MySQL and BEA: Oracle and Sun Will Be At Each Other’s Throats!

Big news today is that Sun is buying MySQL and Oracle is buying BEA. This creates a couple of strange bedfellows to say the least. BEA is inextricably wrapped up in Sun’s Java business (is it really a business or just a hobby given the revenues it doesn’t produce?) which gives a reason for the two to get closer together. On the other hand, there is hardly a bigger threat to Oracles core database server business imaginable than MySQL, which has got to push the two companies further apart. What a tangled web!  Is Sun leaving Oracle to its own devices in order to pursue cloud computing?  Sure looks like it!

Let’s analyze these moves a bit. I want to start with BEA and Oracle.

As we all know, Oracle started that courtship dance not long ago and was rebuffed for not offering enough.  Amusingly, they closed almost exactly at the midpoint of the prices the two argued were “fair” at the outset.  Meanwhile, the recession is really setting in, stock prices are falling, and Oracle’s offer went up.  Since Cisco’s John Chambers mused about IT spending will slowing, it has become a widely accepted article that this will happen. So shall it be said, so shall it be written, Mr. Chambers. That’s a very bad thing for BEA, which is primarily selling to that market. The corporate IT market is their bread and butter for a number of reasons. Many ISV’s and web companies will look to Open Source solutions like Tomcat or JBoss with which to reduce costs. Corporate IT wants to superior support of a big player like BEA. The darker truth is that big Java seems to be falling out of favor among the bleeding edge crowd. Java itself gets a lot of criticism, but is strong enough to take it. J2EE is another matter, though there is still a huge amount of it going on. There is also the matter of the steady ascendency of RESTful acrchitecture while BEA is one of the lynchpins of Big SOA.  There is already posturing about the importance of BEA to Oracle Fusion.  If it is so important, Fusion may be born with an obsolete architecture from day one. 

The long and the short is that any competent tea leaf reader (is there any such thing?) would conclude that this was a good move for BEA to let themselves be bought before their curve has crested too much more. For Oracle’s part, its a further opportunity to consolidate their Big Corporate IT Hedgemony and to feed their acquisition-based growth machine. I am not qualified to say whether they paid too much or not, but if I do think the value curve for BEA is falling and will continue to fall post-acquisition. They are way late on the innovation curve, which looks to me like it has already fallen.  In short, BEA is a pure bean counting exercise: milk the revenue tail as efficiently as possible and then move on.  For this Oracle paid $8.5B.  Not surprisingly, even though it is a much bigger transaction, there is much less about it on the blogosphere as I write this than about the other transaction.

Speaking of which, let’s turn to the Sun+MySQL combination.  Jonathan Schwartz gets a bit artsy with his blog post introducing the introduction, which he calls “Teach dolphins to fly.”  The metaphor is apropos.  Schwartz says that MySQL is the biggest database up and comer news in the world of network computing (that’s how we say cloud computing without offending the dolphins that haven’t figured out how to fly yet).  What Sun will bring to the table is credibility, solidity, and support.  He talks about Fortune 500 needing all that in the guise of:

Global Enterprise Support for MySQL - so that traditional enterprises looking for the same mission critical support they’ve come to expect with proprietary databases can have that peace of mind with MySQL, as well.

That business of “proprietary databases” means Oracle.  Jonathan just fired a good sized projectile across your bow Mr. Ellison.  What do you think of that? 

I know what I think.  Getting my tea leaf reading union card back out, I compare these two big acquisitions and walk away with a view that Oracle paid $8.5B to carve up an older steer and have a BBQ while Sun paid $1B to buy the most promising race horse to win the Kentucky Derby.  What a brilliant move for Sun!  Now they’ve united a couple of the big elements out there, Java being one and MySQL the other.  They could stand to add a decent scripting language, but unlike Microsoft’s typical tactics, they’ve learned not to ply a scorched earth policy towards other platforms, so they are peacefully coexisting until a better cohabitation arrangement comes along. 

We talked a little about the Oracle transaction being a good deal for BEA:  it’s a lucrative exit from declining fortunes.  What about mySQL?  Zack Urlocker comments about the rumor everyone knew, that MySQL had been poised to go public.  Let me tell you: this is a far better move.  Savvy private companies get right to the IPO alter, and then they find someone to buy them for a premium over what they would go out at.  What they gain in return is potentially huge.  The best possible example of this was VMWare.  Now look where they are.  I will argue that would not have been possible without the springboard of EMC.  At least not this quickly.   Sun offers the same potential for MySQL.  It is truly the biggest open source deal in history.  It’s also a watershed liquidity event for a highly technical platform based offering from a sea of consumer web offerings.  The VC’s have been pretty tepid about new deals like MySQL.  Perhaps this will help more innovations to get funded.

What do others have to say about the deal?

 - Tim O’Reilly echoes the big open source and importance of database to platform themes.

 - Larry Dignan picks up on my rather combative title theme by pointing out that it puts Sun at war with the major DB vendors:  Microsoft, IBM and Oracle.  Personally, I think any overt combat will hurt those three.  The Open Source movement holds the higher moral ground and it just won’t be good PR to buck that too publicly.  Dignan sounds like he is making a little light of Schwartz’s conference call remark that it is the most important acquisition in Sun’s history, but I think that is no exaggeration on Jonathan’s part.  This is a hugely strategic move that affects every aspect of how Sun interfaces with the world computing ecosystem including its customers, many partners, and its future.  When Dignan asks what else Sun needs, I would argue a decent scripting language.  Since Google already has Python in hand, what about buying a company like Zend to get a leg up on PHP?  Last point from Larry is he asks, “If Sun makes MySQL more enterprise acceptable does that diminish its mojo with startups? Does it matter?”  Bottom line: improvements for the Enterprise in no way diminish what makes MySQL attractive to startups, providing Sun minds its manners.  So far it has been a good citizen.  With regards to, “Does it matter?”  Yes, it matters hugely.  MySQL is tapped into all the megatrends that lead to the future.  Startups are a part of that.  Of course that matters.

One other thought I’ve had:  what if Sun decides to build the ultimate database appliance?  I’m talking about order it, plug your CAT5 cable in, and forget about it.  Do for dabases what disk arrays did for storage.  That seems to me a powerful combination.  Database servers require a painful amount of care and feeding to install and administer properly.  If Sun can convert them to appliances, it kills two birds with one stone.  First, it becomes a powerful incentive to buy more Sun hardware.  This will even help more fully monetize MySQL, which apparently only gets revenue from 1 in 10,000 users.  Second, it could radically simplify and commoditze a piece of the software and cloud computing fabric that is currently expensive and painful.  Such a move would be a radical revolution that would perforce drive a huge revenue opportunity for Sun.  They have enough smart people between Sun and MySQL to pull it off if they have the will. 

Conclusion

Sun has made an uncannily good move in acquiring MySQL.  As Wired points out:

One company that won’t be thrilled by the news is Oracle, makers of the Oracle database which has managed to seduce a large segment of the enterprise market into the proprietary Oracle on the basis that the open source options lacked support.

With Sun backing the free MySQL option (and offering paid support) Oracle suddenly looks a bit expensive.

How else can you simultaneously lay a bet on owning a substantial piece of the computing fabric that all future roads are pointing to and send a big chill down Larry Ellison’s spine for the low low price of just $1B?  Awesome move, Jonathan!

Related Articles

VARGuy says the acquisition means Sun finally matters again.  $1B is cheap to “finally matter again!”

Lack of Good Platforms is Stunting SaaS and Business Web 2.0

There is a misperception out in the world that 3 developers can build a 1.0 web product and get it to market for a few hundred thousand dollars.  It’s a story that’s been true for a variety of consumer web products, the Twitter, Facebook, and MySpace gang, but it is most assuredly not true for business web products.  Why not?

Because businesses require all sorts of things in their software that consumers don’t care about or think about.  Security, configuration to fit business processes, and the desire to actually produce a measurable ROI and not just play around and have fun are all part of it.  Robustness, scalability, and the desire to make sure that when you pay for a service you will actually receive that service are another.

Chris Cabrera, CEO of two and a half year old SaaS provider Xactly, has 40 engineers on his payroll last I talked to him.  I know Chris and I know his VP of Engineering Satish.  These guys are smart, pragmatic people.  They know you can’t wastefully put 40 on one product, so they break it up into modules and infrastructure subsystems.  They wouldn’t hire 40 unless they had to build a lot of darned difficult software.  It is hard to build business web software.

But here is the rub:  there is huge duplication of effort across the ISV’s laboring to build these business web applications.  The reason is that so many of the features business demands are generic.  The list of things you have to build under the heading security is pretty much the same for every SaaS business software vendor. 

This brings me to another advantage the consumer folks have that drives their costs way down: they have platforms.  The LAMP stack is a platform for creating consumer web software.  RSS is part of a platform.  There are many others.  Some carry across to the business world, but not too many.  Not enough.

The lack of available platforms is radically slowing the availability of new SaaS and Business Web 2.0 offerings.  Companies that want to play in these arenas have to raise a lot more capital and take a lot longer to build their first release than their consumer brethren.

What should such a platform offer?  Let me give you my wish list that is not exhaustive, but focuses on some items of particular interest:

Security and the Rest of the IT Check Offs

There is a long list of items around this area that are frankly very boring and time consuming to build.  They add no differentiation to your offering, they are just the price of admission for even being considered.  Customers want to know how to incorporate your offering into their single-sign on portals.  How to implement their password policies on your SaaS offering.  How to implement their data backup and retention policies.  And all the rest.  The Business Web Platform has to make this dead easy and require almost no coding to use.

Multitenancy and Version Control

This is a complex and inter-related issue.  I want to run many tenants as efficiently as possible.  I want a metadata-based approach to configure the minor differences in the tenants.  I want to manage patches and updates so I can test them out on a few tenants, and if all is well, rapidly roll them out to all tenants as automatically as possible.  I want to write my software as though it only knows about one tenant, except when the software needs to see all the tenants.  I want a whole lot of something for almost nothing in terms of effort on my part. 

Scalability and a Head Start on the Database

Business software needs slightly different scalability.  Most business “seats” use more resources than a consumer “seat” in these apps.  A cheap mySQL backed by memcached may not work well at all for this model.  At the same time, Oracle license fees are extremely cost prohibitive.  Most of my web pages are dynamic and they have to be right.  I can’t sacrifice accuracy for availability as much as consumer sites do.  My accounts payable clerk can’t see we owe $10,000 if the real number is $100,000.  All this points to some sophisticated database capabilities the likes of which are just not out there at the moment.  Companies are either living with the pain of Oracle, or building fancy partitioning and other layers on top of mySQL. 

Let’s don’t even get started on ad hoc reporting, which is another database layer the platform needs as well as metadata to let end users add fields or new objects and so on.

Customization and Configurability 

I’ve talked about customization and configurability before as a stumbling block for many types of business web software.  This is hard stuff.  Many enterprise categories have been non-starters on SaaS because they require too much customization.  Anything the platform can do to help is welcome.  I break customization into three categories:

1. Presentation Logic:  Can I change all the text on any screen for localizaton or to accomodate my company’s terminology?  Can I change workflows?  Can I completely change the layout of the screens, which fields are presented, sort orders, and all the rest?
2. Data Model:  Can I add new objects and fields at will?  Do I have an easy way to populate from my other systems?
3. Business Logic:  This is the hardest and most open ended piece.

Lowers My Service Delivery Costs

SaaS vendors have a cost to deliver their service.  It directly affects their margins in a profound way.  Let’s take an average of 3 public SaaS vendors:  Salesforce, Concur, and RightNow.  On average, these three pay about 23% of revenue to deliver their services.  That’s actually quite low for SaaS companies, and the numbers range much higher for young companies that haven’t had a chance to work on this area.

Now suppose you wanted to use a platform like Force.com, which charges $25 seat/month.  Let’s be generous and say your business model allows your cost of service to be 25%.  Using Force, you must charge your customers $100 or you have an uncompetitive offering from a margin standpoint.  That’s a total non-starter for most.  Suppose you have a nifty service that’s worth $20 seat/month.  Can you get everything delivered for $5 cost?

Some of the cost comes from hosting.  Some comes from IT overhead associated with the care and feeding of the software.  The secret to driving these costs down is relentless automation.  This is another area where a good platform should help, not hinder.  Which delivery costs does your platform automate?

Open Source + Friendly Ecosystem + PaaS

Delivery cost leads me to think of Platform as a Service (PaaS).   Customers buy SaaS because ultimately TCO is much lower.  The same will be true for this platform.  There are economies of scale and other refinements that will make it cheaper when delivered as a service in the cloud.

SaaSWeek says PaaS may be a passing fad.  The author says this not for technology reasons but for political reasons.  It boils down to the fear your platform can turn against you at some point.  This is a risk for any platform (DOS and Windows?), BTW, and not just PaaS.  I’ve said before I don’t like platform vendors building apps, they should be like Switzerland.

But there is an antidote to the potential bad behaviour that boils down to creating a friendly ecosystem that counterbalances the vendor.  I’d look for a platform that has been Open Sourced like mySQL.  There is a limit to how much bad mySQL can do before people take their Open Source and go elsewhere.

Final Thoughts

UnreasonableMen have some interesting thoughts on the PaaS issue as well that I want to comment on briefly.

On the issue of scale, I don’t think a good PaaS has to have huge scale to be of benefit.  The reason I say this is that there are fixed costs to small business web projects.  You need at least one IT guy to manage the servers.  You need something like 8 servers on average.  Yada, yada.  If you pool all that, 1 IT guy can be responsible for a lot more than 8 servers.  Industry averages say twice that without automation, and companies like 3Tera claim 1 guy can manage a hundred servers.  A small PaaS provider can pass along those savings to a lot of startups, and it will achieve scale pretty quickly in that way.  What the small provider needs to do is offer load tests and other proofs that it will be able to scale its infrastructure over time, but that’s very doable.  If you have the open source ecosystem underway, the fear of what to do if the small vendor folds (or is acquired by an unfriendly) is greatly reduced.

Unreasonable is willing to see vendors who are quasi-Switzerlands.  He feels Salesforce will isolate CRM and Force in their quest for a bigger market.  He also gives the example of Telcos as platforms.   I’m queasy about these examples.  Yes, telcos carry data for the Internet which becomes a platform and they don’t interfere (much) with that.  However, it took a fantastic amount of regulatory wrangling and competition from other infrastructures like cable to keep the telcos reasonable.   Their progress innovating was poor in retrospect, and we still have “last mile” issues with infrastructure.  WiFi access is a mess as well.

I think the closer analogs to “disinterested” quasi-Switzerlands are companies like mySQL.  There’s kind of a fine line between mySQL and Oracle.  The latter is very much not Switzerland and leaves their bootprints all over the Enterprise landscape.  I’ll stick to my guns on the Open Source as I think it keeps platform vendors honest.

Related Articles 

Zuckerberg just said, “We reserve the right to build anything and compete with any of our applications.”  Facebook is no Switzerland!

Dare Obasanjo throws some interesting platform criteria into the pot.  I like the following:

• Platform reach.  Many have said Force.com is a better platform for generating sales leads than anything else.  Certainly Facebook gets a lot of traffic. 
• Applications shield from the winner’s curse:  This is basically scalability tied with making it easy to scale up/down on a utility grid so you can pay as you go but respond in real time.  Argues strongly for PaaS.

Platform Vendors Have to Be Switzerland

Platforms are big news these days.  Everyone wants to be a platform:  becoming a platform is even part of Yahoo’s plans to turn the company around. 

What do you look for in a platform vendor?  Yes, the features and functionality provided by the platform are important.  And yes, the community that is already there is also important.  But what about how a platform conducts itself?  Think of a platform like the popular notion of a Swiss Bank:  an extremely safe place to put your faith and assets.  A place that has no interest whatsoever in anything but safeguarding those assets.  Most platforms are not like Swiss Banks.  They are bent on World Domination.  They get confused about their loyalties when greed sets in.  They start to compete with those who placed their trust in them.  Those are the platforms you want to think twice about betting on.  Consider what it will be like to try to make a living on that platform, or to commit your data and energy to using the platform. 

Platforms often come about because a great application started a frenzy that others wanted to be part of.  Facebook is in that category.  We’ve yet to see whether Facebook will be a friendly platform owner, or predatory, but it’s something folks wonder about for obvious reasons.  Zuckerberg is saying some of the right things, at least, when he suggests that widgets should have a life both on and off Facebook.  That implies he doesn’t insist on total domination.  On the other hand, some are afraid that at least other Social Networks like LinkedIn have reason to fear.  Yet, the other Social Networks are direct competitors, not consumers of Facebook’s platform, so isn’t it kosher to fire a shot or two in their direction.  It’s still too early to tell if Herr Zuckerberg will be a taciturn Swiss Banker, or whether he’s bent on World Domination.  I am cautiously optimistic about the early signs.

The Apple iPhone is another great-application-begets-platform story, and one that seems to have gone bad.  Clearly, Apple is not acting as Switzerland here.  They are bent on world domination.  In fact, their weapon of choice, “bricking” of iPhones, has sparked a startling backlash where once there was nothing but raves.  Steve Jobs does not want to nurture you on his platform, he wants to control your every thought and action.  I’m sure he feels it’s for your own good, but is this what we want from our platform vendor?  I should say not, and its been a long time since a killer app came to roost on Apple’s platform as its first and only hunting grounds.

Still other companies are in the odd role that their admirers beg them to be platforms, but they have no intention of sharing any part of their pie.  eBay has always had the view that they owned every penny of opportunity surrounding their platform.  Many have tried to join on, but eBay itself makes that all but impossible.  It isn’t surprising, their Disney executives grew up on the idea that Mickey was a franchise, not a platform, and nobody was entitled to a piece of Mickey’s pie.  Apple is very similar, particularly in view of the latest iPhone shenanigans.  In Apple’s case, they’re control freaks for the sake of their conceptual integrity, whereas with eBay, it’s just business.

Microsoft gives us an abject lesson on platform owners who are not Switzerland.  It started innocently enough with things like BASIC and DOS, but soon, Microsoft wanted to compete with everyone, taking full advantage of their platform in every way they could to do so.  For a while in Silicon Valley every VC pitch had to include a discussion of why Microsoft wouldn’t just take your business away when they wanted it.  Arguably the strategy worked well for a time, but they seem to have reached the limits of it.  I see the last gasp as their abandonment of all things Java in a tiff with Sun over who could own the platform.  Microsoft will say they had little choice, but they’ve pursued it as a bit of a scorched earth policy by working overtime to ensure that the Java web and the .NET web are as incompatible as can be and still call it the web.  Consequently, they lost the hearts and minds of many who would embrace platforms.  Arguably, very little of the current cloud computing renaissance involves Microsoft as a result.

In the land of Marc Andreesen’s 3 kinds of platforms post, he mentions several of the third kind including Ning, Salesforce, and Second Life.  FWIW, I find Andreesen and Ning fit the Swiss Banker profile pretty well.  As we look back over Andreesen’s history, he seems to have done a good job nurturing platforms along the way.  Ning has no particular Social Network of their own, except to help other Social Networkers to use Ning more effectively. 

Salesforce is an interesting case.  Clearly, the other Marc (Benioff), is bent on world domination.  The question is to what degree he would compromise his platform aspirations to do so.  Perhaps he can turn into the Swiss Banker over time, but it seems an unlikely role at the moment.  He came up through the ranks of Oracle, which is not typically a breeding ground for the Swiss Banker mentality.  Still, we should watch closely and reserve judgement for a bit.  There are signs of life around Force, but it remains to be seen whether they’re higher forms of life, or just people looking to siphon off the halo effect of Salesforce’s community and greatness. 

Adobe has been a platform owner for some time with pdf and Flash.  But they’re also an application company as we were reminded by the announcements surrounding their acquisition of Web 2.0 word processor BuzzWord.  As Scoble says, they’re going for Microsoft’s throat.  But does this mean they might one day go for their platform user’s throats too?  I suspect not.  Adobe has always been very deliberate in their actions and they’ve done a good job nurturing their platforms.  BuzzWord is happening at a time when Microsoft essentially owns the document world.  Choosing to go after one of the giant platform monopolists doesn’t seem to me like bad behaviour for a platform vendor.

The ultimate Swiss Banker is of course Open Source.  How can you go wrong here?  The platform you’re depending on has been placed in the Open Source community and so how bad can things get in terms of the owner/creator being the Anti-Swiss?  Hence we see why so many prefer Open Source.  Perhaps Open Source is a way for Marc Benioff to gain full trust, though I have a terrible time seeing Force ever being an Open Source platform.  It just doesn’t seem like their style.

The next time you’re shopping for a platform, remember that platforms involve a big investment.  Try thinking of it in terms of Swiss Bankers.  Which one fits the profile?

SAP’s A1S Brings Competition to SaaS for the First Time

On September 19, SAP will bring competition to the SaaS world for the first time.  Everyone else in Enterprise Software will be affected. 

Seasoned SaaS executives will dislike my conjecture that there’s been little competition prior to A1S, but I don’t think its far from the truth.  There has been some choice in the SaaS market, but its largely been a green field opportunity where choice between SaaS offerings didn’t matter as much as choosing SaaS over On-Premises.  Just to underscore the point that A1S is all about competition, SAP has chosen to launch their product during Salesforce.com’s Dreamforce week.  Nothing like the stranger walking out onto the street at high noon to call the hometown guy out!

What does it mean?  Well for starters, it means SaaS has come of age and its here to stay.  SAP doesn’t choose its moves at random.  It’s an extremely deliberate company that puts a lot of power behind each stroke.  It will execute relentlessly until it achieves its goals, which may take quite some time.  That’s okay, because SAP has been a very patient company in the past.  Having this stamp of approval on the market, not to mention having a big player begin to invest in growing the market further should accelerate the SaaS market’s growth.  More importantly, it means that the chasm has shifted.  SaaS is mainstream, and that means this announcement affects everyone involved with Enterprise Software.

At the 800lb gorilla end of the market, SAP has stolen a march on arch-rival Oracle’s Fusion efforts, which has got to feel good to SAP loyalists.  The description of Fusion as being heavily SOA and SaaS enabled sounds much like A1S.  Oracle can’t be counted out, but it is interesting to watch the pendulum swing back and forth between these two companies as they struggle for dominance at the top of the heap.  Time will tell whether A1S and more importantly SaaS form the next major competitive axis for the pendulum to swing on.

For those Enterprise vendors that still haven’t figured out the SaaS conundrum, the window where you could bury your heads in the sand has just officially closed.  You need to have a SaaS strategy now.  There’s no more time for stalling.  If you’re public, the pain of a switch will be massive.  Lack of a SaaS game plan will start to show up in the form of pointed questions from analysts and investors.  You will need a good story, and they’ll be monitoring closely how well you execute on it.  If you’re private, perhaps part of a leveraged buyout consortium, you’d better be reinventing yourself as SaaS and not just fiddling with the numbers.  If you’re planning on being acquired, you would do well to have a story about how you help the acquirer’s SaaS strategy.

The A1S launch and subsequent scrambling affects the technology landscape as well.  It puts considerably more teeth into the whole SOA thing than we’ve seen in the past.  It’s more urgent to implement it, rather than just talk about it because it is the central nervous system behind A1S and a critical enabler for SaaS.  This opens the door to a domino scenario:  as more and more companies open their Enterprise fabric with SOA, it becomes easier to contemplate more SaaS projects.  This is a spiralling positive feedback loop that will help accelerate SaaS adoption further.

Adoption of SaaS overseas has been slow.  But this will change, particularly in Europe where SAP is very strong.  If a European company blesses the trend, it can accelerate in Europe.  Europe and the rest of the world represent incredible market growth opportunity for the SaaS world if it starts firing on all cylinders, as well as insulation from short term economy woes that may only affect the US.

As more and more computing moves into the cloud, the industry that serves hosting and data centers will have to look on that trend and decide how to succeed.  SaaS needs a different offering than a lot of hosting providers are used to.  Investments in complex data center management such as HP’s Opsware acquisition are likely a good move.  Products aimed at IT’s internal data centers or departmental data centers are moving into difficult territory.  Internet technology will stay hot or get hotter.  Cisco can regard all of this as good news.

These developments are extremely positive for the SaaS world, but there will be pitfalls and pain for both SAP and the other old school players as they try to execute a move to SaaS.  Some of it will be real, some just positioning games spun by the new kids on the block.  I’ve written a two-part series on the problems SaaS brings for On-Premises companies.  It’s an extremely disruptive game for the Old School because it forces them to choose which way a customer will be sold up front, and it sharply defines short term and long term benefits in a way that brings short term pain to the On-premises company in exchange for long term benefits.  As if to underscore how touch this tension between models can be, Hasso Platner had to backpedal a bit on whether A1S would cannibalize the installed base recently because of exactly these concerns.  SAP is heavily positioning A1S as a mid-market solution.  Part of that may be the reality of whether Big Enterprise is quite ready to embrace SaaS yet, and part of that may be SAP trying to construct a Protected Game Preserve for their SaaS offering that protects the core business.

It’s interesting to contemplate just how much new business SAP is getting anyway.  Like Oracle, they’ve got a raft of maintenance and professional services engagements that make up the bulk of their revenues.  It’s unlikely an existing customer would rip out a successful solution in order to switch it over to SaaS.  Therefore, swapping an increasing percentage of their new business to SaaS may not have quite the same negative effects on revenue deferral as it would for a less mature company.  It seems that even when it comes to something as disruptive as SaaS, scale still makes it easier for the big guys.

The SaaS world will be watching carefully how well A1S delivers on the SaaS formula.  As ZDNet puts it, SAP is known for being liquid concrete poured into the organization.  That doesn’t sound too much like the nimble experience we’ve come to expect from SaaS vendors.  Oracle has had a SaaS-like offering of its products for a long time, and they’d tell you they’re in the SaaS business, but they aren’t really according to folks like NetSuite and others I’ve heard from.  If A1S turns out to be almost-SaaS, it won’t make much more of a difference than Oracle has, other than to futher legitimize the markets.  As so many have pointed out, SaaS is about Service, but more importantly, it’s about an experience that can only be achieved by a thorough combination of the right software and service.  Otherwise hosting would’ve succeeded.  SaaS is a lot more than just hosting.

This move by SAP also represents a big splash in the partner world.  As I look over the Google Blog Search results for “A1S” in the last week, a lot of it is focused around discussions on the impact it will have on partners and the SAP job market for consultants.  Barbara Darrow puts it well when she says, “SaaS is still viewed by many in the channel as the ultimate in disintermediation.”  This is one of those deep dark secrets that shows another disruptive nature of SaaS.  I’ve written about it on a couple of occassions starting with my post Is SaaS Toxic for Partners. 

To a large extent, partners are in just as bad or a worse position than On-premises ISV’s.  They are a part of the shrinking trailing edge that is the province of very late adotpers.  The problem for partners, VARs, SI’s, and consultants with SaaS is twofold.  First, SaaS commoditizes a lot of the heavy lifting partners used to do around deploying a new On-premises application.  A properly delivered SaaS application radically reduces the workload there and has historically shifted a lot of the work to the SaaS vendor inside their data center.  That’s probably not going to change with A1S if its a first class SaaS offering.

Second, SaaS doesn’t afford partners a lot of opportunity to create IP.  SaaS tends to be a set of isolated islands in the big sea that is the Cloud.  Traditionally, IT has had a large arsenal of tools they could bring in to augment their On-premises software.  Call them bandaids or extensions, but they formed an ecosystem around the Enterprise Software.  Business Intelligence, ETL tools, security products, and a whole raft of other businesses were built on this promise.  For the most part, it was the promise of being able to tie directly into the fabric underlying the Enterprise Software.  Direct access to database tables was one of the most common mechanisms this ecosystem operated on.  That’s no longer possible as computing moves to the cloud.  It will affect those secondary ISV’s that live around the databases of these big Enterprise apps, and it will also affect partners who often created IP around their access to the rich soup of that ecosystem.  

All of these partner/ecosystem businesses now have to reinvent themselves.  They need to find new ways of differentiating and providing value within the confines of what the cloud has to offer.  Several writers chide Salesforce that their announcement of minor repositioning and small extensions to their application platform business can’t compete with the A1S announcement.  And yet, Salesforce is struggling to show us what a viable ecosystem in the SaaS world might look like.

It’s going to be exciting to watch all of this unfold.  Every Enterprise software company should be assembling their best and brightest to map out their position and strategy with respect to SaaS and A1S.  SaaS is here today and if you don’t heed that, you’ll be gone tomorrow.

Related Articles:

Great post over on the Lucid Era blog about the challenges conventional ISV’s face in moving to SaaS.  I’ve written about the same challenges before and suggested a “protected game preserve” strategy to help overcome them.

Zoli echoes many of the same sentiments over at his blog.

Submit to Digg | Submit to Del.icio.us | Submit to StumbleUpon

Amazon Startup Project Report

I attended the Silicon Valley edition of the Amazon Startup Project today.  This is their second such event, the first having been hosted in home-town Seattle.  The event took place at the Stanford University Faculty and was well attended: they basically filled the hall.  The agenda included an opening by Andy Jassy, Sr VP for Amazon Web Services, a discussion on the services themselves by Amazon Evangelist Mike Culver, a series of discussions by various startups using the services, a conversation with Kleiner Perkins VC Randy Komisar, and closing remarks by Jassy again.  Let me walk through what I picked up from the various segments.

First up were the two talks by Amazon folk, Jassy and Mike Culver.  Jassy kept it pretty light, didn’t show slides, and generally set a good tone for what Amazon is trying to accomplish.  The message from him is they’re in it for the long haul, they’ve been doing API’s for years, and the world should expect this to be a cash generating business for Amazon relatively shortly.  That’s good news as I have sometimes heard folks wonder whether this is just remaindering infrastructure they can’t use or whether they are in fact serious.  The volumes of data and cpu they’re selling via these services are enormous and growing rapidly.

Mike Culver’s presentation basically walked through the different Amazon Web Services and tried to give a brief overview of what they were, why you’d want such a thing, and examples of who was using them.  I had several takeaways from Mike’s presentation.  First, his segment on EC2 (Elastic Compute Cloud–the service that sells CPU’s) was the best.  His discussion of how hard it can be to estimate and prepare for the volumes and scaling you may encounter was spot on.  Some of the pithier bullets included:

• Be prepared to scale down as well as up.
• Queue everything and scale out the servicing of the queues.

He showed a series of Alexa traffic slides that were particularly good.  First he showed CNN’s traffic:

As you can see, there are some significant peaks and valleys.  In theory, you’d need to build for the peaks and eat the cost of overcapacity for the valleys if you build your own data center.  With a utility computing fabric like Amazon’s you can scale up and down to deal with the demand.  He next overlaid Flickr onto this data:

Flickr’s problem is a little different.  They went along for a while and then hit a huge spike in Q206.  Imagine having to deal with that sort of spike by installing a bunch of new physical hardware.  Imagine how unhappy your customers would be while you did it and how close you would come to killing your staff.  Spikes like that are nearly impossible to anticipate.  CNN has bigger spikes, but they go away pretty rapidly.  Flickr had a sustained uptick. 

The last view overlaid Facebook onto the graph:

Here we see yet another curve shape: exponential growth that winds up dwarfing the other two in a relatively short time.  Amazon’s point is that unless you have a utility computing fabric to draw on, you’re at the mercy of trying to chase one of these unpredictable curves, and you’re stuck between two ugly choices:  be behind the curve and making your customers and staff miserable with a series of painful firedrills, or be ahead of the curve and spend the money to handle spikes that may not be sustained, thereby wasting valuable capital.  Scaling is not just a multicore problem, it’s a crisis of creating a flexible enough infrastructure that you can tweak on a short time scale and pay for it as you need it.

One of the things Mike slid in was the idea that Amazon’s paid for images were a form of SaaS.  To use EC2, you first come up with a machine image.  The image is a snapshot of the machine’s disk that you want to boot.  Amazon now has a service where you can put these images up and people pay you money to use them, while Amazon gets a cut.  The idea that these things are like SaaS is a bit far fetched.  By themselves they would be Software without much Service.  However, the thought I had was that they’re really more like Web Appliances.  Some folks have tried to compare SaaS and Appliance software–I still think it doesn’t wash for lack of Service in the appliance, but this Amazon thing is a lot cleaner way to deliver an appliance than having to ship a box.  Mike should change his preso to push it more like appliances!

All of the presentations were good, but the best ones for me were by the startup users of the services.  What was great about them was that they pulled no punches.  The startups got to talk about both the good and bad points of the service, and it wasn’t too salesy about either Amazon or what the startups were doing.  It was more like, “Here’s what you need to know as you’re thinking about using this thing.”  I’ll give a brief summary of each:

Jon Boutelle, CTO, Slideshare

The Slideshare application is used to share slideshows on the web, SaaS-style.  Of course Jon’s preso was done using slideware.  His catchy title was “How to use S3 to avoid VC.”  His firm bootstrapped with minimum capital, and his point is not that you have to get the lowest possible price per GB (Amazon isn’t that), but that the way the price is charged matters a lot more to a bootstrapping firm.  In his firm’s case, they get the value out of S3 about 45 days before they have to pay for it.  In fact, they get their revenue from Google AdSense in advance of their billing from Amazon, so cash flow is good!

He talked about how they got “TechCrunched” and the service just scaled up without a problem.  Many startups have been “TechCrunched” and found it brought the service to its knees because they got slammed by a wall of traffic, but not here.

Joyce Park, CTO, Renkoo/BoozeMail

Joyce was next up and had a cool app/widget called BoozeMail.  It’s a fun service that you can use whether or not you’re on Facebook to send a friend a “virtual drink”.  Joyce gave a great overview of what was great and what was bad about Amazon Web Services.  The good is that it has scaled extremely well for them.  She ran through some of their numbers that I didn’t write down, but they were very large.  The bad is that there have been some outages, and its pretty hard to run things like mySQL on AWS (more about that later).

BoozeMail is using a Federated Database Architecture that tracks the senders and receivers on multiple DB servers.  The sender/receiver lists are broken down into groups, and they will not necessarily wind up on the same server.  At one point, they lost all of their Amazon machines simultaneously because they were all part of the same rack.  This obviously makes failover hard and they were not too happy about it. 

Persistence problems with Amazon are one of the thorniest issues to work through.  Your S3 data is safe, but an EC2 instance could fall over at any time without much warning.  Apparently Renkoo is beta testing under non-disclosure some technology that makes this better, although Joyce couldn’t talk about it.  More later.

Something she mentioned that the others echoed is that disk access for EC2 is very slow.  Trying to get your data into memory cache is essential, and writes are particularly slow.  Again, more on the database aspects in a minute, but help is on the way.

Sean Knapp, President of Technology, Ooyala

Ooyala is a cool service that let’s you select objects on high quality video.  The demo given at Startup Day was clicking on a football player who was about to make a touchdown to learn more about him.  Sean spent most of his preso showing what Ooyala is.  It is clearly an extremely impressive app, and it makes deep use of Amazon Web Services to virtually eliminate any need for doing their own hosting.  The message seemed to be if these guys can make their wild product work on Amazon, you certainly can too.

Don MacAskill, CEO, Smugmug

I’ve been reading Don’s blog for a while now, so I was pleased to get a chance to meet him finally.  Smugmug is a high end photo sharing service.  It charges for use SaaS-style, and is not an advertising supported model.  As I overheard Don telling someone, “You can offer a lot more when people actually pay you something than you can if you’re just getting ad revenue.”  Consequently, his customer base includes some tens of thousands of professional photographers who are really picky about their online photo experience.

Smugmug has been through several generations of Amazon architectures, and may be the oldest customer I’ve come across.  They started out viewing Amazon as backup and morphed until today Amazon is their system of record and source of data that doesn’t have to be served too fast.  They use their own data center for the highest traffic items.  The architecture makes extensive use of caching, and apparently their caches get a 95% hit rate.

Don talked about an area he has blogged on in the past, which is how Amazon saves him money that goes right to the bottom line.

Don’s summary on Amazon:

• A startup can’t go wrong using it initially
• Great for “store a lot” + “serve a little”
• More problematic for “serve a lot”

There are performance issues with the architecture around serve a lot and Don feels they charge a bit too much (though not egregiously) for bandwidth.  His view is that if you use more than a Gigabit connection, Amazon may be too expensive, but that they’re fine up to that usage level.

His top feature requests:

-  Better DB support/persistence

-  Control over where physically your data winds up to avoid the “my whole rack died” problem that Joyce Park talked about.

The Juicy Stuff and Other Observations

At the end of the startup presentations, they opened up the startup folks to questions from the audience.  Without a doubt, the biggest source of questions surrounded database functionality:

-  How do we make it persist?

-  How do we make it fast?

-  Can we run Oracle?  Hmmm…

It’s so clear that this is the biggest obstacle to greater Amazon adoption.  Fortunately, its also clear it will be fixed.  I overheard one of the Amazon bigwigs telling someone to expect at least 3 end of year announcements to address the problem.  What is less clear is whether the announcements would be:

a)  Some sort of mySQL service all bundled up neatly

b)  Machine configurations better suited to DB use:  more spindles and memory was mentioned as desireable

c)  Some solution to machines just going poof!  In other words, persistence at least at a level where the machine can reboot, access the data on its disk, and take off again without being reimaged.

d)  Some or all of the above.

Time will tell, but these guys know they need a solution.

The other observation I will make is one that echoes Don’s observation on Smugmug:  I’m sure seeing a lot of Mac laptops out in the world.  3 of the 4 presenters were sporting Macs, and 2 of them had been customized with their company logos on the cover.  Kewl!

Submit to Digg | Submit to Del.icio.us | Submit to StumbleUpon

Is a Social Graph Without the Social Objects Worth Anything? (Musings on Lock-In)

There has been a huge amount of activity on the web having to do with creating Open Social Networks.  A good set of links to give a deep overview of where this stands would be:

• Brad Fitzpatrick’s Thoughts on the Social Graph
• Bill of Rights for Users of the Social Web
•  DataSharingSummit a recent conference focused on the issue

I’ve been following it all, and generally really liking what I’ve read.  I like it because I hate the idea that there can only be one or two social networks, be they MySpace or Facebook.  I’ve nothing against either one, by the way, but as soon as the world settles down to the One Monopoly, innovation tends to stop.  Even that can be a good thing if we’re truly done innovating, but I don’t think we’re even close to being done on the Internet.

Moreover, there is something strangely wrong about all these Dark Web Walled Gardens.  The great thing about the web is that is it an integrated community.  It’s cool to have speakeasies where you have to utter a password to the big gorilla behind the viewslot to get in, but we need to make sure there can be as many of these speakeasies as people want to create, because the other cool thing about the web is you shouldn’t have to have an already established monopoly to be able to create a cool web property.

Open Social Graphs mitigate the network effects that can deliver and sustain a monopoly.  Two posts this morning really made me sit up and take notice.  First, Scoble was commenting on how there’s no possible way he can switch blog readers because he has too much information locked up in Google reader to ever start over.  That’s a classic case of lock-in.  Then I read Joshua Porter’s thoughtful post The Social Graph and Objects of Sociality where he makes the point that the graph isn’t worth a whole lot without all the objects that created interaction between the friends on the graph.  Spinning it around the other way, the value of a Social Network has as much to do with the content and other activities being shared as it does with the exact people and who they say their friends are.

In retrospect, this should not be so surprising, so I thought I’d walk through a quick example of how this would all work.  Think of an Open Identity system and Open Social Graphs system as creating a form of proxy.  Suppose I belong to 3 different social networks that are all based on the same open standards (or at least standards that interoperate).  For the sake of example, let’s use names of real services even though they’re not currently architected that way:

• Facebook:  I have a casual social presence on Facebook
• LinkedIn:  My professional persona is on LinkedIn, and BTW, I don’t let many people know the relationship between my LinkedIn and other personas.
• Flickr:  I’ve got a bunch of photos on Flickr.  Some are public, but a lot of them are private photos of family and personal interests

I meet someone on LinkedIn who I want to give access to my Facebook and Flickr personas.  They’re currently not a member of Facebook, and they have no desire to join.  They do belong to Flickr.  I want to orchestrate all of this within LinkedIn, and I want to do so without my new friend having to go through a lot of pain to join a sevice they don’t to join, yada, yada.

So, I add New Friend to my friends list in LinkedIn.  Part of the capability there is that because this functionality is based on the open standard that cuts across sites, I have the ability to grant my New Friend access to more than just LinkedIn.  He’s a member of Flickr, but not Facebook.  But that doesn’t really matter.  What matters is he has an identity that is part of the Open Social Network standard that all three sites respect.  Therefore, he actually is a member of Facebook even though he didn’t go to all the trouble of signing up for it and building a friend graph on it.  Now isn’t that a cool thing?

It’s a classic single sign on Federated Identity Model at work.  Since lock-in around media created is going to be a forgone conclusion, making it easy for folks to gain these proxy styles of access to the media is essential to achieving the goals the Open Social Networking crowd want to get to.  It also makes it a lot better for you to play around in sites that are amenable to the open standard.  You’ll be expending effort like Scoble did that will ultimately lock you in.  Why not make sure that the place you’re locked into is open so there are no regrets later?

Business Web 2.0 Demands a Different Trust Fabric Than Social Web 2.0

Web 2.0 is all about collaboration.  In fact, I mentally substitute the word “collaboration” for Web 2.0 in any context where I’m having a difficult time understanding and it generally makes things much clearer.  Thanks to O’Reilly for that!

Harvard professor Andrew McAfee got me thinking about the differences in the Trust Fabric (how Social Networks govern Trusted access to information) between Business users of Web 2.0 and Social users of Web 2.0.  His post, The Great Decoupling, gives some exciting insights into how information flows within corporate hierarchies.  The gist is that historically, information has flowed hierarchically within organizations.  This is because decision making requires information and historically, it has been costly to gather and disseminate information.  These “economics of information distribution” have largely restricted information flow to corporate hierarchies, but the times they are a changin’.  One of the two factors, the costs to gather and disseminate, have been greatly diminished and commoditized by the Web.  Nowhere is this effect more strongly felt than in the Web 2.0, which has become the ultimate evolution of that trend.

MIT’s Tom Malone has gone on to write about the effects of this in his new book The Future of Work.  In his book, Malone likens the changing topology of information transfer with the hypothesis that decision making will follow suit:

This all leads to massive decentralization of decision making in organizations.  It all sounds great, right?  But then McAfee starts to disagree a bit with Malone for a very solid reason:

But the fundamental rule about where decision rights should go has nothing to do with information costs themselves. Instead, it has to do with knowledge. The ground rule is: align decision rights with relevant knowledge.

This is an absolutely crucial insight.  McAfee goes on to give an example wherein some loan officers at a bank make better credit risk assessments than other officers.  Clearly, decentralizing the decision making to all the loan officers is counter productive–it should be further centralized to just those officers who make the best decisions.

There are many other examples.  I like to think in terms of categories of information that need to stay within the corporate hierarchy but that are essential to decision making.  Here are three examples:

Morale:  Do we really want everyone to know how poorly some initiative is going?  How will it help to tell those who can’t make a difference and would only be depressed by the knowledge?  Is it fair to expose some internal squabble that was mostly sound and fury signifying nothing?  Won’t that just unfairly tarnish some otherwise good people’s reputations and make them less effective?

Governance:  Is the information legal and appropriate for everyone to know in this age of SOX and Securities Laws?

Competitive Advantage:  Do I want to risk giving my competitors access to key information because I’ve distributed it too broadly?

The headlong rush the Web brings to expose everything to everyone scares the heck out of most corporate types.  Their two biggest requests for Web 2.0 initiatives are Governance and Security, and the reasons for it are exactly what we’ve been discussing.  It isn’t just that they have “control issues”.  There are sound business reasons why controls have to be in place.

McAfee alludes to this as well when he says:

The net result of disappearing information costs won’t necessarily be decentralization. It will instead be the decoupling of information flows and decision rights. Organization designers will be able to allocate decision rights without worrying about how costly it will be to get required information to deciders. Leaders will be able to ask “Who should make this decision?” without adding “Keeping in mind that it’s going to be slow, difficult, and expensive to get them the general knowledge they’ll need.”

The set of rules and data structures that define this mashup between information flows and decision rights will be an essential component of any broad-based Web 2.0 initiative for Business.  It defines differenes in how the Trust Fabric for a Business Social Network has to operate versus how a Social Social Network (sorry!) has to work.  This makes the Web 2.0 problem for business considerably more difficult than just firing up the LAMP stack to deliver a MySpace or Facebook clone to your chosen community of employees or customers.  It requires an odd combination of totally control-centric Enterprise Software think with the Laissez Faire mentality of the Web.

Dion Hinchcliffe over at ZDNet says:

Silicon Valley proper has for the most part become thoroughly bored with the Web 2.0 meme despite the largely superficial presence of the most powerful Web 2.0 concepts in many online products and services.

At the same time, mainstream business is just now getting ready for Web 2.0 adoption and are beginning to incorporate the underlying technologies, platforms, and concepts into their IT departments and lines of business.

The trouble is that so far Silicon Valley has largely built Closed Social Web 2.0.  It’s bored with that and is somewhat thinking about how to build Open Social Web 2.0.  There’s a lot of discussion about Social Graphs and Trust Fabric going on everywhere from Scoble’s Plan for Google’s Demise to the 2 Marc’s (Canter and Andreesen) Plans to Steal Away Facebook’s Crown.  Seems everyone agrees they want Web 2.0, and they want it delivered in such a way that it is open.  Business also needs to make sure it has a seat at the table as well so that its unique needs can also be met.

Related Articles

Mashups and “The Future of Work” in Enterprise 2.0

Why Can’t I Search My Enterprise Data As Well As Google Searches the Internet?

Business (And Social) Alternatives to Page Rank

Submit to Digg | Submit to Del.icio.us | Submit to StumbleUpon

Bumps in My Internet Journey (Links): August 27, 2007

This post introduces a new weekly feature for the SmoothSpan blog where I’ll list noteworthy links I came across during the prior week.  Call them “Bumps in My Internet Journey” because they made me stop and think!  If they made me think enough, eventually you’ll see a blog post about it.

Why Mahalo, TechMeme, and Facebook are going to kick Google’s butt in four years:  Scoble’s got an interesting take.  Everyone hates search engine Spam!

Attention Economy:  All You Need to Know:  Nice overview of Read/Write Web’s Attention Economy concept.  Eventually I’ll blog about this…

Denormalizing Your Way to Speed and Profit:  Because databases are an agent of the Devil when it comes to massive scalability.

Yahoo Pig and Google Sawzall:  Wherein MapReduce and Hadoop become Languages.  Don’t worry, to become a Languages is the most exalted thing in computing.  Adobe even made printers languages!

Profiting from the Content Delivery Network Wars:  They haven’t seen anything yet.  Amazon and the other big guys will roll Akamai et al up as part of the hosting package  you get when you buy their utility computing service.

What Makes an Idea Viral:  Seth Godin is always worth listening to.

Werner Vogels Tells Us About the Amazon Technology Platform:  As well as interesting glimpses into their culture.

By 2014, We’ll Have 1000-core Chips:  The amazing Tile64 has shipped with 64 cores.  Available today lest you thought the Multicore Crisis was far in the future!

Scoble and I Are On a Similar Wavelength About Social Graph Based Searching

I couldn’t believe the serendipity.  Not long after writing my post about Searching Blogs Instead of Google to avoid Spam, I read Robert Scoble’s excellent piece about Social Graph Based Search (or here for the meat).  We’re very much on the same wavelength here!  Scoble’s videos do a great job of explaining why the blog search method works.  In essence, Page Rank (Google’s search algorithm) is just too easy for SEO’s (Search Engine Optimizers) to cheat on.  In essence, create a ton of links to your page, populate it with the right keywords, and you can trick Google into sending you a zillion people no matter what trash you may have put there.

Scoble uses the term “SEO Resistant Search”.  Ironically, SEO Resistance, or rather, better relevance, is the reason most people use Google.  But this whole approach is ideal for the Open Search Engine Initiative I’ve proposed already.

Good reading here, thanks Scoble: it is indeed the basis for a whole new kind of search engine!

The Psychology of SaaS and Web 2.0 Persuasion (and Selling)

I recently came across Hummer Winblad VC Will Price’s excellent summary  of Robert Cialdini’s excellent book, Influence, the Psychology of Persuasion.  The basic thesis is that people rely on a relatively simple framework of cues and heuristics for decision making because we simply don’t have time to completely analyze every decision.  Understanding these decision-making heuristics is a powerful tool towards persuading people.  It’s an excellent foundation for marketers, sales people, and negotiators to have at their fingertips. 

The six guiding principles are:

1. Reciprocation:  If I do something for you, you are in my debt and must do something for me.

2. Commitment and Consistency:  Everyone wants to be perceived as having the integrity to deliver on their commitments, and as being consistent in their views.  We think badly of those who are inconsistent and don’t honor their commitments.

3. Social Proof:  When we don’t have time to reach a conclusion ourselves, we look at the conclusion others have reached, and we prefer looking to people we respect who are close to us in background.

4. Liking:  We are more likely to say yes to people we like.

5. Authority:  We feel compelled to follow the authority figures in our lives.

6. Scarcity:  Scarce items are perceived to be more valuable.  We are more motivated by fear of loss or fear we’ll be left out than by thought of gain.  We fear deadlines budgets and other artificial forms of scarcity.

Most good marketers, sales people, and negotiators will look at the list and consider that it’s a fine list but that they haven’t learned much new from it. 
My reaction on seeing the list was to try to cast it into a theory for how SaaS and Web 2.0 companies succeed.  I could feel a lot of my own thoughts on SaaS and Web 2.0 resonating with Cialdini’s 6 principles.  It shouldn’t be too surprising that they did.  After all, the heart of their challenge is to persuade people to adopt their services. 

Towards that end, here is my list of questions for you, ideas for responses, and examples for each of the 6 principles of persuasion:

Reciprocation

How do you place your customers in the position of needing to reciprocate?  First you have to give them something of value.

What have you given customers without their asking that has value to them?

This area is rich with ideas and examples.  Free trial offers and Web 2.0 services that live off advertising (often users perceive the service as a free gift) are the most common.  Here are some other possibilities:

- Gifts:  Give your best customers a gift of some kind.  One of my old employers had a special customer advocacy group that were like concierges for the customer’s experience with us.  It was brilliant, and the advocates made sure customers that were great references got gifts.

- Proof of Concept:  A willingness to invest your resources in a proof of concept that the customers sees as an expensive project if they had to do it leads to feelings of reciprocation.  In competitive situations, make sure you offer the POC first!

- Give to Get Negotiation:  Give up something right up front and then wait for the right moment to ask for reciprocation.

- Book:  Write a book that educates customers in a useful way about your space.  There is a long history of the success of this: Arbor and Cognos both did it in the BI world, Tom Siebel wrote a book in the early days of CRM, and there were others.  Services like LuLu make this so very easy.  Give the book as a gift and make sure it offers real content and therefore value.

- Palms Up Networking:  This is more for people than organizations.  It’s 5-time CEO Christina Comaford-Lynch’s approach to networking that got her into the White House, and a brilliant example of reciprocation in action.

- Give someone a home or a voice:  Isn’t this what Web 2.0 is all about?  MySpace and Facebook give people an online home.  Blogs give people a voice.  What can you give someone online that they will value more than what it costs you to provide it?

- Win-win:  How does your product or service help your customers to make money?  (???)

In closing on this principle, the ultimate reciprocation comes after you deliver a great product or service.  I used to come out of the Callidus User Group meetings charged for months because customers were so happy with the results they’d gotten with our software that it was infectious.  Those customers were eager to help Callidus succeed further.

Commitment and Consistency

What are the principles you want your business to be absolutely known by?

What are you doing to commit your entire organization to that consistency?

You can’t be surprised that when making fast decisions without full analysis people prefer choices that don’t waffle all over the place and change their minds.  It’s hard enough to make such decisions without trying to hit a moving target at the same time. 

Look at some of the great brands in the world and you’ll see their commitment and consistency:

- Starbucks:  Committed to a great coffee-centered experience.  Absolutely consistent: the Starbucks experience is the same wherever I go, even in Italy, Turkey, and Greece on a recent cruise.

- Apple:  We all know Apple to be uncompromisingly committed to what they call “insanely great products.”

- Ferrari or Porsche:  Each different, each entirely committed to their view of what it takes to sit at the pinnacle of automotive design.

The brands have hugely loyal fans because of their commitment and consistency to ideals their audiences love.  These companies have taken commitment and consistency almost too far in the minds of many business people, but their formula works.  And we all know of cases where companies lost their way relative to their original social contract and commitment to customers.  It didn’t go well for them, did it?

Don’t be afraid to talk passionately and often about your values: it’s part of the act of making the commitment.

Stay pretty high level on what you are committed to.  Customer Satisfaction should be number one, followed by Shareholder Value and Value for the people in your organization who make it all happen.  In my experience, that’s the order needed to build a great business and the rest will follow.

Before I go too far down this road, make sure you don’t allow consistency to be the “hobgoblin of little minds” either.  Screamer policies exist because policies down in the weeds should always be overridden by higher policies that commit organizations to customer satisfaction.  Even if it means a little bit of inconsistency in the minor rules, it means the major message is something people can always rely on.

Lastly, I read a study long ago about 6 sigmas and customer satisfaction at hotels that I’ll always remember.  Six Sigmas is the science of changing the process so mistakes are impossible.  You would think it is ideal for a luxury hotel, right?  One of the more famous ones tried Six Sigmas for a while and had to scrap it.  They found that customers who never encountered a problem were less satisfied than customers who occasionally encountered a small problem and then got to see the hotel go way out of their way to fix the problem.

This is part of demonstrating commitment.  Seth Godin calls it “follow through.”  Time and again I have watched customers decide in favor of a vendor they felt would stand behind them and put their success above all else, even if the customer felt the product in question didn’t have quite all the bells and whistles they wanted.  It was the commitment and consistency that won the customers over.

Social Proof

How will you build social proof for your desired market?

Who are the Key influencers that lead others to your product or service?

Social Proof can be a chicken and egg dilemma until you realize it is classic early adopter marketing.  Crowds move as herds, but there are always individuals that lead the herds.  Have you identified those individuals and given them the right cues so they can lead the herd your way?

In Malcolm Gladwell’s great book The Tipping Point , he identifies three kinds of people that are the key to the herd behavior:  Connectors, Mavens, and Salesmen.  Connectors have big social circles that can reach a large audience.  Mavens are the experts people know to turn to for advice.  Salesmen are the charismatic people who get the message out, often unconsciously.

Interestingly, these three types of people may not necessarily even be people in the Web 2.0 world.  Consider Facebook and their widget API.  If you create a widget for Facebook, you are using Facebook as a Connector (because it has a huge social network), a Maven (because it’s the authority in social networking right now), and a Salesman (because it’s “hip” to be on Facebook).  Don’t miss the opportunity to harness entire herds like this to help create your own herd.

Partners can fit into the same categories if you choose them correctly.  Invariably you will find partners acting as Mavens (who are the thought leaders in your space?), Connectors (which big VARs and SIs have virtually every Global 2000 player in the customer list?), and Salesmen (you did properly incent your partners to act on your behalf, didn’t you?).

Of course PR is the science of how to identify these types out in the press and analyst communities and get them interested in your cause.

This also explains why companies are so eager to turn their customers into “Brand Ambassadors”, but also why it is so hard.  In an ideal world, each and every one of your customers wants to tell everyone they know how great your product is.  It’s a lofty goal that’s very hard to achieve.  It merits it’s very own application of the 6 principles to properly persuade your customers to become your Brand Ambassadors.

Liking

Why will people like your company and the people they deal with?

Are you and your company likable?  Are you working to improve your likability?

Why are salespeople often such likable folks?  We say its because its essential to have social skills to be good at sales, but there’s more to it than that.  It has to do with the propensity to buy from someone you like, or to agree with someone you like, in which case you’ve bought their idea.

As a voice for your company, you should endeavor to be likable by those who would buy your products.  That doesn’t mean you have to be a total suck-up to your customers and influencers.  In fact, we all know suck-ups that aren’t very well liked at all.  Perhaps it’s better to look at it as being someone who is well respected, a more professional definition of likability.  Think of it as being a person or a company that others would want to emulate out of respect for what you’ve accomplished.  Folks like Howard Schultz at Starbucks or Sam Walton always come off as likable.  One of the best examples from the computer industry is probably John Chambers at Cisco.

Companies should cultivate likable images too.  Give back to your community through charity and you harness both the principle of reciprocation and likability.  It’s also good for the soul and genuinely helps others out.  Be humble and self-deprecating.  Be generous in recognizing the contribution of others.

We all know of Tyrant Kings and Captains of Industry who do not project much likability.  Yet they often have charisma of another sort—the charisma of power.  That still counts in a lot of ways, but it isn’t something that can be wielded until much later in a company’s evolution, and there is no substitute for true likability combined with power.  Just ask Bill Clinton!

Think back to my earlier example of the Customer Advocates.  One way of looking at their job was it was all about making sure every customer had a personal friend inside the company.  You could do a lot worse than to make sure that happens for your customers and organization!

The Web has changed some of the aspects of how this works, BTW.  Likability needs to be transmitted via the written word in many cases.  Yes, podcasts and videos are higher bandwidth, but you need to think about how to get your likability out over all the web media.  The individuals charged with getting the word out have to be content creators that are good at being likable.   One of the all-time great bloggers and brand ambassadors (at one time for Microsoft) is Robert Scoble.  Tim Ferris, commenting on the interview he had with Scoble had this to say:

   One thing impresses me about Robert more than all of his credentials: he smiles more than almost anyone I know.

It’s that likability thing again!

Take a look at personal blogs from folks like Facebook’s Mark Zuckerberg.  Heck, just look at his picture.  That fella is trying to be well liked!

Authority

How can you position your company as the authority?

Successfully positioning your company as the authority in your space has got to be one of the key steps to Nirvana.  If your name comes up in every discussion of the topic, congratulations!  You have succeeded.  If it doesn’t, you have a lot of work to do, but fear not, you can apply the 6 principles to this task as well.

How to become the authority using the 6 principles:

Reciprocity:  Give away valuable content in the area you want to be an authority.  Open Source is one of the ultimate examples and it put big names like Linus Torvalds on the map (say, he looks likable in his picture on Wikipedia too!). 

Commitment and Consistency:  Be totally focused on the area you want to be recognized as an authority for. 

Social Proof:  Get others talking about you as an authority.  This is an ideal role for VAR and SI partners as well as industry analysts.  Identify those people whose own special authority is deciding who others should listen to and win their hearts and minds.  Get the word out about these others who believe in you.

Liking:  Be a likable authority, not an insufferable authority!

Authority:  You are likely an authority on something already, right?  Get it out there so people can see you as an authority on something and look for the halo effect.  Also, write.  Nothing like seeing something in print to help establish authority.  Lastly, conduct yourself as an authority.  As Christine Comaford-Lynch’s interview puts it:

    If you try adopting supreme self-confidence, even for a day, you’ll be stunned by how the world responds. It treats you as if you deserve everything you ask for.

Scarcity:  More on this in a moment, but the real authorities are scarce because they are in demand.  I’m not suggesting you adopt the common tactic of being hard to reach, keeping people waiting, and late to every meeting, but get the scarcity message across.

Scarcity

How do you create the impression of scarcity when selling your offering?  Ah, now we understand why Web 2.0 companies have infinitely long beta tests that are by invitation-only.  It isn’t because they’re trying to be secretive, although it could be related to their ability to deliver their product.  More importantly, it builds the cache of scarcity.  Go try to buy a Ferrari (even if you don’t have the cash, it’s an interesting experience).  You will likely be told you have to put down a deposit and get on a waiting list.  Same for Harley Davidson.  Are you sure these guys really can’t build their cars and motorcycles fast enough to suit demand?  Hogwash!  They’re creating scarcity because it persuades.

There are dozens of ways you can create scarcity around your products and personal time.  If you are successful with the other 5 principles, you probably won’t have to make up the scarcity–it’ll be a fact of your day to day existence that you have a tiger by the tail and you dare not let go!

Newsflash:  Seth Godin writes a great post that is relevant to reciprocation:  What’s the most generous thing you could give to your best customer, best friend, or most important prospect.  Thought provoking!

Related Articles:

If you liked this post, also take a gander at my read on Web 2.0 Personality Types!