Category Archives: Disruption

Kellblog’s 2017 Predictions  

New Year’s means three things in my world:  (1) time to thank our customers and team at Host Analytics for another great year, (2) time to finish up all the 2017 planning items and approvals that we need to get done before the sales kickoff (including the one most important thing to do before kickoff), and time to make some predictions for the coming year.

Before looking at 2017, let’s see how I did with my 2016 predictions.

2016 Predictions Review

  1. The great reckoning begins. Correct/nailed.  As predicted, since most of the bubble was tied up in private companies owned by private funds, the unwind would happen in slow motion.  But it’s happening.
  2. Silicon Valley cools off a bit. Partial.  While IPOs were down, you couldn’t see the cooling in anecdotal data, like my favorite metric, traffic on highway101.
  3. Porter’s five forces analysis makes a comeback. Partial.  So-called “momentum investing” did cool off, implying more rational situation analysis, but you didn’t hear people talking about Porter per se.
  4. Cyber-cash makes a rise. CorrectBitcoin more doubled on the year (and Ethereum was up 8x) which perversely reinforced my view that these crypto-currencies are too volatile — people want the anonymity of cash without a highly variable exchange rate.  The underlying technology for Bitcoin, blockchain, took off big time.
  5. Internet of Things goes into trough of disillusionment. Partial.  I think I may have been a little early on this one.  Seems like it’s still hovering at the peak of inflated expectations.
  6. Data science rises as profession. Correct/easy.  This continues inexorably.
  7. SAP realizes they are a complex enterprise application company. Incorrect.  They’re still “running simple” and talking too much about enabling technology.  The stock was up 9% on the year in line with revenues up around 8% thus far.
  8. Oracle’s cloud strategy gets revealed – “we’ll sell you any deployment model you want as long as your annual bill goes up.”  Partial.  I should have said “we’ll sell you any deployment model you want as long as we can call it cloud to Wall St.”
  9. Accounting irregularities discovered at one or more unicorns. Correct/nailed.  During these bubbles the pattern always repeats itself – some people always start breaking the rules in order to stand out, get famous, or get rich.  Fortune just ran an amazing story that talks about the “fake it till you make it” culture of some diseased startups.
  10. Startup workers get disappointed on exits. Partial.  I’m not aware of any lawsuits here but workers at many high flyers have been disappointed and there is a new awareness that the “unicorn party” may be a good thing for founders and VCs, but maybe not such a good thing for rank-and-file employees (and executive management).
  11. The first cloud EPM S-1 gets filed. Incorrect.  Not yet, at least.  While it’s always possible someone did the private filing process with the SEC, I’m guessing that didn’t happen either.
  12. 2016 will be a great year for Host Analytics. Correct.  We had a strong finish to the year and emerged stronger than we started with over 600 great customers, great partners, and a great team.

Now, let’s move on to my predictions for 2017 which – as a sign of the times – will include more macro and political content than usual.

  1. The United States will see a level of divisiveness and social discord not seen since the 1960s. Social media echo chambers will reinforce divisions.  To combat this, I encourage everyone to sign up for two publications/blogs they agree with and two they don’t lest they never again hear both sides of an issue. (See map below, coutesy of Ninja Economics, for help in choosing.)  On an optimistic note, per UCSD professor Lane Kenworthy people aren’t getting more polarized, political parties are.

news

  1. Social media companies finally step up and do something about fake news. While per a former Facebook designer, “it turns out that bullshit is highly engaging,” these sites will need to do something to filter, rate, or classify fake news (let alone stopping to recommend it).  Otherwise they will both lose credibility and readership – as well as fail to act in a responsible way commensurate with their information dissemination power.
  1. Gut feel makes a comeback. After a decade of Google-inspired heavily data-driven and A/B-tested management, the new US administration will increasingly be less data-driven and more gut-feel-driven in making decisions.  Riding against both common sense and the big data / analytics / data science trends, people will be increasingly skeptical of purely data-driven decisions and anti-data people will publicize data-driven failures to popularize their arguments.  This “war on data” will build during the year, fueled by Trump, and some of it will spill over into business.  Morale in the Intelligence Community will plummet.
  1. Under a volatile leader, who seems to exhibit all nine of the symptoms of narcissistic personality disorder, we can expect sharp reactions and knee-jerk decisions that rattle markets, drive a high rate of staff turnover in the Executive branch, and fuel an ongoing war with the media.  Whether you like his policies or not, Trump will bring a high level of volatility the country, to business, and to the markets.
  1. With the new administration’s promises of $1T in infrastructure spending, you can expect interest rates to raise and inflation to accelerate. Providing such a stimulus to already strong economy might well overheat it.  One smart move could be buying a house to lock in historic low interest rates for the next 30 years.  (See my FAQ for disclaimers, including that I am not a financial advisor.)
  1. Huge emphasis on security and privacy. Election-related hacking, including the spearfishing attack on John Podesta’s email, will serve as a major wake-up call to both government and the private sector to get their security act together.  Leaks will fuel major concerns about privacy.  Two-factor authentication using verification codes (e.g., Google Authenticator) will continue to take off as will encrypted communications.  Fear of leaks will also change how people use email and other written electronic communications; more people will follow the sage advice in this quip:

Dance like no one’s watching; E-mail like it will be read in a deposition

  1. In 2015, if you were flirting on Ashley Madison you were more likely talking to a fembot than a person.  In 2016, the same could be said of troll bots.  Bots are now capable of passing the Turing Test.  In 2017, we will see more bots for both good uses (e.g., customer service) and bad (e.g., trolling social media).  Left unchecked by the social media powerhouses, bots could damage social media usage.
  1. Artificial intelligence hits the peak of inflated expectations. If you view Salesforce as the bellwether for hyped enterprise technology (e.g., cloud, social), then the next few years are going to be dominated by artificial intelligence.  I’ve always believed that advanced analytics is not a standalone category, but instead fodder that vendors will build into smart applications.  They key is typically not the technology, but the problem to which to apply it.  As Infer founder Vik Singh said of Jim Gray, “he was really good at finding great problems,” the key is figuring out the best problems to solve with a given technology or modeling engine.  Application by application we will see people searching for the best problems to solve using AI technology.
  1. The IPO market comes back. After a year in which we saw only 13 VC-backed technology IPOs, I believe the window will open and 2017 will be a strong year for technology IPOs.  The usual big-name suspects include firms like Snap, Uber, AirBnB, and SpotifyCB Insights has identified 369 companies as strong 2017 IPO prospects.
  1. Megavendors mix up EPM and ERP or BI. Workday, which has had a confused history when it comes to planning, acquired struggling big data analytics vendor Platfora in July 2016, and seems to have combined analytics and EPM/planning into a single unit.  This is a mistake for several reasons:  (1) EPM and BI are sold to different buyers with different value propositions, (2) EPM is an applications sale, BI is a platform sale, and (3) Platfora’s technology stack, while appropriate for big data applications is not ideal for EPM/planning (ask Tidemark).  Combining the two together puts planning at risk.  Oracle combined their EPM and ERP go-to-market organizations and lost focus on EPM as a result.  While they will argue that they now have more EPM feet on the street, those feet know much less about EPM, leaving them exposed to specialist vendors who maintain a focus on EPM.  ERP is sold to the backward-looking part of finance; EPM is sold to the forward-looking part.  EPM is about 1/10th the market size of ERP.  ERP and EPM have different buyers and use different technologies.  In combining them, expect EPM to lose out.

And, as usual, I must add the bonus prediction that 2017 proves to be a strong year for Host Analytics.  We are entering the year with positive momentum, the category is strong, cloud adoption in finance continues to increase, and the megavendors generally lack sufficient focus on the category.  We continue to be the most customer-focused vendor in EPM, our new Modeling product gained strong momentum in 2016, and our strategy has worked very well for both our company and the customers who have chosen to put their faith in us.

I thank our customers, our partners, and our team and wish everyone a great 2017.

# # #

 

Is Salesforce / Siebel a Classic Disruption Case?

Like many others, I have often used Salesforce / Siebel as a classic example of Innovator’s Dilemma style disruption.  Several months ago, in response to this article about Host Analytics, I received a friendly note from former Siebel exec and now venture capitalist Bruce Cleveland saying roughly:  “nice PR piece, but the Salesforce / Siebel disruption story is a misconception.”

So I was happy the other day to see that Bruce wrote up his thoughts in a Fortune article, Lessons from the Death of a Tech Giant.  In addition, he posted some supplemental thoughts in a blog post Siebel vs. Salesforce:  Lessons from the Death of  a Tech Giant.

Since the premise for the article was Bruce gathering his thoughts for a guest-lecture at INSEAD, I thought — rather than weighing in with my own commentary — I’d ask a series of study guide style questions that MBA students pondering this example should consider:

  • What is disruption?  Given Bruce’s statement of the case, do you view Siebel as a victim or disruptive innovation or a weakening macro environment?
  • Are the effects of disruptive innovation on the disruptee always felt directly or are they indirect?  (e.g., directly might mean losing specific deals as opposed to indirect where a general stall occurs)
  • What does it feel like to be an executive at a disruptee?  Do you necessarily know you are being disrupted?  How could you separate out what whether you are stalling due to the macro environment or a disruptive innovator?
  • What should you do when you are being disrupted?  (Remember the definition of “dilemma” — two options and both are bad.)
  • While not in the article, according to friends I have who worked at Siebel, management could be quoted in this timeframe as saying “Now is the time to be more Siebel than we’ve ever been” (as opposed to emulating Salesforce).  Comment.
  • What should Siebel have done differently?  Was the over-reliance on call center revenue making them highly exposed to a downturn in a few verticals?  How could they have diversified using either SFA or analytics as the backbone?
  • What should Siebel have done about the low-end disruption from Salesforce?  Recall that in 2003 Siebel launched Siebel CRM On Demand as an attempted blocking strategy in the mid-market and acquired UpShot as a blocker for SMB.  How could Siebel have leveraged these assets to achieve a better outcome?
  • To what extent should external environment variables be factored in or out when analyzing disruption?  Are they truly external or an integral part of the situation?
  • To what extent do you believe that Oracle’s acquisition of Siebel left Salesforce unopposed for 8 years?  To what extent was that true in the other categories in which Oracle made large acquisitions (e.g., HCM, middleware)?
  • After hearing both sides of the argument, to what extent do you believe the reality of the case is “Salesforce David slaying Siebel Goliath” versus “Siebel getting caught over-exposed to a macro downturn, selling to Oracle and giving the CRM market to Salesforce?”   In effect, “they didn’t kill us; we killed ourselves.”

I deliberately will offer no answers here.  As an old friend of mine says, “there are three sides to every story:  yours, mine, and what really happened.”  Real learning happens when you try understand all three.

Megavendors, Cloud Judo, and The Innovator’s Dilemma

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.
  • 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:

zendesk

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.

Perhaps there’s a reason that The Innovator’s Dilemma is #646 in Amazon’s books ranking and The Innovator’s Solution is #14,555.

[Post revised at 1149 PDT due to accidental publication of an incomplete draft form.]

Fred Wilson Presentation to Google on Disruption

I don’t need to comment much here other than to say the obvious — I wouldn’t be embedding this talk if I didn’t think it was excellent.

Below find a presentation by Fred Wilson, a venture capitalist in New York City, who writes the well regarded A VC blog. He’s presenting this at Google’s campus in Mountain View, California this Wednesday at 10:30 AM — so you’re getting here about 1.5 days before Google is!