Time to blow up the software industry

Vinnie Mirchandani's post, Call to Steve Jobs: Please reshape the enterprise software market was bound to get a reaction out of my Irregular chums. 70 reactions to be precise as at the time of writing this post. That's the number of posts to our Google Group on the topic with the title for this post supplied by Vinnie. Looking back over the thread, there's enough to work up at least three posts but for this one, I'm sticking to Vinnie's main theme which can be boiled down to a single sentence: Why is it that despite all the interest in saas and enterprise 2.0 that the industry offers so very little apparent bang per buck for business as a whole? Tied to that are the inevitable questions about time to market for new solutions`.

Vinnie's post picked on my enthusiasm for Business ByDesign, SAP's SMB saas offering, currently in controlled release:

He is excited about how the mid-market has never before seen such an integrated enterprise piece of software. And I shrug my shoulders and go SAP delivered that integration 25 years ago in R/2. For me, reading BusinessSolutions magazine, the excitement in the mid-market is around RFID, Wi-Fi, scanners,VoIP not another piece of enterprise software.

I said flat out I think Vinnie is wrong on this though it depends on how you want to define SMB. In the use cases I have seen to date, it is clear to me that ByDesign is aimed squarely at the MAS90/Intuit crowd that may (or may not) have a hodgepodge of software plus inherited internal process inefficiency. They can and are deriving a significant amount of benefit. Is that innovative? You can always argue as Phil Wainewright has done that these companies would have to rationalize anyway and therefore ask where the value is derived. I have no doubt in my mind that for easily repeatable processes, the process based approach, rather than functionally oriented design delivers the value ERP always promised but never quite achieved. It's a different mindset that forces the company into looking at its business in a different way. I'd also argue that since process is about people getting things done, that it has the potential for a nice fit into the way Sam Lawrence is positioning the new world of decision making.

That doesn't address the time to market issue which was debated at length and is a fair point worth exploring because it directly impacts the likelihood of delivering value. Niel Robertson referred to a 'blarticle' written in January (what a great name for a long piece) entitled Why enterprise software is not dead where, among many things, Niel argues that:

There has been massive consolidation in the CES (Classic Enterprise Software) market in the last 5 years. This has put the large ISVs (Oracle, SAP, IBM, BEA, etc..) on the back foot in terms of their ability to react quickly to dynamics in the market. One need only look at Oracle’s constantly elongating Fusion roadmap timeline for proof that good CES just takes a long time. And because it takes a long time the players must devise strategies that are worth the effort. Hence these big companies have broad reaching, deep-infrastructure, transformational strategies for their next big thing. Most of the time it’s just about swinging the pendulum back in the opposite direction on the consolidate/modularize spectrum from whichever way it has been going for the last few years...

...The SaaS players that have been successful basically do what the large software companies do but faster, in a new model (annuity versus perpetual license), in more modular fashion from a sales perspective, and with a divide and conquer approach to the buyer. Essentially they identified the monolithic ISV-IT juggernaut and built a speedy little boat to zigzag right around the massive aircraft carriers that most large ISVs have become.

Vinnie blows that argument up in reference to SAP, arguing that:

If I was a hospital, 3 way matching using RFID tags, patient and nurse bar codes and automated drug dispensing is far higher payback than a shiny new SaaS financial module. Automating something which is previously manual is far better ROI than re-automating what was already automated but in an older technology. So, sorry but the quotient of ByDesign noise to actual impact seems very high to me.

Vinnie then amplifies the argument to say that even the likes of Workday have been way too cautious in their approach and are at risk of missing opportunities. He is partially correct though arguing from many different positions simultaneously, which can get confusing! We already know for instance that SAP has pretty much given up on vertical market penetration. We also know that for the 'traditional' software vendor, DNA attributes and characteristics, to say nothing of the financial engineering problems that saas brings represent monumental hurdles. Many of my colleagues believe the only way for companies like SAP (the same would be true of Microsoft and Oracle) to successfully make the saas switch is to hive off saas teams into new companies that compete against the incumbents. I have some sympathy with this view because it solves the inevitable fractures that the saas model invokes. Interestingly, Javier Rojas and Maximilian Bleyleben, Kennet Partners over at Sandhill take a different view. While noting the complexities and difficulties, they believe it is posssible to successfully transition:

While the shift in the business model is daunting, it is achievable for most software companies...Having a majority of your customers on a recurring revenue model in 6 months may seem like an impossible task, but we have seen it implemented successfully.

Back to value and how software evolves. Bob Warfield takes the bleak view that:

Reinventing the same wheel is extremely common. Even among SaaS companies, most are focused on doing the same thing their client server predecessors had done only via SaaS. Relatively few have innovated very much on that theme.

Doing development at the margins is a common outcome once the visionaries have been separated from the project (if there ever were any). Momentum and sales coupled with a lack of imagination compells these organizations to continually poll customers for ideas (or simply copy the competition), and grind them out until applications sport a porcupine’s coat of random disparately connected features.

That's true as well. Vendors will argue that by polling customers, they are meeting need and that corraling those rats nests of application portfolios via SOA is a top priority. I'd go further. The vision of which Bob speaks is often narrow in focus though broad in concept. That inevitably limits the extent to which developers can stretch their thinking. But even these arguments fail to provide the answer Vinnie (and many others) are looking for. Or does it?

The old adage: 'fast, good, cheap, pick any two' still seems to hold true. In enterprise land 'good' is an absolute requirement and you simply don't get that with 'fast and cheap' mixed in unless you're able to leverage the new world of saas environments coupled with new programming paradigms like Ruby on Rails and/or are meeting a sliver of need that delivers exceptional ROI. I'd argue that we've yet to see that happen in any demonstrable way such that Vinnie's broader demand becomes reality in a world where the transaction based system remains king.

Vinnie says he's tired of hearing that delivering enterprise software is complex. In a lot of situations, it is. Figuring numbering conventions for global billing as an example simply isn't that trivial because once you're locked in, you're locked in. Getting it right takes a lot of thought as even the smallest vendors are finding. Even so, where the baseline is a general ledger, the principles of which have been understood for some 600 years, Vinnie's point suddenly makes a lot of sense. But that's not how the new generation of software is being architected. Taking the process approach is far more demanding as an enterprise developer but should be far more valuable to customers in the longer term.

Perhaps the way to go comes from seeing how Salesforce.com is offering the platform (ie infrastructure) as a service to the likes of CODA. This is early stage stuff but even so I admire the way a traditional software vendor took the risk and developed a process based offering that came out the gate in less than 9 months. It ain't complete and has yet to be tested in the field but the signs are good. To that point, last word goes to Brian Sommer who said in our group and with which none of us will likely disagree:

We should be indignant at the way too many vendors are wasting their R&D budgets. The largest vendors spend way too much on derivative products only to produce expensive, late to market offerings. Smaller players are looking at R&D differently (think again of CODA/Force.com) to develop new products in record time for cheap.

And then just as I'm about to close this piece I see that New South Wales department of education is set to make savings of some A$23.5 (US$22.4) million over three years by switching 1.3 million students from MS Outlook to Gmail. Maybe good, fast, cheap after all?