When Ray Wang explains the thinking behind the newest analyst firm on the market, a few words are frequently used:

Disruption -  Experience – Research

These areas are at the crux of what Constellation Research is about and are probably the reasons why I believe that they will automatically be listed as a Tier One firm – something that is critical if they are to survive.

Disruption

Ray clearly states that they will partner with their clients to:

Guide buyers through a dizzying array of disruptive business models and technologies

The words that jump out at me here are ‘buyers’ and ‘disruption’.  This firm has a focus on end users – this is nirvana for vendors and something that many peers in the industry aspire to have in their client base. The objective is to have 70% buy-side business which considering they are starting day 0 with this number at 60% makes me believe that this isn’t wishful thinking.

The focus on disruptive technologies is prudent – whereas there are hundreds of analysts covering every aspect of technology, Ray has pragmatically realised that there is a need to bring order to chaos and advise people on trends, buyers’ POV and  technology in an independent and objective fashion.

Their disruptive and innovation coverage will be:

Cloud Mobile Analytics and game theory Unified communications and video
Next Generation Government Internet of things Legacy optimization

Experience

The team that Constellation Research brings to the table are nothing short of magnificent. Each player in their own right can stand out amongst the crowd as a leader in their field with a decade or more of experience who are not afraid to make tough calls.

It’s the collection of individuals brands that are important to Constellation as people will instinctively ask for advice from those analysts they trust. The issue of ‘contributing analyst’ is something that plays heavily on my mind – does a customer that goes to Phil Fersht get Horses for Sources or Constellation? It seems that this is all worked out via ethics and integrity policy which sounds good but I’ll be interested to see how easy this will be for clients to navigate.

I look forward to seeing how this group of analysts will push the edges on the research agenda.

Research

Ray left Altimeter on good terms and cited the main reason for his departure was a drive to focus on syndicated research. In an environment where I have traditionally seen more focus lean towards free research, it is interesting to see a firm who are going back to the traditional focus on paid content.

Constellation states that they will engage via open and syndicated research models:

image

The planned coverage areas are:

  • Big data and semantic web
  • Clean tech
  • Cloud security
  • Digital marketing transformation
  • Mobile development
  • Strategic HCM
  • Industry verticals
  • BFSI
  • Energy
  • Retail
  • Technology
  • Interactive ad networks

No doubt more areas will follow as disruptive influences take their course but at least for now their agenda seems smart.

Opinion

Without doubt, Ray’s departure from the superstar analyst firm to setup one that focuses on syndicated research brings its own disruptive forces to an increasingly shrinking analyst market. Fundamentally a research house, Constellation has brought together leaders in the field who like to write and advise buyers.

This firm will not be include bright young graduates, box counters or be a replica of the Enterprise Irregulars. Instead it sets out to be what made Giga, all those years ago, a unique and special firm.

Good look to Constellation Research.

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Original post

Either side of Christmas there has been a fair amount of debate about the future of the enterprise software market, particularly whether the big players such as Oracle and SAP are going to start feeling the heat from the software-as-a-service (SaaS)/cloud computing folks. Given the economic conditions and the hefty maintenance fees that many customers have been asked to pay it quite rightly led some commentators to suggest customers have a right to demand more.

SAP has been ‘victim’ of some sabre rattling in Europe as it has just announced that it is backing down on changes to its support license structure – a result of pressure being exerted by many commentators. Frankly, though, I’d rather see that as a good example of an enterprise IT vendor getting the need for dialogue with customers. In fact Dennis Howlett suggests that SAP wants to be the ‘voice of the customer.’ So rather than criticise SAP I say well done!

Rip and Replace Frenzy?

Elsewhere there has been debate about the financial performance of SAP and Oracle with some analysis suggesting the Oracle’s numbers before Christmas told a disturbing story about its reliance on support revenues for its profitability. As I’ve said before Oracle does say its higher maintenance fees are critical to future investment in product/services R&D, but given the financial belt tightening of the last year many customers don’t have the luxury of sustaining such expenditure. (A fact borne out by the growth of the likes of Rimini Street and other third party support vendors, who are seeing more and more customers turning away to them for maintenance contracts)

So does that mean we are about to see dramatic changes in the IT industry? On its home turf Computerwoche dared to raise the question whether SAP could remain independent, while the hotly debated Sapience conference saw the SaaS vendors making very bold statements about their competitiveness against the ‘traditional’ enterprise IT companies. In this more balanced piece Jon Reed did say there are merits to the SaaS model and that SAP needs to be careful, particularly with some of its older customer base refusing to upgrade, but that we are not going to see a dramatic ‘rip and replace’ frenzy.

Integration Rather Than Software to Decide SaaS Success

I tend to agree both from a practical and technical perspective. Practicalities – for instance – IBM AS/400 was around long before I started and is still around today. Ultimately it will always be up to customers to decide which products they use and they would be crazy to throw away long-standing investments. In December Ray Wang also offered advice to companies considering a shift to SaaS, listing 10 recommendations, the most important of which – for me – was a technical one about integration. We have already learnt the lesson the hard way with existing enterprise IT platforms, that unless applications are integrated companies fail to extract their full value.

Certainly, in some areas such as customer relationship management (CRM) and salesforce automation it has been possible to establish a beachhead quite quickly, because these systems can be quite distinct from core IT infrastructures. However, to convince major organisations to switch their critical applications such as financial administration to the SaaS or Cloud model, vendors must demonstrate they can integrate disparate systems to ensure a transparent picture for the customer. That means combining business intelligence with performance management with accounts payable and other core finance applications. That is no easy task and requires a depth of expertise that I don’t think I’ve seen from the SaaS gang.

Who do you Trust?

I guess they would suggest implementation partners ensure the business processes run smoothly together, but if I were a major bank who would I see as having the expertise to implement properly? If the CIO had to guarantee the trading floor had real-time data that linked seamlessly with the back-office finance applications so would the CIO trust a SaaS vendor?

For me that’s the big question. Security is an easy FUD argument against SaaS/Cloud, but integrating business processes is the major area where SaaS vendors will need to convince.

So does that mean the ‘traditional’ big guns can breathe easy? No.

Impact of Conway’s Law and Enterprise IT as a Utility

The reality is that we’re moving to the Cloud/service driven IT model. It will fulfil Nicholas Carr’s view of IT as a utility. At the moment it is driven by economic necessity, but while the SaaS vendors have their chance I am confident they are going to be working hard to get further and further inside the corporate firewall, stripping out the older proprietary systems.

Where does that leave Oracle and SAP? I once had it described to me as moving a world of ‘provices’ and ‘serducts’ rather than products and services. In this excellent overview of the challenges for the enterprise vendors Pete Swabey references Conway’s Law, which reads: “Organisations which design systems…are constrained to produce designs which are copies of the communication structures of these organisations.”

If we follow the model that software will become a commodity and accept the impact of Conway’s law there are going to be a few clear priorities for vendors:

1)      Customer service reputation: historically never a strong suit for enterprise IT vendors, but surely they are going to have to engage more aggressively with customers and be prepared for frank, sometimes awkward dialogue. How far that dialogue should go is the key challenge. If you follow the engagement model to its furthest reaches then surely vendors will involve customers more in agreeing product roadmaps, but that could be a massive, complex headache, which sees profits disappear, much to the consternation of shareholders.

2)      Brand: if you agree that service rather than product will become the priority, that means that the focus on brand identity will have to increase and change. The US technology companies are all fairly sophisticated in protecting their brands, but I’m not sure many of them recognise it as critical to their customer/employee engagement. For example, I don’t really remember either Oracle or SAP trumpeting the capabilities of the Consulting and Support teams much beyond the odd press release. Surely, highlighting the services and expertise of these teams should become even more important than product. And that is not just about tangibles, it is also about the intangibles that customers associate with a brand. For example, would an enterprise IT vendor have the courage to publicise a software implementation that went wrong (and the turn around process), as a positive example of commitment to customers? Today no, but in the future (in the right context) a brave vendor should surely be willing to demonstrate how willing it is to through the kitchen sink at a problem? Creating that kind of mythology enhances loyalty.

3)      People: And if the tangibles and intangibles become ever more important in this service driven model, then obviously people are of paramount importance. A cliché, sure, but again enterprise IT vendors have not always covered themselves in glory when it comes to interaction with their staff. Having worked for an enterprise software vendor (Oracle) and loved it, I know how exciting it can be to work in this sector. However, across the industry the approach to employee communications – more importantly engagement – is frankly patchy. And if you treat staff like mushrooms, then the obvious happens…

So neither a bloody or a velvet revolution, but it would be interesting to be in the boardrooms of SAP and Oracle to hear what they’re saying about the future.

I recently wrote about the prospect of a mood change among enterprise IT customers, in particular less willingness to accept the ways IT vendors interact with them. While I can claim no responsibility it was interesting this week to hear the comments of R ‘Ray’ Wang (should the ‘R’ actually stand for ‘revolutionary?’) at the SAP UK User Group Conference (Sugen).

Thankfully it created more thought provoking headlines than one might expect of a User Conference and Ray Wang was fairly explicit in his warning to the SAP customer base:

“…The traditional models of how we do business have gone away… We’re left with enterprise applications that do a really good job of catching data and automating processes but which are lacking in flexibility and innovation. Our antiquated technology has an impact on the way we handle change management…People need solutions right away, they can’t wait for IT to deliver.” (mycustomer)

Wang went on to criticise SAP’s ability to bring its innovations to market, encouraging Sugen members to demand more of the vendor. Given that the company spent $1.6bn on R&D in 2008 Wang felt that the enterprise resource planning (ERP) vendor had failed to communicate some of its innovations, such as ESME, which was launched a year before Salesforce announced Chatter.

“End users need to work through the user group to push SAP to unlock the innovation, to find one what is available, and to get clarity on the SAP product map so they can plan for change…” (Computer Weekly)

To put it mildly this is not the early Christmas present SAP’s management want. Elsewhere it’s been revealed the company made a New Year’s resolution to put up maintenance fees for some customers to nearer 20%, which has already led to revolt among some customers.

So what’s the answer?
It isn’t all bad news for SAP, because underlying Wang’s comment is the message that the innovation exists, which is positive for its customers. It is also not alone in facing such criticism from influential industry figures. Figures such as Vinnie Mirchandani raised serious concerns about Oracle’s ability to innovate earlier in the year, which provoked a strong response from the company. (disclaimer: I’m an ex-Oracle employee)

Therefore is this simply a return – as Ray Wang suggests – to the 1990s argument about best-of-breed vs. suite solutions, with the best-of-breed being Software-as-a-Service? (SaaS)
Certainly, Marc Benioff has done a superb job of marketing his company, as underlined by the buzz created by Chatter last week. And yet, Dennis Howlett is also right to question whether Salesforce has the genuine capability, experience etc, to embed this new model of innovation across complex enterprise IT infrastructures.

Next week will see the Oracle UK User Group and it will be interesting to see what comes out of that event, particularly as subjects such as the much-heralded and long-awaited Fusion Applications are a subject of discussion.

It is always easy for the media to concentrate on the negatives in such scenarios and it is very easy to pick on licensing and pricing as a key issue. That said it will be interesting to hear whether next week’s conference reflects the deeper issues that Wang highlights.

If it does, does that suggest initial grumblings are gaining momentum and spreading across the industry? I would trust Dennis Howlett’s assessment of the mood in the SAP camp, which suggests things are positive, but as things stands today there appears to be increasing unrest among a variety of customers.

Perhaps the reason is understandable. We are coming out of recession (supposedly) and customers want to be inspired by the companies that provide their IT systems. If that is the case then Marc Benioff is already ahead in the perception stakes.

The answer for vendors could be as simple as being more daring when communicating with their customers. As Peckham’s most famous entrepreneur said many times, “He who dares, Rodders, he who dares…”

Footnote
Interesting development to add to the suggestion of dissatisfaction among SAP customers. Two key members of Sugen, who led the User Group’s involvement in discussions around the maintenance fee issue, have resigned. It would be wrong to jump to conclusions, but it doesn’t paint a positive picture at such a crucial time.

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