Monday, April 23, 2007 unbundling its platform from its apps

Over the past few years, has been gradually morphing itself from an on-demand CRM vendor to a platform for software-as-a-service (SaaS) generally. It started by first allowing extensive customer-specific customization of its CRM applications and integration with legacy or third-party systems. Then it provided a complete development environment, including test capabilities separate from production. Then it opened up its SaaS platform to third-party developers to write complementary applications. This week it announced the next logical step: it is allowing customers to buy access to its platform without buying its CRM application. Platform Edition allows customers to take advantage of other applications in its AppExchange marketplace, or, it allows customers to start from scratch and write their own custom applications. Details on Platform Edition are on the website.

The evolution of further enhances software-as-a-service as a viable alternative to traditional on-premise software. The only drawback to this approach I see is that it ties the entire IT infrastructure of the customer to If you think vendor lock-in is a problem today with traditional vendors, such as Microsoft, Oracle, and SAP, imagine what it will be like when your entire technology stack--from hardware, OS, database, and application--is tied to a single provider.

I'm a big fan of SaaS, but I still haven't figured out how to get around the vendor lock-in problem.

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Sunday, April 15, 2007

IT services in a SaaS world

Chris Barbin makes the case for a new kind of systems integrator, uniquely focused on implementation and support of software-as-a-service (SaaS) solutions. In his article on, he writes about these "Services 2.0" providers that are "dramatically altering the system integrator (SI) landscape."
This new breed of specialized firms fully embrace SaaS with complementary business and technology consulting, productized intellectual property, and support services via flexible social networks will be disruptive to traditional Global Systems Integrators (GSI)- such as Accenture, IBM, Cap Gemini, and Infosys – who are just as addicted as the ISVs themselves to revenue streams based on the on-premise install base.
Now, Barbin is CEO of Appirio, which just happens to be an implementation services provider for SaaS vendor, so it's not as if he is a neutral observer. Nevertheless, his argument is persuasive. Large global implementations of major on-premise systems such as SAP and Oracle, supported by large global service providers, such as IBM, Accenture, Cap Gemini, Infosys, and others, are notoriously expensive, difficult, time-consuming, and risky. If SaaS solutions, such as, Omniture, and SuccessFactors offer to diminish the pain associated with on-premise solutions, then by extension, there must be a service-provider approach that diminishes the pain of the traditional implementation effort.

Drivers of Services 2.0
Although SaaS as an viable alternative to on-premise software has been around for at least seven to ten years, it is only recently that this new breed of service providers have sprung up to provide an alternative to the traditional system integration approach.
For early adopters of SaaS ISVs like, initial services requirements were limited to basic configuration, end user training and minor customizations. In the last few years, services requirements have become more substantial because the increased flexibility of platforms like Salesforce have allowed enterprises to move from single-department SaaS "experiments" to global rollouts of thousands of users.
In other words, as platforms such as's have become more powerful, allowing customization and easy integration with third-party solutions, the opportunity for additional value-added services has grown. These include creation of "mash-ups" that combine SaaS-system functionality with Web 2.0 services, such as Google Maps and other web-services in unique combinations. The sheer scale of some implementations, reaching tens of thousands of seats, has also increased the need for extensive system integration services around SaaS.

Customers benefit greatly from the combination of SaaS with Services 2.0: faster implementation, more customized solutions, and much lower costs. Barbin says,
The pendulum has swung from the early ERP days ($10-$15 for every dollar in licenses), to the SMB days of SaaS (10 cents for every dollar in subscription) - and will settle for enterprise customers at $2-4 for every dollar of subscription license revenue.
Threat to the Big System Integrators?
Barbin makes the case that the large IT service providers will not be able to make the transition to Services 2.0. "The reliance on mega-transactions, considerable corporate overhead, and inability to move quickly will hamper these firms’ ability to lead in the Services 2.0 world," he writes. "These firms are fully dependent upon the services revenue generated their customers’ lock-in on on-premise software."

In this respect, Services 2.0 is a disruptive innovation to the big system integration firms, just as SaaS is disruptive to the major on-premise software providers. I doubt it will be the death of IBM, Accenture, and Infosys, but watch for growth in system integrator deals to be elsewhere in the coming years.

Related posts
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Saturday, April 14, 2007

The economics of open source

Dirk Riehle has written an interesting paper for IEEE on the economic motivations of stakeholders in open source software. Riehle leads the open source research group at SAP Research, a research organization within SAP that identifies emerging IT trends and conducts R&D activities for new technologies. As such, Riehle's insights are interesting in that they may reflect the view toward open source within SAP.

There are a wide range of business models within open source. Reihle points out that there are actually two main forms of open source: community open source (products that are owned and developed by a community of developers) and commercial open source (products that are owned by a single commercial organization). The Apache web server is an example of community open source, while MySQL is an example of commercial open source.

Three stakeholders
He then goes on to analyze the economic incentives of open source from the perspective of three groups of stakeholders: system integrators, software vendors (closed source and open source), and individual developers/employees.

Of the three groups, system integrators stand the most to gain from open source. Open source takes out a large part of the system integrator's cost structure, the part that goes toward software. This frees up money for the client to spend on additional services, or allows the system integrator to lower its price-point, making its services more affordable and increasing volume. System integrators prefer community open source, because its cost is lower than commercial open source, and there is no "vendor lock-in" to the owner of the software.

There's a lot more in Reihle's paper, including an analysis of the impact of open source on the software developer profession. In short, open source "makes life more complicated for employees." On the one hand, a developer supporting an open source product can be more easily replaced by an outsider that has similar experience with the same product. On the other hand, a good open source developer can build expertise that has value to other employers, increasing his or her marketability. He writes,

A developer who chooses the right project can gain and maintain a position that will increase salary-negotiation power and job prospects. The developer will enjoy those benefits as long as the project is of significance to potential employers.

Open source reinforces the trend toward employees becoming "free agents."
Winners and losers
Reihle's article does a good job in explaining the economic incentives by open source. To me, it makes it easy to understand why IBM--which is today largely a services firm--is one of the strongest proponent of open source, especially community open source.

It also suggests why many traditional vendors of closed source products seem to have such a hard time with profitability these days, leading to the huge amount of acquisition/consolidation activity we've witnessed in the past five years. Unless you are an 800 pound gorilla (like Reihle's employer, SAP), the cost-structure of closed source development is just not a good way to make money. In many markets, it might just be better to embrace some sort of open source development and make money higher up the value stack, in maintenance, support, integration, and customization.

I think we are still early in the development of business models around open source. Ten years from now, things will be clearer.

There's a good discussion on Slashdot, on Reihle's article.

For another good piece on the economics of open source, see Bruce Perens's article, The Emerging Economic Paradigm of Open Source.

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The disruptive power of open source
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Tuesday, April 03, 2007

Lawson upbeat on Q1 forecast

Well, maybe Harry Debes was right. Back in January, Lawson's CEO wrote me to say that his firm's financial performance was better than observers were giving it credit for.

Now, in forecasting its first quarter earnings, Lawson said today that it expects Q1 revenue to come in at $190 to $192 million, well above its previous forecast of $181 to $190 million. After the announcement, Lawson's share price peaked at its highest point since March 2004, finishing the day about 10% higher that the previous day's close.

Lawson is still digesting its 2005 acquisition of Intentia, and related costs are still impacting financial performance. From an accounting perspective, organizational perspective, and technical perspective, I have a feeling that the merger job was bigger than Lawson expected. Hopefully, Lawson can put that work behind it and move on to build even more momentum. Although I wasn't able to attend Lawson's user conference down the road in San Diego this year, I did hear about some good things, including a tighter reliance on IBM for Lawson's technical architecture, which frees up Lawson's resources to focus on business applications.

It will be interesting to see the details behind Lawson's performance when the final numbers come in. I'll be looking to see whether the results are due to a pick up in new deals or a change in the rate of deferred license revenue, which Debes explained in his correspondence to me in January. If Lawson's new deal flow is picking up, it would be a good sign not only for Lawson but for the enterprise system market in general. Lawson's results would be consistent with Oracle's most recent quarter, which were outstanding, and contrary to SAP's, which were weak.

We'll have to wait until April 9 to find out, however. Lawson announced yesterday that it is delaying its quarterly report because of a need to review restructuring charges from the Intentia acquisition.

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Lawson's performance better than it appears: CEO
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