SAP’s Mobility Strategy: One Million Developers Blooming

SAP in its press conference last week provided a major update on its database and mobility strategy. In my first post, I outlined my view of SAP’s database strategy. Now, in this second post, I provide my perspective on SAP’s mobility strategy.

SAP recognizes mobility as a critical element of its product strategy going forward, along with social business, cloud, and in-memory computing. But as some of my associates been hammering over the past two years, success in mobility requires SAP to enable thousands of small development firms and individual developers to build applications for SAP. Not just a few large system integrators or ISVs: SAP needs the enterprise equivalent of Apple’s App Store ecosystem.

SAP’s thinking on this front has been evolving. After its Sybase acquisition, it put the “Sybase Unwired Platform” (or SUP, but now renamed, the SAP Mobility Platform) at the center of its mobility strategy. You want to build mobile apps for SAP? Wonderful—buy, borrow, or otherwise get access to the SAP products you want to integrate with, plus an instance of SUP, and have at it. The problem was, however, that this approach limits the number of developers to the following categories:

• Large or midsize ISV-partners of SAP, who were willing to make the investment in an SAP development environment, to develop mobility apps for sale to current and future SAP customers. This would be a small number.
  
• System integration partners of SAP, who had live project opportunities that included mobility apps as deliverables. The SI could use the client's SAP development environment. These resulting apps would be to meet the needs of a specific client, although the SI might reuse the code in future projects. But this approach would produce few apps for a wider audience.
  
• Individual developers or small SAP partners who understand SAP’s middleware and development architecture well enough to forgo use of SAP’s platform and can write mobility apps directly against SAP’s back-end databases. This is where many "app store" type apps could be produced. But here is where small developers come up against a brick wall: SAP does not make it easy to gain access to trial or development versions of many of the SAP products that a mobility programmer would need.

For some reason, Oracle, Microsoft, and IBM are able to make life easier for small developers. But for a hint of what it’s like for a small developer to work with SAP, take a look at this blog post (on SAP’s own SCN community site!): Why Does SAP Make This So Complicated?

Two Good Announcements, But More Work Needed

SAP, to its credit, appears to understand the problem. In its announcements, two were especially noteworthy in terms of addressing the needs of the developer masses and in terms of filling out SAP’s own mobile apps portfolio.

• First, to enable those thousands of developers, SAP announced partnerships with three leading mobility development tools providers: PhoneGap (recently acquired by Adobe), Appcelerator, and Sencha. These will allow developers, working with tools they are already familiar with, to build apps using a new OData connector to integrate with SAP’s back-end systems. In addition, these tools will allow many simple apps to be built without having to rely upon SAP’s Mobility Platform.
  
• The second big announcement was that SAP is acquiring Syclo, which has its own mobility platform as well as a suite of well-regarded field service and asset management applications. SAP said that what it is really after here is not the platform (which overlaps functionality of SAP’s Mobility Platform) but the field service apps. This is another step in SAP building out its portfolio of its own out-of-the box mobile apps. Based on my own work with clients, I know that field service and asset management, in fact, are top use cases for mobility in enterprise systems. If SAP can continue to buy or build collections of key mobility apps like Syclo’s, it will begin to fill out the major white spaces in its mobility portfolio, while still leaving much room for third-party developers to fill in the rest.

These are welcome announcements, but will they be enough? I don't think so. These announcements give the developers new tools, but they don't address the problem of getting access to an SAP development system for testing. Some of my associates, such as Vijay Vijayasankar and Dennis Howlett, echo this concern:

Dennis writes,

Needless to say there is a major hitch: developers who want to build apps with SAP data need access to a NetWeaver instance to test and model. Customers would have that, but small developer shops without an SAP license would not have that access without pricey, hair-pulling hurdles, which Sikka acknowledged during the press conference was a “19th century” approach. When pressed on this issue, SAP’s Fawad Zakariya, VP of Mobility and a key player in mobility ecosystem development reporting directly to Poonen, asserted that good news on this front was coming.

In a similar vein, Vijay writes,

I cannot stress enough on the licensing and monetization model to be figured out upfront – without that, access to software is practically meaningless. Developers have a lot of choice today, including many OSS choices. SAP needs a compelling story for them to use SAP technology….

… we are not sure how SAP handles the licensing/pricing in this scenario . And without that clarity coming real quick – I doubt if scores of developers will jump in and start developing cool apps. Sanjay Poonen responded on twitter few days ago than SAP will get it right quickly, and I totally trust him to do so – hopefully by SAPPHIRE in Orlando.

So here we have it. SAP is making significant progress to curry favor with small developers, but it still doesn't have a total solution to enable them with access to test versions or sandbox instances of SAP back-end systems.

Listen to the Developers

Some of my associates are still concerned that SAP has not found the right “pricing model” for mobility apps, but I think that is last year’s debate. Although not part of the formal announcements last week, it appears SAP is working on a pricing scheme that differentiates between major functional mobility apps, casual apps, and even “free” apps. Add in occasional one-off “enterprise pricing” for very large corporate deals, and I don’t think pricing needs to be an obstacle. Everyone can make money and customers can pay appropriately.

But the licensing problems are more systemic within SAP and most likely face legal or organizational resistance based on “how we’ve always done business.”

I am not a mobile apps developer. Therefore, I have no experience on which to judge when SAP will have all the pieces in place to encourage, in the words of SAP, one million developers to bloom. I can only look to those small developers already within SAP’s ecosystem for their reaction—when they are happy, then I’ll know SAP is on the right path. And what I’m hearing from them so far is that they’re still concerned about the licensing issues.

With SAP as the largest enterprise application company in the world, the mobility announcements are welcome news, but we still don’t have a total solution to enable thousands, let alone, millions of developers. I look forward to hearing about progress reported out of the SAPPHIRE conference in a few weeks.

You can watch a video of the entire press conference.

Photo credit: Flickr/docentjoyce

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SAP’s Database Strategy Faces an Uphill Battle

Last week I attended a half day SAP press conference in San Francisco, on the subject of SAP’s strategy for database technology and mobility. Both are hot topics in enterprise software, and there were plenty of announcements. In fact, it’s quite easy to get lost in the weeds. So, in this first of two posts, I’ll try to summarize what I see as the big picture for SAP’s database strategy.

SAP Positioning Itself as a Database Company

When SAP acquired Sybase in 2010, it said it was doing the deal primarily Sybases's mobility platform. But Sybase also has its traditional relational database products, leading with its Adaptive Server Enterprise (ASE) database. At the same time, SAP itself has been rolling out its HANA in-memory database (IMDB) technology. Until now, these two database products were managed separated, but no longer. SAP is consolidating all its database offerings—HANA and Sybase’s—along with middleware and tools, under one management unit.

There were many tactical announcements. SAP announced general availability of its BW business intelligence product on HANA, and its plan to make HANA available later this year as the database of choice for its small business customers of its Business One ERP product. In addition, customers later this month will have the flagship Sybase ASE database available as a deployment option for SAP’s Business Suite and All-in-One products.

SAP rolled out all of these announcements under the banner of its plan to become known as a database company.

Database Migrations Difficult to Justify

After the press conference, one SAP executive sensed my ambivalence about this plan. With Oracle taking an ever-increasing adversarial position toward SAP, I can understand SAP’s discomfort with having a large percentage of its best customers running on Oracle’s database. At the same time, the other two major providers of relational databases (IBM and Microsoft) are SAP-friendly. IBM is SAP’s largest system integration partner, while SAP and Microsoft often find their technology interests aligned. So, how do you threaten Oracle while not also threatening IBM and Microsoft?

Furthermore, does SAP honestly believe that existing SAP customers are going to migrate in droves from Oracle, IBM’s DB2, or Microsoft SQL Server to HANA or ASE? In the case of business analytics, there may be some movement toward HANA, yes, as the value of in-memory performance for analytic applications is somewhat easy to envision. But what about SAP’s business applications, such as Business One, All-in-One, and the Business Suite? With all the challenges and demands placed on CIOs these days, it’s difficult to imagine an installed SAP customer undergoing a database migration, simply to eliminate some Oracle, or DB2, or Microsoft SQL Server licenses. SAP insists there is business value for HANA in some transaction processing—and I can see that, say, in supply chain management. But is that enough to justify a database migration? Even less so, why would a customer swap out Oracle, DB2, or Microsoft for ASE, which is essentially a like-for-like product? I just don’t see it.

In side-bar discussions, SAP executives basically agree. Alright then, so the target is net-new application customers? But here the challenge is essentially the same. In most cases, business apps prospects already have skills and experience with Oracle, DB2, or MS SQL Server. Are they really going to want to invest in learning Sybase ASE, or HANA? Unless they can completely eliminate those other database platforms from their environments, going with Sybase or HANA is adding to their complexity, not simplifying things.

I think that selling databases is going to be harder row to hoe than SAP is making it out to be.

Subsidizing HANA May Meet Complications

Perhaps recognizing the challenge, SAP realizes it is going to have to sweeten the pot, especially for HANA. So, at the press conference, SAP announced that it is putting up some serious money, through two funds:

• For new and existing customers: a $337 million fund to subsidize services for SAP customers to convert to HANA. I assume the initial target for these funds will be in migrating business analytics customers to HANA.
  
  
• For technology start-ups: a $155 million venture capital fund through SAP Ventures for start-ups to build new apps on HANA.

It’s encouraging that SAP is putting its money where its mouth is. For customers, making a database change may not be cost-justified without some help from SAP. Moreover, tech start-ups may need some financial encouragement to build new products on HANA.

However, I see complications with each of these funding efforts.

• With the customer fund, there may be issues with SAP’s partners. By funding SAP’s own services to assist with HANA, SAP is taking work away from partners, who typically play a key role in SAP implementations and migrations. In response to my question on this, SAP executives said that it will bring partners into this work at some point in the future.
  
  Nevertheless, I have to believe that, at first, partners will view SAP as increasing its share of services at the partners’ expense. This is especially true under current economic conditions where customers can only absorb a certain amount of change at once. Moreover, by delivering HANA services directly, SAP delays giving partners the HANA experience they will need for the future. SAP can solve this problem, of course, by ponying up the money but letting customers choose whether to use SAP’s professional services group or partners to deliver the services, or by co-delivering services with partners.
  
  
• For start-ups, HANA may not be as attractive as SAP thinks. Looking back at SaaS and other tech start-ups over the past decade, most of them chose to build on open-source database technologies, such as MySQL or PostgreSQL. The reason, of course, is that open-source infrastructure minimizes their own costs as they grow. It also leaves more customer budget available to invest in the application, instead of the required infrastructure.
  
  I once asked a start-up executive why his firm was building on MySQL instead of Oracle. He replied, “Oracle scales technically, but it doesn’t scale economically.” I have to wonder if HANA will face the same resistance, even with funding from SAP Ventures. A quick check with associates indicated that there are already open-source in-memory databases (IMDBs), including CSQL and VoltDB. I have no knowledge of the capabilities of these products or how they compare with HANA. It is likely that HANA is head and shoulders above open source alternatives. But Oracle’s flagship database was and still is head and shoulders above open source capabilities, and that didn’t stop cloud start-ups from using MySQL and PostgreSQL.

Ultimately, very few organizations want to buy databases—or middleware. They want business applications, and those apps require databases and middleware as part of the technology stack. So, when SAP talks about becoming a database company, it’s hard for me to become excited.

Perhaps SAP already knows that it's going to be difficult. Earlier this year, it began floating the idea of making its goal, "to become the No. 2 database provider by the year 2015." But by the time of the press conference, the goal had been watered down to “becoming the fastest growing database provider.”

When you are starting from such a small market share, becoming the “fastest-growing” is not a very high bar.

Update, Apr. 16: Some deeper questions on Oracle's database strategy from Jonathan Wilson. And, a good post from Vitaliy Rudnytskiy, pointing out that HANA is more than an "in-memory database."

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Microsoft Dynamics ERP on Azure: What Are the Benefits?

Last week I attended Microsoft’s annual Convergence conference, for users and partners of its Dynamics line of enterprise applications. The back-to-back briefings were a great opportunity to get an update on where Microsoft is going with enterprise applications.

But the big news from my perspective is that by the end of 2012, two of Microsoft's ERP products, GP and NAV, will be available on Microsoft's Azure cloud.

Click on the video interview at the right for my initial thoughts, which I am expanding upon in this post.

Azure Complements Existing Hosted Offerings

Microsoft customers have always been able to deploy NAV (formerly, Navision) and GP (formerly, Great Plains) on-premises. In addition, some customers have chosen in the past to have Microsoft partners host their systems in partner data centers. MyGPCloud is one of the largest such partners, hosting GP for thousands of small business customers. Likewise, Tribridge offers similar hosting services for all Dynamics ERP products.

Now, Microsoft is offering customers the option to deploy their GP or NAV systems on Microsoft's Azure cloud, which runs in Microsoft data centers. This offering will not replace partner hosting but simply will be another deployment option for customers.

Through back channels, I've heard some partners express uncertainty about this new development. Is Microsoft attempting to go direct with customers? How will the partners make money? During the session, Microsoft executives made clear that, under Azure deployment, partners will still maintain the customer relationship and deliver the services for implementation and ongoing support. The only difference is that with the Azure deployment option partners will be relieved from the need to maintain data center infrastructure.

What Are the Benefits?

Over the past two years, I've been one of those encouraging the Dynamics team to go faster in moving to Azure, as cloud ERP is already available from competitors. But now that Microsoft is on the verge of actually doing it, I wanted to know, what are the benefits? Specifically, if customers can already have these systems hosted by a Microsoft partner--and if Microsoft will still work through partners in selling and supporting systems deployed on Azure--what are the added benefits of Azure?

I asked this question a year ago at Convergence and, frankly, the answers were not that clear. After asking this same question in several briefings this year, and adding my own analysis, I think the benefits picture is now emerging.

• Azure deployment is cheaper than hosting. Azure is a true elastic cloud platform, with data center economies of scale that traditional hosting cannot come close to matching. This should allow Microsoft to price these services at a lower cost than what partners can offer.
• Azure deployment scales beyond partner hosting. As a true cloud platform, Azure deployments can scale instantly beyond what partner hosting can offer. Hosted ERP relies upon dedicated resources, which must be planned and expanded manually to meet changing customer requirements. With Azure, customers will never exhaust the resources available.
• Azure supports worldwide deployments better than partner hosting does. Microsoft runs Azure data centers worldwide and can move customer systems and data between them as needed. Hosting partners do not have this capability, unless they are utilizing a true cloud IaaS, such as Amazon's EC2. The move to Azure is therefore a better choice for organizations that are running separate instances in different parts of the world.
• Azure deployment provides easier version upgrades. With partner hosting, upgrades and maintenance are handled more or less as they are with on-premises software: each customer is treated separately (though I suspect some partners are more organized about this than others). With Azure deployment, Microsoft will have a more disciplined approach to application management: rolling out new versions, upgrades, and patches to its customers, similar to what it does today with Microsoft CRM (even though, as I point out in the interview, CRM is not yet an Azure service).
• Azure deployment is provided directly by Microsoft. Most new prospects will have a higher level of comfort with cloud services provided directly by Microsoft and backed by the Microsoft brand and service level guarantees. Hosting is often delivered by service providers who are relatively unknown. The direct Microsoft relationship is also simpler and easier to explain. The software comes from Microsoft and the cloud services are delivered directly by Microsoft.

It is also important to point out at least one advantage of Azure deployment over partner hosting that Microsoft is not claiming--that is, that Azure deployment provides the ability to inter-operate with other Azure services, such as Office 365 or other future Azure data services (some of which I was briefed on). Microsoft has made a big deal about its vision of the so-called "hybrid cloud," meaning that customers will be able to move selected "workloads" to Azure while keeping other workloads on-premises or in partner-hosted data centers. Therefore, if I want to inter-operate Microsoft's Office 365 with my NAV system, it should not make any difference if my NAV instance is on-premises, in a partner data center, or on the Azure cloud.

Optimizing Azure as a Cloud Platform

I am struck by the fact that I've had to piece together this value proposition for Azure ERP myself, lobbing softball questions to Microsoft executives, parsing their answers, and adding my own analysis. If Microsoft itself is not prepared to articulate the value proposition of Azure ERP, how can it expect that its customers or its partners will perceive it?

Therefore, I do not envision customers and prospects staging a mad rush to Azure. As I said in the interview linked above, what if Dynamics throws an party and no one shows up?

Nevertheless, from a strategic perspective, I do believe that moving to Azure is the right thing for Dynamics. Mike Ehrenberg, one of only a handful of Microsoft Technical Fellows, told us an interesting story. He said that when they first spoke with CEO Steve Ballmer about moving Dynamics ERP to the cloud they told him that they could do it in one of two ways:

1. The quick way: hosting it in Microsoft data centers in a highly virtualized environment, as they had done with Microsoft CRM, or
2. The strategic way: working with the Azure team to optimize the Azure capabilities needed to support true scalable enterprise business applications, such as SQL Azure, until it could support Dynamics ERP.

Mike reported that Ballmer thought for about two seconds before choosing the second option. He likened it to Microsoft Windows and Microsoft Office, years ago. It took the requirements of Office as a set of user applications to make Windows "become better" as a PC platform. Likewise, it would take Dynamics as a set of enterprise applications to make Azure become better as a cloud platform.

The problem, of course, is that it's taking much longer to develop Azure as a enterprise-class platform. In the meantime, competitors such as NetSuite, Workday, SAP, Plex, and others have already become established as cloud ERP providers and have gained market share in this emerging market. Nevertheless, Microsoft entering this market later this year is a welcome development that will mean an increasing number of choices for buyers.

Postscript: watch for Part 1 of my market overview of cloud ERP over the next few weeks.

Tech Vendors: Not All Bad, Not All Good

There’s something I’ve noticed over the years that bothers me. That is, the tendency for industry observers to take unqualified positions for or against certain technology vendors. My feeling about this runs deep, so, hopefully, this post will help others understand why I sometimes react the way I do in my comments on public forums such as Twitter and blog comments.

No technology vendor is 100% “good”—there is always at least something that is not so good. Likewise, no vendor is 100% “bad”—there are always positive attributes. But with some commentators, certain vendors can do no wrong and other vendors can’t do anything right.

If you are someone who always rises up to defend certain vendors, it makes me question your objectivity. This is especially true if you have some sort of commercial relationship with that vendor, whether it is advisory work you have done for them in the past, former employment, or some other connection. But in other cases, even without any commercial relationship, it appears some simply have favorites.

Likewise, if when you hear a positive report about a vendor, you cannot help but criticize, I also question your objectivity. I’ve said in the past, if you can’t say something bad about a vendor, don’t say anything at all.

Now let’s get specific and look at some examples of what I mean.

Apple

Apple is at the top of its game these days, and nowhere is there more unabashed enthusiasm. By market capitalization, Apple is now not only the largest technology vendor: it is now the largest company in the world. Over the past several years, Apple has disrupted entire markets (e.g. music and smartphones) and it has created entirely new ones (e.g. tablet computers). It popularized the concept of an “App Store,” which now everyone is imitating.

It wasn’t always like this. Many of Apple’s most devoted fans are too young to remember a time when Apple nearly failed. It fired Steve Jobs and many were calling for Apple to license its Macintosh operating system to other computer makers—in other words, to imitate Microsoft. Thankfully, Jobs came back, and Jobs had his own ideas. Today, 16 years later, Apple is going from strength to strength. I admire Apple.

So, can Apple do no wrong? Just consider Apple’s business practices that at least border on, if not cross over into, unfair competition. For example:

• Apple’s iBooks Author EULA, which appears to restrict paid distribution of "works" created with the software to Apple’s iBookstore only
  
• Apple’s proclivity to block apps that compete with Apple’s own products or services
  
• Apple’s refusal to approve an e-book for sale in its iBookstore because it had “too many links” to Amazon, a competitor
  
• The US Department of Justice’s plan to sue Apple (and others) for price-fixing on e-books
  

Just substitute the name Microsoft for Apple in the above bullets and imagine the media reaction. But because Apple is “cool,” Apple gets a pass.

Microsoft

Microsoft is the technology firm that many observers still love to hate. Years ago, with a near-monopoly in desktop operating systems, Microsoft faced relentless attacks from media, governments, and competitors. Apple’s desktop market share remained tiny, except in a few markets, such as education and graphic arts. Linux showed promise, but never gained traction as a desktop OS.

Microsoft still has a dominant (though less so) position in desktop PCs. Its developer tools are widely adopted, and its position in the data center continues to grow. It’s also had success with its game platform. But in the biggest growth markets—mobile and cloud applications—Microsoft lags industry leaders, such as Apple and Google. In other words, Microsoft continues to hold a dominant position in slow growth markets. The Microsoft haters see it as justice served.

I am neither a Microsoft lover nor a Microsoft hater. In my view, Microsoft Windows and Office are bloated and difficult to use (one close family member still doesn’t understand the right mouse button). Windows 8 doesn’t look to be an improvement either.

On the other hand, I feel some of the criticism that Microsoft receives today is undeserved. Merely mentioning Microsoft to some analysts provokes a visceral response, almost revulsion. Yet, in some respects, Microsoft is starting to become the “good guy.” In terms of privacy, I am much more comfortable using Microsoft’s Bing search engine than I am in using Google, who I fear is building a personal dossier on me. Microsoft’s Dynamics line of enterprise systems have good functionality and user adoption.

So, with Microsoft, I see some “bad,” but I also see some “good.”

SAP

SAP is a vendor that many in the enterprise software market love to hate, and I stand as second-to-none in terms of my criticism of SAP. Go to my blog, The Enterprise System Spectator, and do a search in the right hand column on SAP. To save you some time, here are some examples: my mocking of SAP for whining about price cuts; my post after post after post criticizing SAP's maintenance fees; and my hammering of SAP for fighting third-party maintenance at the same time it was offering 3PM to Oracle customers.

So, is SAP all “bad?” Certainly not. I have interviewed SAP top executives, its CEOs, and some of its board members. I can say, without a doubt, that SAP’s leaders care about its customers and that they struggle to find new and better ways to improve business value. They recognize that the TCO of their Business Suite is too high. They know that cloud providers such as Workday and Salesforce.com are eating their lunch. They also recognize that mobility apps are essential and are trying to turn the ship to provide better support for small developers. Finally, they used a skunk-works approach to develop an in-memory computing technology (HANA) that could potentially disrupt the relational database market and transform many business applications.

Will SAP be successful on any of these initiatives? Who knows? But with the largest installed base of any enterprise system provider, I hope for the best—not for the sake of SAP or its shareholders—but for the sake of SAP’s customers.

Oracle

Here’s a vendor that is hard to love but deserves respect. Once again, I stand second-to-none in my criticism of Oracle. Over the years, I’ve written about Oracle's excessive margins on software maintenance; the unhappiness of its installed base; its penchant for creating fear, uncertainty, and doubt; its mockery of its competitors; and its lack of openness.

On the other hand, Larry Ellison is a visionary. He had the foresight to be a large early investor in Salesforce.com and NetSuite long before cloud computing was fashionable. Apparently he knew he was better off making those investments in start-ups rather than trying to develop cloud applications within Oracle, where they would likely lack focus.

Furthermore, around the turn of the century Ellison saw that the enterprise software marketplace was fragmented and overdue for consolidation. Then, he acted on that insight and took advantage of it. I predicted that Oracle’s bid for PeopleSoft would fail, but I was wrong.

In terms of execution, Oracle is nearly flawless. I might mock co-CEO Safra Katz's comments on conference calls, but I have heard Oracle employees praise her ability to get things done.

Finally, on the technology front, I personally know individuals working in Oracle product management. They are some of the smartest people I know, and they are going deep into certain industry sectors. Oracle’s latest product, Fusion, might just be the last great new on-premise enterprise system ever to be developed. From the little bit I’ve seen of it, the user interface is outstanding and the embedded collaboration and business intelligence capabilities are noteworthy. I also like what I hear about Oracle’s public cloud initiative, although I’m waiting to see how it plays out in terms of pricing, terms, and conditions.

Cloud Vendors

Now we come, not to one vendor, but to a whole category: cloud providers. I am a huge proponent of cloud computing. In 2006, I wrote a report for Computer Economics on the business case for software as a service, and in 2009 I wrote of the inexorable dominance of cloud computing.

But as I’ve said in the past, “You don’t get a pass, just because you’re SaaS.” The technology is one thing, but the vendor’s behavior is another. Yet, some industry analysts cannot seem to bring themselves to criticize certain cloud vendors. Why not? When vendors misbehave, do they not deserve to be called out, or is cloud a get-out-of-jail-free card? Many of the executive leaders at NetSuite and Salesforce.com came out of Oracle. Do you think that background and experience have any influence on how they do business in their current positions? If you can criticize Larry Ellison for unfairly bashing the competition but you can’t criticize Marc Benioff for doing the same thing, then I have to question your objectivity.

This is by no means a complete list. I could go on with IBM, HP, Amazon, Infor, and many others. None are all good, and none are all bad.

Let's Be Fair

In some ways, the situation is like our political scene. Over the years, political discourse in the US and in other parts of the world has gotten more and more polarized. A political leader from “our side” must be defended from all attacks. Likewise, a public official from the other side of the aisle can never do anything right. What matters is not what is said, but who said it. This is wrong. It shouldn’t be this way in political discourse, and it shouldn’t be this way among industry observers.

Now, I accept that a vendor’s own employees and business partners may take strong unqualified positions, especially those in a sales, marketing, or top management role. But I don’t think it’s appropriate for those of us that advise technology buyers to be uncritical fans or relentless critics.

This doesn’t mean that when it comes to specific situations we shouldn’t take a position. Buyers do need us to say, “For this particular need, this vendor is good and that vendor is not good.” We have to make the tough calls. There have even been times where, because of problems with certain vendors, that I have refused to consider them in any new deals. But I try not to become hardened in my viewpoint. I try to always hope for improvement.

We all have our biases, including me. But can we all make an effort to recognize them and try to be fair?

Infor and Salesforce.com: More Than a Barney Relationship

Last year, Infor's CEO Charles Phillips took the stage with Salesforce.com's Marc Benioff to announce a partnership between their two companies. Coming in the midst of all the other announcements during Dreamforce, it would be easy to miss the significance of this one.

Now, with another announcement today, there is another step forward, which should be seen in light of the mutual commitments that Infor and Salesforce are making to each other:

• Out-of-the-box integration. Today's announcement is for a new software product, Inforce Everywhere. This is a native Force.com application that will make back office data from Infor's various ERP systems available to users within Salesforce.com's CRM applications. It also makes key Salesforce.com entities available within Infor ERP, as shown in the graphic nearby. See today's press release for more details. Additional products in the Inforce series are due out over the next 18 months.
  
• Reseller relationship. As announced at Dreamforce, Infor is now a reseller of Salesforce.com's Sales Cloud and Service Cloud, one of only three third-parties to attain this status. (The other two are Intuit and Dell.) This means that Infor can now sell SFDC and deliver first-level support to Infor's own customers.
  
• Financial commitment. Also, as announced at Dreamforce, Salesforce.com has become a financial investor in Infor. Salesforce has skin in the game.

Taken together, these three commitments mean that the partnership between Infor and Salesforce.com is much more than the typical tech industry "Barney Partnerships" (I love you, you love me) that never go much beyond the press release and perhaps a few joint deals.

On the surface, the two may appear to be strange bedfellows: Infor, commonly seen as a roll-up older enterprise software companies, and Salesforce--the hot young leader of a new breed of cloud apps providers. But dig a little deeper and you can see how this relationship--which has real and substantial commitments--makes a lot of sense for both parties and for their joint customers.

What's in It for Infor?

By teaming with Salesforce, Infor gets immediate credibility in cloud computing. Rather than build its own true cloud-based sales or customer service functionality, Infor joins forces with the leader in this market space.

There's not much product overlap. Interestingly, although Infor has dozens of products in its portfolio, it does not have a best-of-breed CRM offering. Several of its ERP offerings, such as LN and Syteline, have their own SFA offerings, but those are limited to customers of those ERP systems. Its one standalone CRM product, Epiphany, is more of a marketing automation solution (and, in fact, will be the focus of a future product in the Inforce series).

Finally, Infor now becomes an option for Salesforce.com's many CRM customers who are looking for ERP solutions. Because Salesforce does not offer a complete business suite, cross-referrals from Salesforce can be an attractive sales channel.

What's in It for Salesforce?

Though not immediately apparent, the benefits to Salesforce.com may be even greater. For further growth, Salesforce needs new channels. Moreover, with over 70,000 customers, Infor's installed base is a large market. In terms of ERP revenue, the No. 1 player (SAP) and No. 2 (Oracle) are both fierce competitors to Salesforce, leaving Infor (No. 3) as the largest available option. (Microsoft, also with a large ERP installed base, is likewise a head-to-head competitor with Salesforce.com). The more I think about the larger market dynamics, the more Infor appears to be a great choice for Salesforce. The fact that Salesforce is putting its money where its mouth is (i.e. becoming an Infor investor) is further evidence that Marc Benioff views this relationship as strategic. On a side note, Benioff will be speaking at the Infor's annual user conference in Denver this year, in April.

What's in It for Infor Customers

Of course, Infor customers and prospects now will have an option to go with the market leading solution for cloud CRM. Furthermore, today's announcement of out-of-the-box integration will make the decision easier. Many ERP users choose Salesforce.com today, but I have seen first-hand that integration concerns do produce friction in the sales process. Salesforce and its implementation partners have some good answers for how they will handle integration, but generally each deal is a custom integration, raising uncertainty about the effort and cost.

What Inforce Everywhere does, in my mind, is to make ERP the system of record for Salesforce.com entities that should be managed in ERP: customers, contacts, quotes, orders, shipments, invoices, payments, and returns. Most problems with ERP/CRM integration involve duplicate and redundant data. If Inforce Everywhere works as advertised, it takes away buyer concern about integration and offers a 360 degree view of the customer to users of both CRM and ERP.

What Could Go Wrong?

Although overall I'm positive about the Infor-Salesforce partnership, it's important to take a balanced view. So what are the potential pitfalls? I can think of several.

• Will Infor's direct sales and partner channel be eager to resell Salesforce.com? Selling traditional software licenses carries large up-front commissions and recurring maintenance revenue. Other traditional vendors have had a hard time making the transition to selling subscriptions. It's easier if there is a completely separate sales channel for cloud, but I haven't heard that Infor is planning that. If so, how will Infor overcome the inherent disincentives to selling Salesforce?
  
• Will Infor's customers really be a large market for Salesforce? The 70,000 customer number may be a bit misleading, as a significant percentage of those customers are on older versions of Infor products that will not be able to take advantage of Inforce Everywhere (which uses Infor's new lightweight ION middleware for integration.) Furthermore, Inforce Everywhere today is only available for Infor's LN (formerly Baan) and its distribution systems (A+ and SX.e). Infor's XA (formerly MAPICS), Syteline, and Visual are scheduled for Q2 this year, followed by S21, Sun Systems, LX, M3 (formerly Intentia), and Adage integrations later this year and next year. (Interestingly, I do not see Lawson's S3 on the roadmap that Infor shared with me last week.) When taken together, this means that the addressable market for Inforce Everywhere is less than meets the eye, at least for today.
  
• Will Salesforce.com customers choose Infor over other options? Infor is not the only ERP choice for Salesforce customers, and Salesforce's relationship with Infor is not exclusive for ERP. In fact, there are other ERP providers--notably Rootstock and Kenandy--that are built purely on Force.com. If one counts more narrow providers, such as FinancialForce and Glovia, the options multiply. With the exception of Infor's Syteline as a cloud-based offering, all of Infor's ERP solutions are traditional on-premise or, at best, hosted offerings. How attractive will these be to Salesforce.com customers that have made a commitment to cloud computing?

Although there are several obstacles to success, I see great value in this partnership. Infor's customers now have an interesting and compelling way forward for CRM and for cloud computing generally, while Salesforce.com has a great opportunity to do an end-run around SAP and Oracle to gain mind-share with a large body of installed ERP customers.

I look forward to hearing the experience of some early adopters of Inforce Everywhere at the Inforum conference in April.

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The New Technology Elite: A Book and Author Review

My friend and associate Vinnie Mirchandani has written his second book, The New Technology Elite: How Great Companies Optimize Both Technology Consumption and Production. I asked Vinnie if I could write a review, and he provided a pre-release copy of his book.

I’d gotten bits and pieces of the book from Vinnie’s blog posts and excerpts he released on LinkedIn. But getting a look at the entire book is a whole other experience.

In this post, I'd like not only to review the book--I'd like to also review the author.

A Curious Mind

For regular readers of the Spectator, Vinnie needs no introduction. I’ve been quoting and linking to him for years, even before I met him in person, around 2007. Since then, we’ve become friends. Among industry analysts, Vinnie is someone I consider like-minded.

At the same time, though, Vinnie is something of a strange cat. As a former Gartner analyst and PwC sourcing executive, his background is in enterprise software and vendor management (his blog title, Deal Architect, gives that away).

But over the past several years his focus has shifted to technology innovation more generally. Ever restless, he launched a second blog, New Florence, New Renaissance, I suspect, to help him on his flights of fancy outside the walls of enterprise IT. This has taken him far afield into areas such as nanotechnology, healthcare IT, sustainability, consumer electronics, mobility, and dozens of other corners of technology innovation. From time to time I try to scoop him, by sending him a link to some cool new application of technology, when I spot it. But generally, he’s not only spotted it himself: he’s also written about it. I still try, though.

Vinnie’s interests led to his 2010 book, The New Polymaths: Profiles in Compound-Technology Innovations. There he chronicled dozens of case-studies of organizations that are leveraging a wide range of technologies to solve the world’s grand challenges and improve our lives. Now in his second book, The New Technology Elite: How Great Companies Optimize Both Technology Consumption and Production, he weaves more case-studies into a larger story.

In Vinnie's view, some organizations that are, historically, buyers of information technology, are now turning into technology providers—as they embed new technology into their products and services. Virgin America, 3M, GE, and UPS are examples. At the same time, leading technology providers, such as Apple, Google, Amazon, and Facebook are becoming examples of best business practices, such as in their data center operations, retailing units, and supply chains. He then presents a framework for understanding what these organizations have in common: their 12 key attributes.

He concludes by examining the outside influences affecting these organizations, including the regulatory environment, their impact on society at large, and the ability (or lack thereof) of sell-side financial analysts to understand it all. Lest one think Vinnie is an unabashed technology enthusiast, these last three chapters strike a counterbalance—it’s not all positive.

A Disorienting Experience

Reading the book leads to one overriding impression: the pace of technology change is unprecedented. Sure, we all know this, generally. But, most of us really don’t.

The danger for anyone in a business leadership position today is to not recognize new entrants arising from outside traditional markets. At the same time, it’s no longer enough to look at best business practices within one’s own industry. Often, it’s players in other markets that are setting the bar higher. This is a problem for today’s market leaders, their customers and suppliers, and the analysts that cover them.

Vinnie’s fast-paced writing style matches his subject matter. Just one example: in Chapter 15, Vinnie discusses how quickly GPS technology evolved from in-auto dashboard systems, to standalone GPS devices, to smartphone apps—in less than a decade. He then launches into a discussion about technologies that are being embedded in home appliances, enabling them to connect to smartphones, tablets, and other devices and how this is leading to Samsung—a consumer electronics company—to take market share away from appliance market leaders, such as Whirlpool and Kenmore. He then jumps to an analysis of how difficult it is to forecast demand for new products such as Amazon’s Kindle, or Nintendo’s Wii.

If you have attention-deficit disorder, Vinnie’s book is for you. He piles on examples one after another, barely giving time to take a breath. For the rest of us, it is disorienting. But it serves a purpose: to give the reader overwhelming evidence of the magnitude and pace of the changes taking place in all industries.

A Positive Example

Although his book is on new technologies, Vinnie’s research style is definitely old school. Today too many so-called industry analysts take the lazy way, getting nearly all of their information from vendor briefings and press releases, writing analysis that regurgitates vendor PR talking points, and rarely speaking directly to customers. As a result, they have no original insight.

Vinnie’s way requires more work, but it’s more rewarding: Do your homework, pick up the phone, talk to those at the center of the action, and learn something new.

Then, take a position. Those who engage with Vinnie on Twitter or in blog comments know that Vinnie doesn’t hedge his views. From time to time, I get into debates with him. Although sometimes I don’t agree with him, I respect that he doesn't arrive at a position lightly, and that his opinions are research-based. He doesn’t shoot from the hip. (At the same time, though, I do see an evolution of his thinking in the final version of the book, as compared to some of his earlier blog posts on the same subjects.)

So, there’s much to learn from The New Technology Elite. Moreover, there’s a lot to learn in imitating the author’s example.

The New Technology Elite can be pre-ordered from Amazon. My copy is already on order. It is now scheduled to ship in March, 2012.

Mischaracterization of Multitenancy in an SAP-sponsored Blog Post

In an SAP-sponsored post on ZDnet, SAP employee Eric Lai attempts to identify "four big problems" with multitenancy in cloud applications. As I am writing a soon-to-be published research report on cloud ERP, I was interested to hear Eric's take on the subject.

By way of definition, in a software-as-a-service application, the term multitenancy refers to an application architecture where a single instance of the system's application code and database serves multiple customers.

Please read Lai's entire post, as, in the interest of space, I will not quote from it extensively.

Lai gets off to a good start:

Anyone can see how much more efficient [multitenancy] is versus the old server hosting model, where the ratio of server:customer is 1:1. Even using today’s Red Hat-type virtualization, each server can cram fewer users/customers onto itself than a true multitenant service.
Besides their efficiency, multitenant services can scale easily. Both of these mean lower costs for the hosters/software vendors, and, potentially, lower prices for customers.

No argument there. But then he quickly goes downhill. He first draws a distinction between consumers and enterprise customers, which have "much more rigorous requirements." He then presents his four objections to multitenancy.

1. "It's Inflexible."

Here, Lai doesn't really make a flexibility argument as much as a security and privacy argument. He points to privacy laws in some European regions that require data in some circumstances to be stored locally. But this is not an argument against multitenancy--it's an argument in favor of local data centers. A single-tenant system provider will need to build local data centers in the regions it serves, just as a multitenant provider will need to do so.

He then argues that multitenant systems might allow competitors on the same system to see each other's confidential information. I agree that IP theft is an increasing problem, especially with organized gangs of cyber-criminals in Eastern Europe and Asia, who in some cases may have the endorsement of their governments. (See, for example, this report.) But I do not know of a single cases where one tenant on a multitenant system was able to access the data of another customer on the same system. Tellingly, Lai provides not a single reference of such a confidentiality breach.

2. "It's Less Secure."

He now makes the security argument again, from a different angle. Here he argues that a multitenant database gives a careless database administrator, or a malicious hacker, the opportunity to compromise, with one breach, the data of multiple customers rather than just a single customer. He overlooks the fact that if a DBA is careless with one database, he or she would probably be careless with multiple databases. Likewise, if a criminal is able to gain access to a single customer's database in a secured data center, he or she will probably be able to gain access to many or all of the customer databases in the same data center.

3. "It's Less Powerful."

Here the argument is that the capabilities of the platform-as-a-service providers do not match the capabilities of traditional database tools. He points to Salesforce.com's database.com, Google App Engine, and Windows Azure as examples. Here, I find Lai's argument similar to that of Larry Ellison, head of SAP's arch-rival, Oracle.

In response I would point to the testimony of the head of development of one new enterprise SaaS provider. This individual came from a traditional enterprise software development and has now built sophisticated enterprise applications on both NetSuite's platform and on Force.com. He told me recently, "Frank, you wouldn't believe how easy it is to develop on these platforms. Things that used to take us months [at vendor X], we can now do in weeks or days."

Although I am no longer into software development, I am willing to stipulate that the newer cloud platform-as-a-service (PaaS) environments do not have all of the features and functions of traditional on-premise application development environments. (So also, in the old days we couldn't do as much with third-generation procedural languages, such as COBOL, as we could in assembler language. And, we couldn't do as much in 4GLs as we could in third generation.) But a PaaS removes an enormous amount of development work, by abstracting database, middleware, and user-interface functions, allowing the developer to focus on business logic. Furthermore, if (as I believe) PaaS is a disruptive technology, we should expect its capabilities to improve over time, and increasingly able to take on jobs that formerly could only be done by traditional tools.

4. "It May Be More Costly."

Here he doesn't mean the cost to the customer, but the cost to the ISV who wants to move from a traditional on-premises software product to a cloud offering. He is arguing, in essence, that it is cheaper for the vendor to simply host his traditional product as a single-tenant offering (i.e. changing nothing) than to rewrite it as a true multi-tenant SaaS offering.

As an advocate for enterprise IT buyers, I have to ask, will that hosted offering will be less costly for customers? Lai doesn't say. But in his introductory paragraphs (quoted earlier), he indicates that multitenancy offers "lower costs for the hosters/software vendors, and, potentially, lower prices for customers." So he has contradicted himself in his own post.

A Puzzling Position

Finally, what I find strange about this SAP-sponsored blog post is that it seems to contradict SAP's own position relative to Business ByDesign (ByD).

ByD is a full multi-tenant ERP offering for SMBs. It is a well-known fact that SAP's first attempt at ByD employed a single-tenant architecture, similar to that proposed by Lai in his blog post. That iteration was not successful in that, according to SAP spokespeople, they could not get that approach to scale cost-effectively. So, SAP took an extra two years or so and rewrote ByD as a completely multi-tenant application. The system is rolling out in multiple geographies worldwide, in local data centers where required, presumably with security and privacy measures commensurate with SAP's high standards for customers. The system is cost-competitive with other SaaS ERP offerings and has grown quickly to over 1,000 customers at the end of 2011.

SAP now has such confidence in its ByD platform that it has made it the platform for developing its line-of-business applications, such as Sales OnDemand and Travel OnDemand, for its large enterprise customers--presumably the ones with the most demanding security and privacy requirements.

Now, at the top of the post, ZDnet does make the disclaimer, "Eric's views are his alone and do not necessarily represent those of SAP." Still, as I mentioned, I find it puzzling that Lai's views appear to be closer to Larry Ellison's than those of his employer.

I am waiting for SAP's rebuttal to its own sponsored post.

Update: Eric Lai responds in the comments below.
Update, Feb.23: Please read the more detailed response on SDN by Sybase's Eric Farrar.

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Glovia Returns to the ERP Market

An ERP sales professional, whom I've know for many years, recently called to let me know he'd taken a new job with Glovia International. I indicated that I hadn't heard anything about Glovia recently. Maybe now I could get an update.

So he arranged a briefing with James Gorham, who heads up Glovia's North American business, for me and two of my senior associates at Strativa, Bob Gilson and Nick Hann.

A Long History

Glovia's roots go back to the 1970s, when Xerox Computer Services launched a time-sharing application for manufacturing companies. The product went through several iterations and was eventually relaunched in client-server form in 1990 as Xerox Chess. The company was acquired in 2000 by Fujitsu, who renamed it Glovia.

For many years, Glovia has been a well-respected mid-market ERP solution for automotive manufacturers, aerospace and defense contractors, capital equipment makers, and other industries. In the past, when I was looking for solid functionality for project-based manufacturers, Glovia would be one of the first to come to mind.

But, as just mentioned, that changed about two or three years ago, when Glovia suddenly fell off my radar. I knew they were still in business--I just never saw them in deals or even in press releases. They wouldn't even respond to my inquiries.

In our briefing with Gorham, we soon found out why. Glovia had undertaken a deliberate strategy three years ago to pull back, abandon all new sales efforts, and invest in rewriting the entire product.

Retrenchment Strategy

Glovia system had been developed in McDonnell Douglas's PROIV 4GL language, which though a good language, was not a platform with a wide developer base. They spent two years to rewrite the product with a service-oriented architecture, migrating the business logic to .NET, developing a new user-interface in Microsoft Silverlight, and providing a full deployment of web services with over 140 integration points. The latest version of Glovia runs on Oracle's database and is being released for Microsoft SQL as well.

Now here's the interesting part: during this retrenchment period, Glovia was profitable and actually grew, through organic growth of its existing customers adding new plants, new acquisitions, and new users. So, retrenchment turned out to be a good strategy during recessionary times: kill off marketing and net-new sales, redouble your service and support for your installed base, and invest in rewriting the product for a relaunch.

This retrenchment strategy (my term) could only work because Glovia had an enviable position as the incumbent for some very large and loyal customers, beginning with its corporate parent, Fujitsu, which deploys Glovia in 43 factories. Fujitsu had the resources to support any fall-off in Glovia's business, but as it turned out, Fujitsu's deep pockets weren't needed. Xerox (Glovia's former parent) is still a customer, as are several other large and well-known global brands, such as Panasonic, Dell, Carrier, Bridgestone, Avery Dennison, Honda, Honeywell, Phillips, and General Electric.

So, now the rewrite is complete. The functionality offered by Glovia for its target manufacturing industries--which was already well established--has grown even more impressive.

• It offers heavy visualization, with real-time graphical information flow.
  
• There is support for assemble-to-order and engineer-to-order, with "available to X" planning calculations, such as available-to-order, to-make, to-buy, and to-service.
  
• Production scheduling and optimization is granular down to the minute.
  
• There is load-balancing at all levels of production: the plant, cell, machine, skill, and person.
  
• The supply chain planning capabilities allow synchronization of supply to demand or demand to supply.
  
• Lean thinking permeates the execution functions, with the Toyota Production System natively embedded in the product.
• For defense contractors, there is the necessary "borrow-and-payback" functionality as well as pegging to contract.
  

The rewrite also gave Glovia the opportunity to build mobility apps, which appear much further developed than many larger and better known competitors. Apps include work orders, financial apps such as expense reporting, purchase requisition approvals, and executive dashboards. Glovia even provides device management capabilities. Apple's iPhone and iPad are supported, as well as Android devices, Blackberry, and Windows Phone. Everything is developed in HTML5 and available through the appropriate apps store (e.g. iStore).

There are even some nods to social business: Glovia gives engineers at different links in the supply chain the ability to collaborate. Planners also have visibility into customer and supplier engineering changes and inventory positions. Integration with Microsoft's Sharepoint is also provided.

What about the Cloud?

These days, no briefing is complete without asking about cloud options. Glovia offers an on-premise deployment (of course) as well as an on-demand option. Although the on-demand version is currently a simple hosting arrangement, when Microsoft Azure is ready for enterprise applications, Glovia will be able to host its system on Microsoft's cloud, assuming customers demand it.

Separately, Glovia has built a set of manufacturing modules on Force.com to inter-operate with Salesforce.com's CRM system. These are full multi-tenant SaaS applications that provide functionality for product configuration, order management, inventory, manufacturing, invoicing, purchasing, and returns. These are separate and independent from Glovia's flagship G2 system.

My own view is that Glovia's current support and stated direction for cloud computing is probably sufficient for now in light of the industries and size of organizations that it targets.

Where is Glovia Headed?

Behind us in Glovia's conference room was the obligatory "customer wall," with logos of Glovia's largest and most well-recognized customer names. My associate Nick Hann asked, "Three years from now, what will that wall look like?"

This led to an interesting discussion. Customer attrition during the retrenchment period was surprisingly low: a loss of any of these large customers would have been huge, and in fact none were lost. The sales team is now expanding to focus on new deals in addition to incremental sales into the installed base. There are also some resellers being added strategically for certain vertical industries.

Will Glovia be successful as it transitions from retrenchment to new sales? So far, some signs are promising. There are some big names in the sales funnel, including one Fortune 100 company. Interestingly, many of these new sales opportunities have come out of introductions by existing customers.

But will that be enough? The market is crowded, as Gorham noted, with SAP and Oracle gunning for the top tier of customers and Infor, Epicor, and IFS hungry for the mid-market and individual facilities of large multi-nationals. Syspro, Consona, and QAD also play in some markets and industries.

The markets that Glovia competes in are not under-served. In addition to the traditional players that Gorham identified, I would be concerned about newer cloud ERP providers: specifically Plex, which has a big bulls-eye on the automotive sector, NetSuite, and SAP's Business ByDesign.

Nevertheless, circling back to the retrenchment strategy: I like Glovia's story. How to leverage a recession to retrench and recover. In warfare, retreat is sometimes a good strategy, and in Glovia's case, the retrenchment appears to have paid off.

I hope Glovia's success continues, because buyers can only benefit by having a greater number of well-qualified choices.

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Geography More Important than Industry in IT Salaries

Over at Computer Economics, we've just published our 2012 IT Salary Report, as we've been doing for over 20 years.

The headline this year is that IT workers in the U.S. will only receive a 2.8% pay increase, at the median, as shown in the Figure nearby. Even organizations at the 75th percentile are budgeting for only a 3.0% wage increase for IT professionals. That lags well behind the 3.4% rise in the Consumer Price Index for the 12-month period through November 2011.

A short summary of these top line trends can be found a post on the Computer Economics website.

Influence of Industry Sector on IT Pay Scales

Although the general trend for U.S. IT salaries is interesting, what I find more interesting is an analysis of factors that affect IT salaries. After we published this report this morning, we received a media inquiry from a reporter covering healthcare IT. She wanted to know, did we have any data on IT salaries specific to the healthcare industry?

Fortunately, this year for the first time, we provided an analysis of IT salaries by industry sector, based on data we acquired from the U.S. Bureau of Labor Statistics. These "pay relatives" by industry sector complement those that we also provide for over 400 metropolitan areas.

So, to answer her question directly: according to the industry sector data, IT compensation in the healthcare sector is about 82% of the national median. For example, if you are a desktop support technician in the healthcare industry, you can expect to make only 82 cents on the dollar, compared to desktop support personnel nationwide.

A Misleading Statistic

These "pay relatives" by industry sector can be misleading, however. In this example, healthcare organizations tend to be located in all metropolitan areas, both urban and rural, that vary widely in their cost of living. Other industries--financial services firms for example--tend to be concentrated in large metropolitan areas, like New York, Boston, and San Francisco, which have higher cost of living indexes. Low and behold, when we look at the pay relative for the finance and insurance sector, we see that it is 104% of the national median.

So, in our opinion, IT workers in financial services firms on average across the U.S. are paid more than their counterparts in healthcare organizations, not because financial services firms pay more, but because they tend to be located in metropolitan areas with higher costs of living.

Implications for IT Managers

Therefore, if you are using the Computer Economics salary tables to evaluate pay scales in your organization, you are better off to put most of your emphasis on the geographic cut of the data than the industry sector cut.

There are exceptions to this rule, of course. For example, business analysts or applications developers with experience implementing electronic medical records are in high demand right now. Healthcare organizations will likely need to pay a premium to recruit and retain IT professionals with this experience. Likewise, financial institutions are likely to be at the top of the pay scale for IT security professionals with experience in financial transaction processing environments. In the applications area, IT management, business analysis, and other business-oriented positions, industry-specific experience almost always commands top dollar.

But for most other IT positions, such as data center operations, system administration, help desk, desktop support, and other jobs that are not highly industry-specific, consider the geographic dimension as the most important in benchmarking IT pay scales. Essentially, if the person holding the job can move from one industry to another, with little or no retraining, the pay scale for that job is highly dependent on the geography, not the industry.

A full description of the Computer Economics 2012 IT Salary Report, with free sample pages is available.

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Enterprise IT Buyers: Don’t Listen to Financial Analysts

When it comes to enterprise IT decisions, I have come to the conclusion that buyers shouldn’t read the financial press. There are industry analysts and there are financial analysts, and they address two distinct audiences.

Exhibit A is this Business Insider post, entitled, The Awful Economy Is Really Going To Hurt SAP. Here’s the post’s lede:

SAP's hot new software, HANA, has been a relative flop, said BofA Analyst Chandra Sriraman this morning.

HANA was hailed as groundbreaking when it was introduced about a year ago. It sits in a computer's memory so it literally runs while the computer processes transactions.

There's just one problem: No one is buying it.

The post goes on to quote Sriramen concerning why he feels that SAP “will be hurt by slower demand from its key manufacturing customers, depressed business confidence and the financial mess in Europe.”

Now, what are prospective buyer of SAP’s software supposed to make of this commentary? That the prospect should not move forward? If I am an SAP customer, should I be concerned?

The answer, of course, is no--because financial analysts, like this one, do not have SAP customers or prospects as their audience.

Two Stakeholder Groups

Putting aside the cute part about "HANA…literally [running] while the computer processes transactions" and Sriramen’s conclusion that SAP faces an "awful" 2012 (I happen to think he is wrong), let's understand the difference between a financial analyst and an industry analyst.

Every publicly-held enterprise IT vendor (or any publicly held company) has many stakeholders: shareholders (investors), customers, employees, business partners, suppliers, and the community at large. But for purposes of this discussion, let’s focus on the two primary groups of stakeholders: customers and investors. What are the objectives of these two groups?

• Customers are interested in the value of the vendor's product (its benefits and costs), the quality of the vendor's service, the vendor’s ability to innovate, and the long-term viability of the vendor itself.
• Investors, of course, are also interested in these things. But--and this is the key point--investors are not interested in these things directly. They are interested in these things in terms of what they mean for the stock price, short-term and long-term.

Investors want to see that the product has value, because companies that offer such products tend to have growing stock prices. They want to see excellent customer service, because it contributes to customer retention, which has a positive effect on the stock price. They want to see that the vendor is innovative, because innovation drives growth and growing companies command a higher price-earnings ratio. Moreover, they want to see a long-term sustainable business, because this protects the stock price.

But there are also some things that investors are interested in that customers should not at all be concerned about.

• Intrinsic value of the shares. Investors spend a lot of time comparing the intrinsic value of the vendor’s shares (what they should be worth based on fundamentals) versus the current stock price. Stocks that are undervalued by the market tend to rise over the long term.
• Market expectations. Investors—especially short-term investors—spend a lot of time trying to forecast prospective company financial performance for the next reporting period versus management guidance and market expectations. Companies that outperform market expectations will usually see a jump in their stock price.
• Economic outlook. Investors also spend a lot of time refining their outlook for the economy in general or for the industry sector and geographies that the vendor serves, because the vendor’s stock price tends to rise and fall according to these economic outlooks.

It’s easy to see, then, why customers should not be concerned about these things. Consider, for example, a prospect that is considering SAP’s HANA. If HANA is a good choice for that prospect, it makes no difference how HANA affects SAP’s share price. The market may be underestimating or overestimating HANA’s contribution to SAP’s financial performance. But either way, that has nothing to do with whether HANA is a good choice for that prospect.

Generally, financial analysts do not have the depth of understanding that good industry analysts do, concerning a vendor’s products or customer experiences. They may do reference checks, as best they can, but because they do not deal with customers of the vendor on a day-to-day basis, they lack the direct experience in seeing how the vendor actually performs in the field.

For example, last week, Alan Lepofsky and I provided a short briefing call for a financial analyst from a well-known Wall Street investment firm on the subject of CRM vendors. At the end of the call, the financial analyst remarked that what he liked about our call was our ability to refer to specific examples with specific customers. This is why financial analysts ask for briefings from industry analysts, but seldom do you see the reverse.

Another example: Ray Wang recently gave a short on-camera interview with CNBC on the news that SAP had made a bid for SuccessFactors, an HRM cloud computing provider. Ray deals with enterprise IT sellers every day. But the questions from the CNBC hosts had nothing to do with whether either SAP or SuccessFactors were good choices for buyers. Rather, their only concern was what SAP’s bid for SuccessFactors meant for investors. Here are some examples of the questions they asked Ray:

“What are the big names that pop to your mind here that could be the next ones to [be acquired] in the cloud space?”

“What about the pioneer in the SaaS market, valued at $17 billion, Salesforce.com [being acquired]?”

“So, Ray, NetSuite is up nearly 10% today, which is I think an all-time high. Would you rush into this stock right now or is it too much, too fast?”

“Hey Ray, how does this make you feel about SAP here? SAP is a company that for the most part trailed Oracle, it stayed out of the M&A game, it seems very hungry to do deals here—that’s great, it worked for Oracle…but are they getting out of their core competency, are they spending more [for SuccessFactors] than they should here?”

Now, are these questions that enterprise IT buyers would be asking? I think not.

The Right Advisor for the Right Audience

Lest anyone think I am railing against investors--I am not. As a free-market capitalist, I believe that private investment is the best way to pick winners and losers in the marketplace. I trust individuals and organizations putting their own capital at risk more than I trust some government bureaucrat deciding which organization or industry to favor.

Furthermore, the best financial analysts often have interesting insights. I do read them from time to time, because they see things from a different perspective (the investor’s perspective). As my late business partner used to say, financial analysts are using “a different algebra.” Seeing things from the investor perspective can help me, as an industry analyst, understand why a vendor may be behaving in a certain way. For example, why a vendor is targeting a certain market segment or de-emphasizing a certain line of business.

But I do believe it is important for enterprise IT buyers to understand that their objectives and success are not always aligned with the immediate interests of investors, and they shouldn't pay too much attention to the short-term stock market performance of an enterprise IT provider.

So, just as shareholders shouldn’t ask me for investment advice, enterprise IT buyers shouldn't read financial analysts for advice on technology decisions.

Update: my friend Jon Appleby has a great post, critiquing the same financial analysis post I referenced here. My friend Vijay Vijayasankar also has a good post on the Bank of America analysis, and has added a comment to my post here.

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