Where Do Niche Enterprise Software Companies Go To Retire? October 10, 2012Posted by bernardlunn in capital markets, Enterprise Sales, Enterprise Web 2.0, SAAS.
Tags: george koukis, holding company, misys, private equity, rollup, temenos
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Many years ago I worked for Misys, after they acquired a company that I worked for. The founder, Kevin Lomax had simply taken the Hanson Trust model (for industrial companies) and applied it to software. Misys was a good exit option for the founding management team and Misys had a simple model that worked very well for a long time. The basic model worked as follows:
1. Buy a mature enterprise software company in a niche market. Mature meant lots of Maintenance Fees, which has good revenue visibility, almost SaaS like. I worked at Kapiti when Misys acquired the company. This was Misys’s first foray into banking software, their initial market was Insurance.
2. Buy other companies in the same niche, become the dominant vendor and get economies of scale. Fairly soon after buying Kapiti, Misys acquired ACT (a public company that had a couple of bad quarters and was available at a good price). ACT owned Kapiti’s two major competitors – Midas and Kindle. Overnight the instructions changed from “beat the crap out of those guys” to “compete, sort of, but do it nicely and for goodness sake don’t get into a price war”.
3. Then buy lots of young and more technically leading edge companies and sell that into the market that you already dominate.
So, what is wrong with this picture? Today, Misys is a shadow of its former glory. It was nearly bought by Temenos and now is a bit vulnerable after they walked away from the deal. In 1996, when Misys owned Midas, Kapiti, and Kindle (representing the number 1, 2 and 3 by market share), a tiny upstart run by a great entrepreneur called George Koukis decided that Misys was vulnerable and could be taken on! That was some crazy strategy, but he was right. His company was Temenos. The fire had gone from the belly of the Misys folks, but it burned fiercely at Temenos. (Watch George Koukis, a Greek, talk straight about the Greek Crisis, a refreshing entrepreneurial take on a tired old story).
The big question for all the holding companies that emulated Misys and all the Private Equity buyouts and roll-ups is how do you keep that fire in the belly? How do you go for growth when you already dominate your niche? The basic strategy is to move into adjacent niches. This requires a start-up/entrepreneurial mind-set, the kind of skills that the company had in its founding days and then lost.
Misys would have been fine had they not had a really driven entrepreneur like George Koukis coming after them. There was no disruptive technology or new market to worry about. Temenos had no tail winds to help them. The same is not true today. The legacy companies are being attacked by lots of Koukis like entrepreneurs and these entrepreneurs have the huge tail wind of working with native cloud technology. The old-software company’s retirement home is not as serene as it used to be.
Tags: enterprise software, ipo, salesforce.com, workday
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Where is the big enterprise software winner of the last decade? Where is the Oracle or SAP of the last decade? Or less ambitiously, where is the TIBCO, Cognos or Hyperion of the last decade? So far the only one to make it into the big leagues is Salesforce.com and it is unclear if they will actually make the breakout from their CRM niche to something bigger.
Workday has the ambition, funding, founder experience, breadth of offering to be this winner. This one will be interesting to watch, the SaaS Index is getting a new bellwether stock to join $CRM very soon.
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About 10 years ago, I wrote a post called Enterprise Software R.I.P. The venue that I published in has long since disappeared into the digital dustbin, but my trusted laptop files retrieved it, so it is published below. I decided to revisit this post because I have come to the conclusion that enterprise software did not die, it just went into a coma and it is now coming out of that coma.
To a casual observer, there is not a lot of difference between coma and death. First let me say what I mean by coma/death in this context. Of course there is still lots of enterprise software and a few huge vendors doing very well and lots of small niche vendors operating in the cracks between those behemoths. But where is the Oracle or SAP of the last decade? Or even the BEA or Cognos or TIBCO of the last decade? Where is the start-up that broke into the mainstream and became a multi-$billion success story? I am referring to the death of innovation in enterprise software. This decade has not been conducive to enterprise software ventures. It is no wonder that most VCs ignored enterprise software during this decade.
Ten years ago I sensed that this was happening. It was disturbing to me because enterprise software was the world that I understood so well. I felt like the Polish Cavalry in the Second World War. The Polish Cavalry was renowned as the best in the world. They could shoot with great accuracy at full gallop and turn on a dime, nobody could match them. None of that helped them when the Nazi dive bombers and tanks rolled into Poland in 1939. I had mastered a game, but the game had changed.
So I set out to understand the consumer web. A decade later I am not a master of that game, but I understand it “enough to be dangerous”. That helps now that I am coming back to enterprise software because the consumerization of software is a big part of the renaissance of enterprise software. However it is only one part of that renaissance. Enterprises are more than the sum of their parts, they cannot simply empower every employee with consumer web type tools and hope they all pull together to grow the profits. That is why I remain sceptical of the hype around Enterprise 2.0 tools, all those “Facebook tools within the enterprise” ventures. These are “shiny objects” that make Gen Y employees happy and can have an incremental impact on productivity, but they are hardly game-changing in the way that say relational databases and ERP were game-changing in their day. Sure it helps to have better user interfaces that encourage collaboration. But there is a lot more at stake for enterprises and therefore for the employees. Enterprises face a perfect storm of three tsunamis hitting at the same time – Digitization, Globalization and the Debt Crisis. This is an existential crisis for large companies, their very reason for existence is being called into question. Business-as-usual won’t help them navigate this perfect storm. Therefore software-as-usual won’t help them navigate this perfect storm. That is why there is a huge opportunity again in enterprise software.
But I am “getting too far over my skis”. I want to return to the R.I.P post from ten years ago. There was a lot that I got right. I could see the dismal grind of consolidation. However some of my gloom was due to the terrible, but transitory, backwash from the end of the technology nuclear winter. These were the days when nobody was buying any software, innovation was dead, the only answer was to get into real estate speculation. Thankfully I resisted that temptation, it ended in a bust worse than the Dot Com bust, one that we are still living through. In hindsight the biggest thing I got wrong was:
“The “IP everywhere” rollout is exactly that, an implementation of proven technology by big vendors”.
That was wrong because the “IP everywhere rollout” fundamentally changes the rules of the game. The IP everywhere rollout makes transaction costs cheaper externally than internally. This is the practical realization of Coase’s Theorem. Coase, an economist writing in the 1930s, posited that firms grew big based on the fact that transaction costs were lower internally than externally. The Internet makes external transactions dramatically cheaper; this is the “frictionless commerce” that is now becoming reality. This challenges the very basic idea that scale is always an advantage. All those roll-ups, acquisitions and mergers in the industrial age were based on the theory of economies of scale; in Coase terms they were based on the theory that transaction costs were usually cheaper internally than externally. This goes to the very heart of what makes an enterprise big, why it needs to be big to win. This is as far from business-as-usual as you can get.
I also lost the plot a bit here as well:
“The return of the single vendor stack. IBM, Sun and HP are putting together complete solution stacks that look suspiciously like the pre-Wintel proprietary solution stacks provided by hardware vendors such as IBM, DEC, Data General, Olivetti, Burroughs, Univac, Wang and other dinosaurs that once ruled the earth. “
I had that both right and wrong. Yes, the vendor stacks forced consolidation. I got that bit right. But of course this is no different from the pre-Wintel proprietary solution stacks and they all disappeared into the dustbin of history; only IBM survived and thrived, DEC, Data General, Olivetti, Burroughs, Univac and Wang are all history. I saw that but I did not see how it would end. The answer is that when IP everywhere rolled out enough, the proprietary solution stacks started to become threatened. That is happening now. Sun has already fallen, it’s great technology is now one part of the Oracle stack. HP is a seriously troubled company. Again, only IBM has emerged stronger from this wave of change.
Perhaps the most fundamental mistake I made was in my definition:
“First a definition; enterprise software is the core, mission critical stuff that manages transactions, accounting and management information.”
If you define enterprise software that way then certainly it is “game over”, but that is only a definition of the first wave of enterprise software. The next wave, enabled by IP Everywhere will tackle much more critical issues than basic administrative functions. These critical issues will be the subject of anther post but they will address the existential question for enterprises which is how to grow when economies of scale is no longer the driver of growth.
I also mistook the fact that real time enterprise was only in the “slough of despond” that always comes after a period of hype when I wrote that:
“real time enterprise” is a fancy name for what the industry is gradually evolving towards
Real time enterprise needed to wait until the IP Everywhere rollout was more complete. For example, now that about 50% of the 7 billion people on the planet have mobile phones, you have to operate real time to thrive. The IP Everywhere rollout also enables real time enterprise solutions to be implemented practically.
Enterprise Software R.I.P
(Note: this was written late in 2002 and is copied here unchanged).
This is a receding Tsunami. Thousands of companies rode this one to fortune, but it is now crashing on the beach and the backwash is pulling a lot of companies underwater.
We are still in the early stages of the enterprise software consolidation and the most sensible option is to sell out for the best price you can get. Then you can find another wave that is growing. Or you can get out of the industry as thousands of talented, experienced executives have done in the last few years. For those who love the industry but hate the idea of working for one of the gorillas, this article highlights how to find a reasonably protected niche market
First a definition; enterprise software is the core, mission critical stuff that manages transactions, accounting and management information. The industry has been doing this for decades and there really are only so many ways you can slice the cake.
Of course it is a huge industry and is not going away. The issue is whether this is an environment conducive to start-ups. Look at the things that customers are now focused on such as data center consolidation and integration. These require big companies. The “IP everywhere” rollout is exactly that, an implementation of proven technology by big vendors.
Attempts to hustle up big new growth waves within enterprise software have failed. Wireless is a simple another delivery option and “real time enterprise” is a fancy name for what the industry is gradually evolving towards. These are add-ons to existing products from big companies.
What is driving this consolidation?
The proximate cause is the after effects of the bubble bursting. Massive over-investment and the dramatic drop off in demand puts the buyer in control.
The buyer has always hated the traditional enterprise software model; too many small vendors blaming each other for projects that don’t deliver business results. In a buyer’s market, they get what they have wanted for a long time.
Investors demand the earnings visibility that comes from a recurring revenue model. When customers and investors both demand the same thing you can be pretty confident that it will happen.
The return of the single vendor stack. IBM, Sun and HP are putting together complete solution stacks that look suspiciously like the pre-Wintel proprietary solution stacks provided by hardware vendors such as IBM, DEC, Data General, Olivetti, Burroughs, Univac, Wang and other dinosaurs that once ruled the earth.
ASPs with solutions engineered from the ground up for the Net, such as SalesForce.Com and Intranets.com are getting real traction and proving that it is possible to deliver real solutions over the Net for a monthly fee.
So will all the customers simply plug into a few giant Con Edison style utilities? Is our only option to work for/invest in these utilities? Thankfully the answer is an emphatic no. The utility analogy can be stretched too far. IT has a far bigger impact on a company’s profitability than electricity and there are a lot more variables. So how can smaller independent companies prosper in this new world?
Leverage the stack for your own high growth niche. Offer the total solution on-line for a monthly fee. This reduces the buyer’s risk and thus enables start-ups to get that critical early traction. The good news is that it is now much easier and cheaper to put together a total solution from a mix of outsourced data centers, open source frameworks and offshore developers. All you have to do is find an emerging growth market.
Operate right at the top of the stack where you are dealing directly with end users (aka a vertical market solutions focus). Look for business sectors that are growing fast but that are small enough today to fall below the radar screen of the gorillas.
Web Services based “features”. Experienced venture builders look at most new ventures and say, “that is not a product, it is simply a feature”. The best that can happen to these “companies” is that they get sold for R&D value. It is possible – but not yet proven – that Web Services will enable small companies to thrive by offering these features on a pay as you need basis over the Web.
Mine the backwash. There is a lot of money in maintaining old systems, catering to the conservative customers and forgotten niche markets. These forgotten markets last much longer than you would think from listening to industry analysts. This is low on the glamour stakes but if you are in business to make money it is worth remembering the old saying “there’s brass in that old muck.”
Private label commodity providers. This is another low glamour business, suitable for low cost operators. You sell your product through other solutions providers without your brand being visible. Of course you may eventually pull off the “Intel inside” trick and move up the stack, but even pure commodity players can make good money if the market is big enough and you focus on efficiency and being the lowest cost provider. You will need to bundle excellent support and show that your TCO is lower even than open source.
This a good time to take stock and get ready for the recovery with a new positioning. Markets will recover and IT will remain central to business. But don’t expect it to be like it was before. Prepare for dramatic change and find where you can add the most value.
Enterprise Software: The tough transition from founder led sales to a scalable, professional sales team August 27, 2012Posted by bernardlunn in Enterprise Sales, Enterprise Web 2.0.
Tags: business, enterprise-it, sales co, software ventures, technology
You need three reference accounts to be a credible vendor:
Once means nothing
Twice is coincidence
Three times is a trend
These first three deals are very, very tough. Customers don’t want to take the risk of being an early customer of a startup. The only person who can close these first three deals is a founder. That is why successful enterprise software ventures almost always have a balanced founding team of two. One is a brilliant techie who creates the product. The other is a smart, driven, sales oriented person – the “sales co-founder”. Attempts to hire somebody to make these first three deals happen usually fail. You cannot outsource the job.
These first three deals need to evolve with the product. The two founders, the sales guy and the techie, need to work incredibly closely to make these deals happen. The product does not really exist until these three reference implementations are complete.
Each of these three deals is very tough to pull off. Most customers prefer to wait until the product is proven in the market – they want to wait until you have those three reference accounts. You can be justified in having a big high five celebration on each closing. However the next transition is often even tougher. Mostly it is tougher because founders don’t see this one coming. The first three deals are so tough and so all consuming. There are four temptations when you reach this point, each with their own peril:
1. Just keep working the same way. This is very tempting for the sales co-founder. Why mess with success? You and your techie co-founder are working as a great team. You have a pipeline. You are enjoying this. The propects want to keep working with the founders. There is only one problem. You can never build a big business this way. Maybe you are OK with that, but your window of opportunity can close very fast. Your market wants a winner to emerge. There is a gap that needs filling. That is why you succeeded in getting those first three deals. The market wants your company to become a big viable vendor. So, while they love talking to the co-founders, they love your experience, insight and energy, they also want you to build a scalable organisation. If you don’t, the market will annoint another winner and you will find doors being closed.
2. Hire a professional sales guy to replace the sales co-founder. The founder can make selling the product sound so easy. You have a great product, three happy reference accounts and a window of opportunity into a big new market. Surely you can find somebody to replace you? Sadly, many ventures fail totally at this stage. Those that make it past this phase do so thanks to the drive and will of the founders after burning through many of these professional sales folks in an expensive process that is full of fights and bitterness. Who do you hire for this key role? It is tempting to go for the professional from a big company. The candidates will tell you why they are quite comfortable making the transition to a startup, why that is what they have always wanted to do. Sadly many of them are refugees from big company sales teams simply because they were not good sales people. No matter how many times these professionals deny it, they will expect your company to have all the marketing bells and whistles of a big, mature vendor. They will also quickly get uncomfortable with the constant pivots and tactical flexibility. This is an essential feature of the early days of a startup. The sales co-founder can manage this easily as they are an owner and they have a close working relationship with the technical co-founder. However this is really difficult for the newly-arrived sales professional to pull off. The customers keep asking for the sales co-founder. The technical team won’t make changes based on what the newly-arrived sales professional asks for. The organizational anti-bodies rush to kill this intruder. The founders refuse to accept that their scrappy, agile, fun startup can have these organizational anti-bodies. So the newly-arrived sales professional is fired; it must be their fault. I have seen enterprise software ventures burn through three or more sales professionals in this way. This takes many years, costs a lot of money and often means the company misses the big window of opportunity.
3. Hire an entrepreneur-sales type. Knowing about the perils of bringing in the professional sales type, many founders aim to hire a clone of the sales co-founder. That can sometimes work OK, better than the sales professional from Bigco. But this just postpones the time when the venture has to implement scalable sales processes. The more immediate problem is that most people don’t like being clones. This is particularly true of the entrepreneurial sales types. This route often leads to big clashes between two strong-willed personalities that each deeply prize their freedom to work things their way.
4. Raise a lot of Venture Capital so that you can hire a top notch sales manager (VP of Sales) who then brings the full sales team on board. This addresses one big issue with both routes 2 and 3. It is hard to bring on just one sales person as this makes the role of the sales co-founder unclear. The sales co-founder cannot just manage one sales person. But all you are doing is replacing all the problems of hiring a sales person with the same problems but related to hiring a sales manager. It is very hard to accelerate growth in enterprise software using Venture Capital. Hiring a sales manager who brings on a whole team at this stage may simply accelerate the burn rate.
When you pass the gate labelled “3 reference accounts”, get the whole team together for a big celebration. Your venture is now viable, you are “in business”. Then head off for a couple of quiet days to work out how to pass through the next gate labelled “big valuable company”.
Attention Enterprise Cloud and SaaS Vendors: CAPEX is no longer the problem, OPEX is the problem. August 25, 2012Posted by bernardlunn in Enterprise Sales, Enterprise Web 2.0, SAAS.
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One of the big value propositions for SAAS has been:
- No CAPEX
Pay as you use licensing converts IT from CAPEX to OPEX. That has worked brilliantly, perhaps too brilliantly. While nobody was looking, the CFO’s attention shifted away from CAPEX. This is hard for cash-strapped start-ups to understand, but big companies have ridiculous amounts of cash on their “fortress balance sheets”. They have so much cash that they don’t know what to do with it. They can give it back to shareholders via Dividends and Share Buybacks; that gives a short term boost to the stock price, but it is not what they are paid to do.
They want propositions from vendors to spend that cash to:
- improve the profit margin by reducing OPEX. That is a much better way to boost shareholder value than buying back their shares.
- generate new revenues. This is why acquisitions are so popular, but shareholders prize organic growth more than acquisition led growth. If you have a credible way to grow revenue organically, you will seriously get the attention of the CXO folks in their corner offices.
Now look at the standard SAAS/Cloud pitch from this corner office:
“you won’t need to spend that plentiful cash but by letting us grow unchecked within our organization we are in danger of letting our OPEX get out of control”.
Your frictionless customer acquisition has become their out of control OPEX spending. The “no CAPEX” pitch was ideal market entry pitch for SaaS and Cloud vendors, but it is no longer the compelling proposition that it used to be.
No CAPEX still works well for two types of customer:
- Startups and smaller companies. They are always cash-starved. But as a vendor you have to bet that one or more of these startups will become big. It is incredibly hard to scale a business if all the customers are startups or small.
- Operating units within an enterprise. They tend to have minimal external IT budget as they are supposed to get big IT projects approved through the internal IT department via the CIO. That internal process can be expensive, lengthy and political.
Both of these can be excellent market segments for vendors, but this should not be mistaken for an enterprise value proposition.
The great enterprise software startups of the past almost all bootstrapped without Venture Capital funding. They could do this because selling perpetual licenses is wonderful for generating cash. Sure, selling perpetual licenses will lead to problems in the long run – huge pressure to close big deals at the end of every quarter and lack of revenue visibility. For most entrepreneurs this is a bridge that they can cross at a later date. In the early years the three golden rules are 1. Cash Flow, 2. Cash Flow and 3. Cash Flow. The other part of the perpetual license model is the Annual Maintenance Fee. As this is cumulative, it creates revenue visibility as the venture matures. Look at the financials of a mature enterprise software company and you will see a big % of the revenues coming from Annual Maintenance Fees which have similar characteristics to SaaS subscription fees – good revenue visibility and low churn.
Tags: cloud, consumerization, enterprise software, SaaS, salesfo
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Today’s hype is all about the Cloud, which is a triumph of marketing. Marc Benioff, Founder/CEO of Salesforce.com, is the trailblazing pioneer who executed brilliantly on a marketing blitz with the No Software tag line and image. It was brilliant, but something grated on me. Salesforce.com was still all about software, just software delivered in a different way. “Software is eating the world” as Marc Andreesen puts it. This is the golden age of software. The tag line should be More Software.
What Benioff really meant was:
“you don’t need to install our software on your hardware”.
That does not exactly trip off the tongue. It sounds like branding conceived by an engineer – totally precise and accurate….and quite useless.
Or he could have said:
- No CAPEX.
That is the Pay As You Use Licensing model. Again, this is precise, but useless as marketing. Working out the trade off between monthly payments vs perpetual licensing is Finance 101. Plenty of traditional enterprise software companies offer a monthly payment option and this can help to get a deal “below the radar” of a corporate CAPEX authorisation process; but that is hardly a game-changing revolutionary approach. Many companies, savvy to this move by vendors, require authorization for the full length of the contract (e.g. they multiply the monthly fee by 24 if it is a 2 year term).
Or Benioff could have said:
- No Hardware
- No Data Center
That would have been more accurate. No Hardware is the simple core of the cloud computing value proposition. Salesforce has been adamant that they will never license their software for use within a customer’s data center. That gives them lifetime value and great revenue visibility. They can maintain that position with customers as they get their initial traction with end users who have zero interest in the hassle of installing software on hardware in data centers. By the time the Salesforce sales guys get to the CIO level, they are already entrenched at the end user level, so they have enough negotiating clout to hold this line. As Salesforce.com has the scale and technology to buy hardware at least as efficiently as their biggest clients this works. This is tougher for startups without any buying clout.
So now we have:
- No CAPEX
- No Hardware
Now, lets add Consumerization. Now we can say:
- No Committment
- No Documentation
This is more radical. Many enterprise software vendors fail at this step.
No Commitment means users pay monthly and quit any time they want without penalty. When I was editing the SAAS Insights Report, there was one quarter when Salesforce.com was panned by Wall Street analysts because the company had moved from a policy of insisting on at least 12 months commitment, to asking for no commitment. This meant that analyst’s models that forecast future revenues based on contractual committments saw a weaker forecast. If they had bothered to ask their colleagues analysing consumer centric subscription businesses, they would have looked at churn models and cost of customer acquisition and concluded that Salesforce was making the right move. This showed me that conventional Wall Street analysis is often deeply flawed; but that is another story.
No commitment naturally leads into Freemium. The conventional enterprise response to the need to try before you buy is the free trial. This is quite different from freemium, which is free forever with limited functionality. This is a game that large companies can play more easily. For example, I am confident that Google will survive and won’t feel under financial pressure to adversely change the terms of their free Gmail service. A free service still requires me to invest my time; if the vendor goes smash or changes the rules, I lose that investment.
The key to No Commitment is Low Churn. If you get high churn, if users pay for a couple of months and then terminate, your customer acquisition cost will be too high.
Low Churn means that users actually find it useful. Which leads onto to next one:
- No Documentation.
Would you use Gmail if you needed a Manual to get started? Consumerization means really, really user friendly software. You know what to do the moment you see the screen and you can get real value immediately. If you want to become a power user, you can do so gradually. If you want to use related modules, they are loosely coupled but integration is automatic.
Consumerization is the real revolution in enterprise software. Cloud Computing and Pay As You Use Licensing are usefull iterations of the current model. Consumerization is the seismic shift that will:
- Dramatically lower the cost of customer acquisition and on-boarding for vendors (and therefore enable lower prices for customers).
- Bring the customers and partners directly into the systems and processes on a peer level with internal employees.
The last point is critical. Enterprises have already cut a lot of costs. They won’t stop, cutting costs is like weeding the garden, a job you always have to do. But senior management priority has shifted decisivelty towards revenue generation. Enterprises today are very cash rich and profit margins are at an all time high, but management teams are all struggling to grow the top line.
Online networking is changing how business is done in fundamental ways. The consumerization of software is not only about letting Facebook addicted Gen Y and Z feel more at home at work. Nor is it just about incremental productivity improvements from easier to use software. Consumerized software is about enabling front line employees to connect in real time and in context with customers and partners. Business is evolving from managing hierarchies to managing ecosystems. That requires a radically different type of enterprise software. The revolution in enterprise software that commenced with cloud and SaaS is just getting started. It is this aspect of consumerized enterprise software to add the final one:
- No Walls (between employees and customers).
Today’s enterprise software is a 5 point mantra:
Vendors can choose which of these 5 mantras to focus on. There are trade-offs and some vendors will do well be focussing only on one or two of these mantras.
Tags: api, integration, real time enterprise
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I had never used LastMinute.com before, but I knew of the concept and I had a perfect use case, so it was time to give it a try. I had to get a flight on short notice and wanted to see if there were any last minute bargains. I started on my iPhone, found a click to call, spoke to a rep who quickly got me a flight that looked like 50% off the list price I was seeing elsewhere. Go for it, I told him, gave my card details etc and after some fluffing around was told:
- the price just went up (about 10%). OK, it was still a bargain, so though I was annoyed I eventually said yes.
- then I was told to pay an additional 2% because I was using Amex, even though that was the card they had taken and confirmed the price was “everything included”. That was the straw that broke the camel’s back and I stopped the transaction.
I went back to my laptop, found WiFi and went to book it online, found the original price, booked it and got email confirmation. I patted myself on the back and went out for the evening, thinking all was OK with my flight.
At checkin, they had no record of my reservation. Went to their ticket counter, to a helpful lady who got LastMinute on the phone. No reservation had been made. My card had been debited and I had confirmation, I had an Order Number from LastMinute. I also had an Airline Reference Locator. Silly me, I do not know the intricacies of airline reservation systems. What I needed was a Ticket Number. Note to self, store this knowledge in lifehack file.
Here is what seems to have happened:
- Airline sends LastMinute a price.
- Last Minute posts that price to me.
- During the booking process – it is a multi-leg transaction – the price gets changed by the airline
- So the ticket is never issued.
The consumer i.e. me, holds LastMinute responsible. I assume the interface to the Airline was all messed up and probably the Airline (not a major) had old-fashioned systems. But that is LastMinute’s job to manage. I think all the travel sites suffer from some version of this problem. I have seen that at times when flights are cancelled due to weather and everybody scrambles to get on a new flight.
The real time web sounds fun but we cannot live on fun real time tweets. At some stage we have to connect to the real world of enterprise systems and transactional systems that involve money. That interface seems to be horribly broken. Methinks any tech platform that can fix that is going to do very well.
Tags: information bus, marketing, messaging, mindshare, teknekron, tibco
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Note: I wrote this 10 years ago and remembered it when facing a similar issue today.
Software market leadership starts with mindshare. Winning the mindshare battle requires intense clarity about your message. If you can distill your message into a single word or phrase that defines your market, you have a big competitive advantage.
Of course it is not that easy. Thousands of marketing professionals get paid millions of dollars every day to come up with cringe-inducing phrases and tag lines that last as long as snowballs in hell. What makes it so hard is that messaging clarity has to be based on a very deep understanding of the dynamics of your industry and the position of your company within that industry. If your message does not seem real, it does not stand a chance. In fact it has to seem so real and obvious that when people hear it they assume they have heard it before.
History Lesson – Information Bus
However that final touch of clarity that is enshrined in a single phrase or word, can make all the difference. I learnt this the hard way in the early days of the market for real-time application integration middleware. In case you are thinking 2001, let me set your clock back about a decade to 1991. This was when technology such as Publish & Subscribe, real time messaging bus and Enterprise Application Integration was being adopted on a large scale in the first vertical niche market – financial trading rooms on Wall Street.
My company, Aregon, was an early innovator with solutions dating back to 1984 that were the first implementations in the industry. We were the technical pioneers. However when customers started to ask us whether we had an “Information Bus”, a term invented by a rival company, things started to go wrong.
How To Respond When A Rival Has Mindshare?
None of our responses was very effective.
For example, “no, that is not what we call our technology, let me explain” left people cold. Customers saw the Information Bus concept and automatically “got it”. They did not want to waste time understanding some new concept. Coming up with an alternative message is doomed unless you catch things very early and you are very, very good coming up with an alternative.
Replying that “yes, we have an Information Bus and ours is better for the following reasons” will get you sales but will automatically relegate you to the position of follower. You can build a good business as the number two or three vendor in the market and, if you time it right, you can sell out at the right time for a reasonable valuation. That is what happened to Aregon. However that is a far cry from being the market leader in a large market, which was what happened to Teknekron, which was later renamed TIBCO (as in the The Information Bus Company) and became the leader in the booming enterprise integration market.
Why Was Information Bus Messaging So Powerful?
The payoff from getting it right is huge. However there are very, very few examples of great successes. Why was Information Bus so powerful as a message?
- It was simple and easy to understand for the target audience. This does not mean “dumbing down” for everybody. This was a smart, sophisticated audience and they could count on a certain level of base knowledge.
- It was based on a genuine “aha moment”. As related by Vivek Ranadive, TIBCO’s founder, the moment came when he asked a software expert to describe why so many software projects failed. As a hardware engineer Vivek, could not understand why well-tested components could not simply plug into the system Bus. Why not do the same with software?
- TIBCO created a clear and simple diagram of the Information Bus that anybody could draw on a napkin and understand in a heartbeat.
- The company made sure that everybody stayed on message. Execution consistency is critical to success. The phrase enabled a dialogue that went into increasing levels of details as the company engaged in customer dialogues. Yet at every level they could come back to the simple Information Bus concept and diagram.
Think SAVE – Simple, Aha, Visual, Execution.
Don’t Force It
Hiring external consultants to create your messaging is usually a mistake. At best external consultants can act as facilitators, drawing out what is already known but hidden. Great messages cannot be forced out; they have to emerge. You cannot set a firm deadline and it is better to have no message than a bad one.
Ease of Adoption/Scale of Impact Quadrant July 4, 2007Posted by bernardlunn in Enterprise Web 2.0, start-ups.
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For years I have had a crudely drawn quadrant on the wall next to my desk to remind me what to look for in a start-up:
On one axis – Impact
On the other axis – Ease of Adoption
This used to be a trade off. Before Windows, ease of adoption was unheard of. Microsoft got the adoption by riding on the PC manufacturers. Then Google barged right into the top right hand corner with massive impact and totally easy adoption. There was a view that ease of adoption without lock-in is inherently a weak and unsustainable position but the lack of traction of all the Google challengers seem to be proving that this is not the case.
Classic enterprise software was in the big impact/hard to adopt category. This was where there was a trade off. You could build something that fitted into another vendor’s ecosystem – easy adoption but limited impact – or you could work to create something that became an ecosystem by getting totally entrenched into major companies.
I believe those days are over. The new wave of Net Native Enterprise 2.0 software makes adoption much simpler and organic. There is much less need to (as Steve Jobs calls it) “crawl through the corporate orifice” to get adoption. You won’t get VC to fund a “storm the barricades” type of frontal assault with big sales and marketing budgets.
This will probably limit impact, unless there is a network effect, however I see fewer sustainable network effects leading to Windows type dominance in future. For example, WordPress and other blogging tools attempt this but I think it is a weak concept (much as I love WordPress) as no blogging tool will get dominance and nobody wants to limit their network to one arbitrary set of bloggers.
That is probably the reality of Enterprise 2.0. Despite the great efforts of marketing departments to drum up new paradigms, we are simply into a very long and sustained roll-out of Net native versions of what we have always had in the enterprise. This will lift the boats of every enterprise software player that plays well in that environment and enables some new niche players to emerge, but I doubt we will see anything of the scale of Oracle or SAP emerge.
Most of the Web 2.0 start-ups that I am seeing fall into the low impact/easy to adopt quadrant. I am sure that statement will raise a lot of hackles and I am not trying to offend. I have worked in many start-ups and I am very aware that any traction looks like massive impact for a start-up and should be shouted from the rooftops. I am certainly not trying to rain on any parade.
The barriers to entry are now so incredibly low – use Amazon S3/EC2 for infrastructure, mashup code and deploy online, use RentACoder to get cheap brains. Get it out into the Blogosphere and let the widgets propagate virally. So no problems on the ease of adoption front.
But big impact? Go outside the Web 2.0 Bubble (I am not referring to financial bubble more like “boy in the bubble”) and ask a random selection of ordinary people what recent innovations on the Net have made an impact on their lives? It is a bit sobering.
Usually massive impact means that the solution is solving some huge “pain point”. Personally I think the Web works pretty well. Sure there are some minor annoyances but not anything that I would spend any money to fix. I can see some Web 2.0 tools making life easier, but in small incremental ways, not really life changing ways – not like the PC, email and search.
The reality is that the massive impact deals only come about every decade or so. I don’t believe the next one will be in IT and I say that as somebody who has made his career in IT. The massive impact ones have to be addressing real “pain”. There are plenty of pain points out there – disease and global warming come to mind – and the Web will have a massive impact on helping with these big problems by spreading knowledge. These are all about big science. Fix the problem and adoption ain’t your problem (a real cure for cancer won’t need a marketing budget).
Of course there is a ton of money to be made in media niches and office/Net productivity tools. YouTube is entertaining, like those best of home videos on cable, but changing the world? It is the breathless we are changing the world hype of a lot of Web 2.0 that is a bit old.
The one thing that stands out as big impact is social networking, whether for dates (younger crowd) or deals (mortgage payers). It fulfills as basic a need as email did. I suspect we are at the early stages of social networking and something new will emerge that makes it more sustainable. I do not buy the notion of the “social graph” as the new platform. I believe that Social Networks actually have a reverse scale effect. When there are too many people in one network it loses the whole point of a relationship, it just feels like a big anonymous place and we avoid it to look for more personal ways (online and offline) to build and maintain those relationships.
The Internet is The Platform and nobody controls that. Thats just fine with me.
The Internet Changes Everything. The Ease of Adoption/Impact quadrant is no longer applicable. Possibly Crossing The Chasm is out of date (I am still figuring that one out). In an open “services” Internet, the idea of a dominant platform is almost certainly dead.
Reflections of a WordPress newby on Enterprise 2.0 May 24, 2007Posted by bernardlunn in Enterprise Web 2.0, start-ups.
As a newcomer to blogging – this is my second post – and somebody who is old enough to remember using a Telex machine to send a proposal, I needed to use something that was pretty intuitive. After about an hour working with WordPress I can say that WordPress is as good as it gets; it is as close to “free, perfect and now” as I have seen. I can see that there is tons of functionality that I have not yet used and I am motivated to experiment and learn more as my experience to date indicates that my frustration level will be low.
During 30 years in the software business, I have got used to the idea that software is mostly pretty bad – no, lets be frank very bad. Pre the PC I learnt that software was monumentally hard to develop, always (I mean always) over budget and and the green screen text stuff was for people in back offices and data centers only. My first hands-on experience was with a Mac (great) and then decades of frustrations with Windows.
WordPress is part of a new wave of software that looks like it may actually get it right. This looks like second generation Net native software. The first generation of Net native got the “wow” factor but rather the same way one goes wow when you see a dog walking on its hind legs (amazing that Rufus can do it, but he still does it very badly). The second generation takes Net native as a given and really focuses on usability. It has to be usable as adoption is based on thousands of individuals voting every minute with their mouse.
This is not how the Enterprise works. Somebody makes a decision and everybody has to use the clunky monstrosity. Of course people do still vote with their mouse but in destructive, passive aggressive ways that derail the project. These are the projects where the CFO at the post-mortem meeting asks “So are are you telling me that after 3 years and $x million we are facing a write-off decision? Can somebody tell me how we got here?”
I can see how systems like WordPress can avoid this by growing more organically. Add a few colleagues/partners as posters. Add some traditional semi-static pages. Add some social network, a bit of video and a podcast or two. Pretty soon I have a modern CMS, with minimal implementation costs and all on a pay as you go basis.
This is what the analysts are touting as Enterprise 2.0. At a 30,000 foot level it makes sense. History has a way of repeating itself and Web 1.0 went from individual to Enterprise and the big Enterprise Net roll-out is still in full swing. Does that mean WordPress type companies should hire some hot-shot sales guys to knock on CIO doors? As somebody who has knocked on a lot of CIO doors, I think not. The possibly vicious cycle goes like this:
- Get VC by writing a Business Plan with aggressive revenue projections
- Hire expensive sales guys who will promise whatever it takes to get that revenue target
- Build whatever clients want/demand without the time to design it right
- Clunky monstrosity here we come
This can end fine with a trade sale, everybody walks with some money vowing to do it right next time. Actually I think we have a lot of teams with precisely those scars who are determined to do it right this time.
The Net has not only changed the way we deliver software. More importantly it has changed the way people buy software. The enterprise gatekeepers have less power. The gatekeepers still have veto power but only if the software breaks the rules on privacy and security. It is not just start-ups buying this way, it is self-managed teams and departments. Try it free and use the credit card to buy a bit and expense it; the credit card vendors do a good job at expense tracking and those miles and other benefits are nice bonus.
Then at some level of usage, the corporate department may come in to give it the blessing and negotiate volume discounts. The trick is not letting those negotiations drive the featuritis that becomes spaghetti code (as in “we will buy 500 copies if you add xyz feature now”).
I am hopeful that this is a genuinely new era for software and that the teams who have enough experience with the old ways will stick to their design vision and keep it growing with Einstein’s famous phrase in mind:
“Everything should be made as simple as possible, but not one bit simpler.”