It’s an interesting time in cloud evolution.
- Oracle missed their fourth quarter targets, for the third time in seven quarters, with many observers worried that cloud missteps were a root cause. Buying Sun when the world was going cloud was a rare Oracle zig when the market zagged. To take Wall Street’s eyes off the 4Q miss, Ellison promised some startling announcements in the coming week, a great diversion if there ever was one.
- The first announcement was a partnership with Microsoft to enable Oracle middleware to run on Hyper-V and Azure. One analyst described it as hell freezing over and another as two old men talking about the good old days.
- Oracle then announced a nine-year strategic partnership whereby Salesforce will continue to run its technical operations on Oracle’s database, purchase Financial/ERP and HCM software from Oracle (presumably dropping its existing Workday implementation), and the two companies will better integrate their respective back- and front-office cloud offerings. Frankly, this deal looks like more a like big purchase from Salesforce — perhaps given at a great price to accommodate quick timing — than anything else.
PR obfuscation aside, the cloud — which Ellison once described as complete gibberish — appears to be rusting out the core of Oracle’s business.
I have two observations that I’d like to explore in this post.
- There is a total disconnect between Oracle corporate and the Oracle field when it comes to cloud messaging. While this is inevitable when corporate does a sudden about-face, I’ll take a moment to show how far apart corporate and field are on the cloud issue.
- The enterprise software megavendors are faced with an Innovator’s Dilemma problem and that these such problems are extremely difficult to solve. Christensen got famous for pointing out the structure advantages of the innovator. His Innovator’s Solution was a sort of Lethal Weapon 4 seemingly written to say “well there must be something companies can do about this,” but the book doesn’t offer much, and frankly I’m not sure there is.
The Corporate / Field Disconnect
Just two days ago, a friend shared with me some standard playbook messaging that the Oracle field uses when selling against real cloud computing vendors.
- Data location. “So you’re seriously going to choose a solution where you don’t even know where your data is going to live?”
- Migration. “These systems have a limited lifespan. What happens when you want to move? Your cloud vendor can hold the data hostage.”
- Upgrade control. “So your cloud vendor is going to upgrade you whenever they want to? You don’t have any control over when and how your application is updated?”
Really? Is that all you’ve got? “You gotta be careful with those horseless carriages: they’ve got a round wheel instead of reins and they go too fast.”
Some quick responses before continuing:
- Why again does it matter where you data is? Do you actually know where your data is with your on-premises system? What matters is the security of your data and the availability of your data. Cloud vendors typically do better than on-premises solutions in those departments thanks to security standards, auditing, and SLAs for availability and uptime.
- For on-premises vendors to talk to cloud vendors about migration and lifespan is a deep case of the pot calling the kettle black. First, it is purely theoretical argument. In reality, I know of precisely zero major cloud vendors who have had a major discontinuity in their system. Second, on-premises software has a lifespan too and I know of plenty of on-premises migrations that nearly killed the company (e.g., Siebel 7, Sybase 10).
- Upgrade control. This is straight marketing judo — take your biggest weakness and assert it against your competitor. Again, it’s a great tactic — see Ronald Reagan using it masterfully here — but it’s simply too far from reality to be believed, except perhaps by on-premises vendors. Upgrades are transparent, even in the case of Salesforce who has the most advanced and powerful customization framework and the oldest major codebase out there.
While the megavendors are teaching us an A+ lesson in rhetorical devices, there is clearly something deeper going on here.
The Megavendors and the Innovator’s Dilemma
The trouble with treating cancer is that, simply put, it’s you. It’s not an infection, a foreign invader that your immune system can track down and kill. It’s you, so how is your immune system supposed to separate the good you from the bad you? That’s why it’s hard.
That’s how I feel about the Innovator’s Dilemma. The problem isn’t your competition. The problem is you. Everything you have ever done to create the enormous advantages that propelled your company success reverses on you.
Our CMO, Lance Walter, tells some great Siebel stories in this regard. Siebel ruled CRM in the on-premises world and Lance worked there when the Salesforce invasion was in full force. One meeting went like this:
Boss: “Tom (Siebel) says we need a plan to put Salesforce out of business in 90 days.”
Product Manager: “But Salesforce has a recurring revenue model; even if we stopped all of their sales for 90 days it wouldn’t put them out of business.”
Boss: “Don’t be naysayer, we need to do this.”
Lance’s resigned the day after he heard a VP say the following: “in defeating Salesforce, we need to be more Siebel than we’ve ever been over the next 6 months.” This, of course, was the dead wrong answer. When they needed to be less Siebel than they’d ever been, the leadership was focusing on becoming more.
The Innovator’s Dilemma is a hard problem. Maybe an impossible one.
- You are torn between disrupting yourself and milking your core business model while others disrupt you.
- Your customers, because they are rooted in the past, give you bad information about the future. You listen, quite naturally, to the people who bought your product when you should be listening to those who didn’t. Not easy, especially when you’re signing $100M contracts with those who did.
- Wall Street wants to see you keep up your oligopolistic operating margins when the disruptors are burning through seemingly free venture capital to build up their business. Unless you can tell the Street one heck of a story, responding properly to the threat might actually cost you your job.
- The innovators at your company leave to pursue opportunities at the disruptors, so you are left with stewards — often highly competent stewards, but steward nonetheless — leading your company. You start to lack the ability to innovate even if you wanted to. You have lost the requisite DNA.
- Your team is demoralized and losing faith in your company because the same leadership who confidently dismissed the disruptors for years reverses themselves overnight. Think: Ken Olsen and the “snake oil” quote. Think: Larry Ellison and the “complete gibberish” quote.
Even if you try to acquire your way out of the dilemma, you often kill off the DNA and/or wreck the strategy of the acquired company. Acquired founders and their teams rarely stick around — SuccessFactors’ Lars Dalgaard would be a recent example.
Even when you retain acquired CEOs, you can still fumble an acquisition by synergy-seeking. While most people think of Salesforce as a disruptor, bear in mind they are about 14 years old and are now themselves being disrupted at the low-end by cheap, viral, freemium products like Zendesk. In my opinion, Salesforce had the right idea in acquiring Assistly as one response, but sub-optimized the acquisition because of synergy-seeking.
Whereas Assistly should have been left standalone, funded like Zendesk, and aimed at Zendesk in order to protect the flanks of the customer service business, the company couldn’t seem to resist synergy-seeking, rebranding (to Desk.com, one of the least SEO-able terms I can imagine), and integration. See below for the Google Trends view of the result:
Even great companies get confused sometimes. And, by the way, props to Salesforce for worrying about themselves being disrupted while they are still an active disruptor.
On M&A, another interesting trend is that the disruptors aren’t always for-sale anymore. When a billionaire founds a company and says it’s not for sale, it isn’t. Particularly if they’ve put in 10x voting rights on the pre-IPO shares, as you see in some of the hotter tech IPOs. So even if a megavendor could actually successfully pull-off the acquisition of a hot disruptor, in many cases those companies are “going long” and are simply not for sale. Workday would be single best example of such a company.
When you try to think of technology companies that have come and gone it’s easy: DEC, Wang, Sybase, Siebel, Sun, Baan, NCR, BEA, Documentum, Vignette, ASK, Veritas, Informix, SGI, Computer Associates, and zillions of others. It turns out that it can be relatively easy to ride one wave.
Riding across multiple waves, on the other hand, seems a lot tougher. In fact, there’s only one high-tech company I can think of who was a leader 50 years ago and who is a leader today: IBM.
[Post revised at 1149 PDT due to accidental publication of an incomplete draft form.]