Category Archives: Innovator’s Dilemma

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.]

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.]

Surowiecki on Newspapers

Continuing my recent rants about newspapers, please see this interesting story in the New Yorker by James Surowiecki, author of The Wisdom of Crowds, entitled News You Can Lose.

On the source of the problems:

There’s no mystery as to the source of all the trouble: advertising revenue has dried up. In the third quarter alone, it dropped eighteen per cent, or almost two billion dollars, from last year. For most of the past decade, newspaper companies had profit margins that were the envy of other industries. This year, they have been happy just to stay in the black. Many traditional advertisers, like big department stores, are struggling, and the bursting of the housing bubble has devastated real-estate advertising. Even online ads, which were supposed to rescue the business, have declined lately, and they are, in any case, nowhere near as lucrative as their print counterparts.

While I’ve always seen publishers, and newspapers in particular, as challenged with The Innovator’s Dilemma, before reading this article for some reason I’d never associated them with another of my favorite essays, Marketing Myopia (PDF for sale), by Harvard marketing guru Theodore Levitt.

From Surowiecki:

Levitt argued that a focus on products rather than on customers led the companies to misunderstand their core business. Had the bosses realized that they were in the transportation business, rather than the railroad business, they could have moved into trucking and air transport, rather than letting other companies dominate. By extension, many argue that if newspapers had understood they were in the information business, rather than the print business, they would have adapted more quickly and more successfully to the Net.

While I love Levitt’s thoughts on marketing, the usual objection to Marketing Myopia is: say Penn Central Railroads had fully envisioned the future — just because they successfully ran a railroad, do you actually believe that Penn Central Airlines would have been a big success? Even fully informed, can you get there from here? Put differently, seeing the future and having the core competencies to compete in the future are two different things.

I have a similar objection on behalf of newspapers. It’s one thing to anticipate the whittling away of your classified ad business. It’s quite another to have the skillset and Internet savvy to come up with Craigslist. In fact, if you could travel back in time and tell the Tribune Company about their future, how much do think they could have changed?

I hate to be fatalistic here and yes, they wouldn’t have let themselves get involved in a highly leveraged buy-out — but financing strategy aside — do you think it would have changed much? Even with a fully informed visitor from the future whispering in their ear, do you think they ever could have made a Tribuneslist successful? And even if they could, what about economics. Craigslist runs a nationwide classified advertising platform and does it with about 25 staff.

Back to Surowiecki:

The peculiar fact about the current crisis is that even as big papers have become less profitable they’ve arguably become more popular. The blogosphere, much of which piggybacks on traditional journalism’s content, has magnified the reach of newspapers, and although papers now face far more scrutiny, this is a kind of backhanded compliment to their continued relevance. Usually, when an industry runs into the kind of trouble that Levitt was talking about, it’s because people are abandoning its products. But people don’t use the Times less than they did a decade ago. They use it more. The difference is that today they don’t have to pay for it.

He continues with a great soundbite:

The real problem for newspapers, in other words, isn’t the Internet; it’s us.

We want access to everything, we want it now, and we want it for free. That’s a consumer’s dream, but eventually it’s going to collide with reality: if newspapers’ profits vanish, so will their product.

This argument is right in line with the “free ride” concept that I blogged about a few days ago. He concludes:

For a while now, readers have had the best of both worlds: all the benefits of the old, high-profit regime—intensive reporting, experienced editors, and so on—and the low costs of the new one. But that situation can’t last. Soon enough, we’re going to start getting what we pay for, and we may find out just how little that is

The complete New Yorker story is here.

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