oracle hasn’t succeeded in squashing the Open Source DB movement, not even after acquiring MySQL.   It’s more popular than ever.  In the end, neither Salesforce nor Oracle have to squash these littles guys.  They’re after the higher end anyway. 

What I want to see is competition.  Who will be the first to put up a service on Amazon AWS that delivers exactly the same function using MySQL and for a lot less money?  You see, Salesforce’s initial pricing on the thing is their Achille’s heel.  I won’t even delve into their by-the-transaction and by-the-record pricing.  $10 a month to autheticate the user is a deal killer.  How can I afford to give up that much of my monthly SaaS billing just to authenticate?  The answer is I won’t, but Salesforce won’t care, because they want bigger fish who will.  I suspect their newfound Freemium interest for Chatter is just their discovery that they can’t get a per seat price for everything, or at least certainly not one as expensive as they’ve tried in the past.

I’ll be watching to see whether the prices come down and whether competition develops.  I fully expect both will be underway before we know it.  Meanwhile, Bravo Salesforce–you’re showing the rest of the world how it’s done!

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Good interview by Don Fornes of Eric Stahl, Director of PM for Database.com:

Posted in business, cloud, saas | 12 Comments »

 
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