The New Technology Elite
It feels like forever but the last year my good friend Vinnie Mirchandani has been annoying the heck out of me with tales of where he sees the future of technology. In short he thinks that I, along with most others I guess who pursue an interest in business applications, are staring down a dead end rat hole, mostly wasting our time cogitating upon the likes of Microsoft, SAP and Oracle. Vinnie believes that whatever passed for innovation from those kinds of vendor is largely, though not completely, exhausted and that we need to look elsewhere for technology driven inspiration and lasting business value. No Timeless Software for him.
Every now and again I'd get excited about something I'd seen or heard and he'd piss all over it pointing me in a different direction. It is annoying and troubling in equal measure. Even more so that he has documented what he means in what will shortly be his second book: The New Technology Elite due out April 3rd. I've had the privilege of seeing an advance copy of the near final version.
If you have an open mind then this is one book you would do well to read in its entirety. If you don't then you'll likely throw it against a wall in anger. The book upends much of what many of us have come to believe about the supremacy of enterprise software and its place at the heart of The Business. He starts:
While the big excitement during the (CES 2011) show was around the tens of new tablets expected to be rolled out later in the year, I observed companies from just about every industry—from Walgreens, the pharmacy chain, to Nike, the shoe company, to Ford, the auto company—all were showing off technology-enabled “smart” products for the new tech-savvy consumer.
It is a really exciting time for many of these companies. For too long IT has been an expensive and low-payback back-of?ce investment. Now technology in the companies’ products is allowing them to generate revenue and growth. Technology is fun and pro?table again...
...The more I analyzed operations of Apple, Google, Facebook, Amazon, Twitter, and eBay—their data centers, distribution centers, retail stores, application ecosystems, global supply chains—the more I was impressed with the “industrialization” of their technology. They are considered “consumer” tech, but they have better technology on a greater scale than most enterprises.
Traditional technology users are embedding technology in their “smart” products and services and thus learning to become technology vendors. Technology vendors like Apple are, in reverse, running retail operations better than Nordstrom. eBay’s PayPal unit is running better operations than many banks. Amazon is running logistics better than many distributors. Google is running data centers far more ef?ciently than IBM’s or EDS’s. They are the new best practice leaders.
It hit me that the traditional distinction between technology user and vendor is outdated. The baseball term “switch-hitter” came to mind.
[My emphasis added.]
I understand some of what he means. I try to attend LeWeb each year as an antidote to the mega tech shows. It is always refreshing.
If that is enough to challenge your world view then the book's 20 chapters, peppered with case material from companies we can all recognise should prove more than challenging. At the very least they should prompt us to question why many businesses continue to invest in the old.
I won't spoil the fun by quoting from the cases Vinnie cites. There are far too many and I'd end up unfairly cherry picking. For that you might want to look among the many excerpts he has been publishing on his own site. Instead I will go to the end of the book where he says:
We live in exciting times. To some degree the current landscape is the throwback to the 1960s and 1970s, when we dreamed of competitive advantage through technology. Sabre, the American reservation system, and American Hospital Supply were spoken of fondly for changing their industries. We have a similar opportunity now, but in most organizations the IT group is much more focused on the back of?ce, not on product or revenue or growth.
In reverse, we have technology vendors with an entitlement mindset. Even as Apple and Amazon have shown dramatic business model innovation, too many technology vendors continue with older business models, and feel entitled to their compensation levels. So they cling to 90 percent software gross margins, $5,000 a gallon for printer ink, and 50 percent margins on so-called cheap offshore talent. Either they learn to disrupt themselves or they will get disrupted.
When you think about it, the logic is inescapable. Every traditional vendor knows it even if they will not publicly admit to that knowledge.
In my own wee world, I have been struck by how the traditional vendors have shied away from the cloud as though it is some sort of plague like disease. In part I thought it was because of the entitlement business model to which Vinnie refers combined with the deadly embrace of Wall Street. That view has modified.
I have discovered that it is not just the outward facing business model but the underpinning compensation model that keeps those same vendors tied to their position. When presented with the opportunity to sell a one time x-million dollar license you won't find many sellers queuing up to flog a subscription based deal. The compensation model doesn't compute. It is the inevitable outcome of a Faustian bargain. That is in large part why cloud vendors fail to make profit at the same rates as their on-premise vendor competitors. They too are wedded to the past, not necessarily of their choosing but because of market immaturity. It explains to me why Oracle is so skittish about putting Fusion onto a public cloud even though they claim it as a deployment option.
Bringing this up to date both SAP and Oracle have made what many believe are plays into the cloud with their respective acquisitions of SuccessFactors and Taleo. Do the acquirers believe they can turn these companies into wildly profitable entities? One must assume so. How will that work given the compensation models with which their 'bag carriers' are familiar? Beyond price hikes to the end user, it is hard to tell. Ray Wang, in his recent analysis of Oracle's Taleo acquisition points in that direction. In his advice to buyers and prospects the same message comes through loud and clear: if you're going in with Taleo do it before the Oracle deal is finalised. Are we that afraid of the Big Boys that all we see is temporary reprieve? Whatever happened to believing in change?
But if Vinnie is right then those models are coming to an end. In the book, he cites company after company that are continuing to invest heavily in technology but not in the way most tech pundits see the world. We bemoan the apparently stagnant levels of visible technology spending yet are blind to the real investments that are making a demonstrable difference to our lives. Where did the HUD in the Camaro Convertible I unwittingly hired come from? Or the rear view mirror camera that guides my reversing? Thin air? Or how about the businesses Phil Wainewright is documenting that could not exist without cloud technologies. And not a mention of back office anywhere. Or what about Phil Fersht's declaration that:
Companies buy software because they want standard process that can be automated with as little human intervention as possible. For process flows such as recruitment, if Taleo can provide you with the steps you need to automate an end-to-end recruitment process effectively, then the only way to find more value (or dare I say “innovation”) from recruitment is in those areas that cannot be automated – such as assessing the cultural fit of a candidate, or making a judgement call that the candidate has potential which his or her former employers had previously failed to unleash.
Unless Oracle and SAP decide to enter the services game, they are not going to provide enterprises with that kind of innovation – they are merely pedlers of automation. Once they own all the apps on the market, they will own all the automation, and my huge concern is whether there is really any more room for innovation spurred by this automation. Essentially, have these enterprise apps pretty much reached the peaks of their capabilities now they are owned by the 1600-pound ERP gorillas? I mean, seriously, how much further can you improve a companies’ recruiting processes by making some tweaks to the software code? Yes, I hear all the techie purists voice their fury because all software products can have their architectures improved, but at the end of the day, most of these software apps support pretty standard business processes today.
Any good book whether fiction or non-fiction, leaves you thinking and The New Technology Elite does that in spades. I walked away from the book with more questions than answers, not least wondering how the mega vendors will survive much beyond 2015 in their current form. Why 2015? It's an arbitrary date based on what Frank Scavo might call a WAG or Wild Assed Guess but I have this unexplainable feeling that is the year when everything that today leaves me puzzled about enterprise will come into focus. Of course like 99% of predictions, it will likely be wrong.
But above everything I learned from the book, I was struck by the almost child like wonder and excitement that oozes from Vinnie's analysis. It has clearly sent him into another direction, one from which we can all learn. Any book that evokes those emotions while inspiring change has to be a keeper.
In the meantime I am glad there are smart people like Vinnie, Frank, Ray, Phil and many more who help me better understand the complex world in which we live.