A disruptive model? Just as Salesforce.com’s CEO Marc Benioff dismisses conventional software vendors such as Oracle and SAP as dinosaurs on the verge of extinction, so Vembu looks on Salesforce.com’s high-cost, premium-priced model (in comparison to Zoho’s) as a throwback to the days of old-fashioned enterprise software….. Meanwhile, Zoho’s decision not to turn to advertising as a source of revenue is also appropriate for the business market and a useful differentiator against Google, the other big player making headway in that mass SMB sector. On balance, Zoho’s model offers enough value to an under-served market to qualify as disruptive and its state of preparedness for a difficult economic environment could well see it emerge the other side of the coming recession as a leading player.

This got me thinking… So far most of the we dialogue on financial models has been based around a number of streams.

Freemium models seem to be getting the most coverage. I was never that impressed (Ben has a good piece here on why) and with the credit crunch I’m even less inclined to believe in this. To be honest I’d be amazed to see this one survive the credit crunch

Advertising supported – Google is the poster child. Fairly self-explanatory how it works.

Traditional pay as you go models – Salesforce.com There is another way to get scale, then monetise Internet assets, funnily enough it’s a variant on the Google model and is being used by Zoho. This approach is to use an existing revenue engine to fund the growth of the start-up, in Zoho’s case it is parent company AdventNet who are funding the Zoho development. The interesting dynamic here is the financial impacts. No debt and organic growth build rock-solid stability. I don’t believe people fully understand the economics at play here. The scale challenges a startup have to conquer are enormous, but when they get there the marginal costs plummet and accordingly your profits go up.  Check this from Zoho.

Google and Microsoft have clearly reached scale (in their own markets), Salesforce.com hasn’t… yet. I’m told that their PaaS play is starting to really reap benefits, huge customers signing up, customers putting Tb’s of Data thru a day. All driving economies of scale.

Getting back to Zoho, the more I look at it, the more I like the model. Self fund to scale, charge for premium services, consider a slow introduction of pay as you go later (I’d put in an easy migration path for those who aren’t ever going to pay) and above all keep it scaling. We see Amazon’s mantra all over again, ‘GBF’ “Get Big Fast”, but without the debt and with a fairly logical path to monetisation.

A year or so ago I went to a Salesforce.com event in which they trotted out a Google Apps exec to support their no software message.  The guy (I forget his name) was delayed coming into Sydney and so was pretty jet lagged. His only piece of take home message   “ we’re [at Google] a big believer in the no software message”

Kinda interesting considering you have to download and install the Chrome software (as an aside is the browser morphing to legendary status, the same but different from ‘software’). This aside, the point was this. Cloud delivered applications require a robust internet connection and a browser.  

This dependency on the browser and its ability to arbitrage Google has meant they’ve had to act and build something. This to me is the same play as Android, something I wrote about a wee while ago. It has nothing to do with the browser, but everything to do with the internet services that Google wants to deliver or protect. Search, advertising and apps.

Android is about giving Google a play mobile where they have no current advertising stream. Chrome is about a applications platform (and i suspect) a tool to get more information about web habits (which will enhance the advertising business).  Google needs this because the ability for adds to be blocked in a browser by a plugin (see Nick Carr’s two pieces on Adblock) or by an ISP are trivial.  This represents a very real threat to Google’s lifeblood… and to their credit they’ve innovated.

Microsoft is trying to but is clearly struggling… the browser as the OS of the future isn’t a picture that they particularly want. For that reason I believe they should get the hell outta the consumer market and focus on business. (more on this in a latter post).  Microsoft are also failing in the mobile space. This piece by Tim O’Reilly really sums up the mess they’ve gotten themselves into. It also supports my hypothesis, Google’s building platforms that they are hoping will be web on-ramps.  How successful they are in doing this will be interesting, given the issues they’ve had with robustness before.  I actually don’t think they care if Chrome dominants or not, I believe that as long as there are others who jump on their path and deliver the same outcome…. Ads served up, easy and reliable access to applications they will be happy

A guest post from the unreasonablemen.net

A couple of reasons. Firstly unlike Firefox and Safari and of course the corporate supported IE, it doesn’t seem to get past the companies proxy server.  Second, and most importantly to me I’m not prepared to give Google any more information about myself.

 Don’t get my wrong, I’m a happy user of 3 Google services – mail, reader and analytics . But that’s about all i want Google to know about me. Read Write Web has a good history and synopsis of Google’s privacy  stance. To me, reading that I get uneasy… real uneasy.  Ben Kepes and I have debated this before, I can summarise his position as more trusting than mine. Simple as that.

 I know that Google has a stated position of “do no evil”. I also know what happens in companies when they get squeeze for revenue and profit. Not always the right things.  Reason number 1.

 Another way to think about this. Google is a company of nearly 20 000 people, they’re like a small city in terms of population. And even small cities have bad people.  In the US 1 in every 136 people have been caught and convicted of a crime, if you extrapolate that out it means you would expect a company the size of Google to have 147 bad people.  147 people who could mis-use all that data that they now have the potential to access.

 End of the day its your choice, but you should be aware of the privacy issues associated with cloud services.

PS I’ve dropped Firefox and moved to Safari as my browser of choice. I’ll let you know how it goes.

I can’t help but comment on the hugely underwhelming version 2 of the digital strategy. As reported in the dominion post, the minster believes we are at no risk of having “inspiration fatigue”. I’d tend to agree….

For those who missed it, the article is here.

2012 TARGETS

* 80 percent of households will have 20 megabit per second broadband connections.

* “Open access” fibre networks will be operating in at least 15 cities.

* Fewer than 5 percent of household computers should be infected with computer viruses or malware.

* Three-quarters of advertised ICT job vacancies should be filled, up from just over half last year.

* Teleworking will cut the number of commutes to work by car by 5 percent

Just how this is going to benefit us economically is left out. Cunliffe does think that the massive investments going into making fast broadband available will be used though.

“Just ask any young New Zealander if they are fatigued by the digital world and they will say, ‘Can I get another 20 megabits of bandwidth, Dad, and get out of my way because I want to talk to my friends on Facebook’.”

Coincidently Alan Freeth came out today with a much more pragmatic view of what all this fast internet will be used for….

the main result of faster broadband links to the home may be more downloads of pornography and movies rather than improvements to productivity

Until we build support multinational digital businesses i’d have to agree. This to me is the bit lacking in the digital strategy, where is the money going to come from

I think they’ve got a lot to answer for. IT is such a hype driven industry and its all because of the marketers hyperbole.

Massively over used terms like ‘revolutionary’, ‘next generation’ and ‘2.0’ are thrown around incessantly. All they do is confuse our clients and create a need for more marketing spend.

Examples of this nonsense in action

• ICT – that would be convergence? or IT&T?
• IBM branded cars with “integrated business productivity solutions “ – otherwise known as a fax and printer in one – wow
• Anything 2.0 – that would be something older and (becoming) crusty renamed to be cool and new – web (2.0), enterprise (2.0) anyone?
• Social networks – err Chat groups with more features?
• iPhone – (I’d better be careful here, this is hallowed ground) – the advent of the mobile phone was the revolution, every innovation since is evolution.

I’m being deliberately cynical in my examples, but my point is that we, the marketers are becoming our own worst enemies. Customers have to deal with the complexity and confusion we create. Its no wonder they continually say trust is a key element in vendor selection.

Lets just keep it real. Lets apply some sanity to the way we bandy around words, even check the dictionary once or twice

One of the things that I hadn’t thought about, but that came up in discussions with people about networks, is the fairly stunning statement that the Internet is not flat. This is stunning because it flies in the face of all my Internet experiences, a  point I argued and won.

To the average user of the Internet, this statement is not true. The Internet you connect to is flat, one pipe (or modem) in, and you see everything on the net. Content goes up and down your pipe and you pay your flat fee or Mb usage and away you go. No concept of the tyranny of distance exists except for speed.

But for web properties this is not the case.  When you are a big property (that is have a lot of traffic) the web isn’t flat, in fact its made up of a bunch of geographic hops that funnel traffic to and from you. This traffic (known as backhaul) costs carriers to move around and because of this they like to charge for it. Typically the calculation is based on the distance the traffic has to move x the amount of traffic. Note that this ignores international peering which i’ll get to because its really important in a NZ context.

Some web properties don’t like to pay for this traffic. The subscribe to the belief that the Internet is flat and try to get around it. This has a couple of consequences, firstly they tend to underspec their connections to their user population and end up delivering really poor user experiences, see blip TV for an example.

The second consequence is that they go with low cost providers. I can’t speak for the rest of the world but here that means signing up with international carriers who are using marginal pricing to leverage their fixed investment to get to this part of the world OR are using assets already written down when they filed for chapter 11 in the US. 

This provides the web property with cheap bandwidth but actually means the user requests are now spanning the world, that is going all the way to the US and back to see a web page owned by a NZ company. End result is slower response times for users or higher cost international bandwidth which if you follow the logical path gets factored into the end users flat fee or Mb usage costs.

End result – someone pays.

My point of this post? The web properties need to give more thought to the Internet infrastructure that they rely on to do business. They should factor in the end user experience when making their technical and commercial decisions around where to locate their Datacentres and how they buy bandwidth. It costs real money to make the Internet run and there are no free rides

Vodafone NZ’s iPhone pricing has become so topical we even made some US news wires…well done but I’m sorry you only have yourselves to blame…

I told a couple of you repeatedly that it is just a phone. And you kept giving me the bull that its “cool” and revolutionary”… this is just the magic of Steve Jobs and Apple. They got you to be their own marketing machine, and in doing so you made the thing (just a phone) a prestige item and a prestige brand….

Just in the same way Tag Heuer is in watches, Bang and Olufsen in stereos Aston Martin is in cars. You pay over the top for those items because of the brand prestige, why is the iPhone different? Oh that’s right, it was you that created the brand prestige.

Is the pricing over the top? Certainly, but given the monopoly position Vodafone has on the aforementioned prestige item, namely the iPhone product, what else did you expect people?

News out today that Microsoft is going to offer to sell some versions of its desktop software on a subscription basis. This will be done in typical MS fashion under a cool product name “Equipt”. Confusingly some are calling this part of their S+S play but it seems that the software is locally installed so its not really “SaaS” – just the update feature…

My initial reaction? Cringe… I mean clearly this isn’t SaaS. The cynic in me leapt to the conclusion that this was a lame attempt to combat SaaS with a subscription model.

But then in an IM chat with Ben I had an epiphany;

What if this is a test case? What if MS is attempting to see if the success of SaaS is in its technical innovation – the software itself and how it’s delivered – or just in its commercial approach – subscription pricing.

Even if MS didn’t plan it that way perhaps we, the public could view it that way? Interesting piece of research in its own right?

Your thoughts as always are welcome.

There’s a growing opinion that the answer to that is no. Om Malik got stuck into Gmail last week.

How is one supposed to run a business on such an unreliable platform? The integration of Google’s services remains a distant dream, reminding us of the limitation of its competence beyond search and advertising.

Today Phil Wainewright posted about Sergey Solyanik, [a?] development manager at Google who has gone back to Microsoft because “he values reliability far, far more than coolness”.

Sergey’s point according to Phil is that Google’s emphasis

[is] on building Web properties that are popular, but which primarily help people waste time online

It’s interesting how we pidgin hole companies. Google is a technology company for sure, but they are a technology company that does online advertising really well. Is it reasonable for us to expect them to be able to deliver on-demand business grade services?

I rather suspect that for Google to deliver other (any?) applications is a stretch because of the same barriers that all entrenched, incumbents face. Culture, resources, big revenue levers getting attention etc., etc.

The evidence seems to be growing that Google is lacking something when it comes to building business grade, on demand services.

This might be obvious but I see it time and time again. Old world companies are so fixated on risk that they are going nowhere. Old world companies behaviour can be characterised by panic, followed by engaging consultants and outsourcing to drive down cost and build ‘unique capability’. End result: not a lot of action, no differentiation, but a whole host of warm fuzzies are derived. That is to say it’s more about the process and less about the outcome.

Let me expand on this.. I had coffee with a friend who attended a senior managers day at a large Telco. The interesting thing about this conference was some very insightful thinking provided by Michael Porter who spoke at this event. He asked the executive if they had engaged McKinsey’s to help with their strategy. When the response was ‘yes’, he challenged this decision saying

how do you think you are going to be different from your competitors when you are all engaging the same consultants and getting the same advice?

Michael hit the nail on the head there. It’s an interesting phenomenon, maybe 15 or 20 years ago it wouldn’t have mattered because everyone played cosily in their own markets, but globalisation has changed all that. Unfortunately management practices haven’t kept up. His point also raises a cultural issue. To me he also said “why is your culture supportive of outsourcing key decision functions, ticking a box and not on creating real differentiation”

Consulting isn’t unique in this. The current flavour of the month with Telcos is reinventing themselves. But here’s the kicker, they are all doing this with the same company. Check this out

Tech Mahindra, a company which is incidentally 43% owned by BT, is currently doing systems/transformational/rebuilding of the following Telecommunications companies, Fuji, BT itself, Telecom NZ, Botswana and if you look at their own website a bunch more.

How are these guys going to differentiate themselves when there is a strong possibility they will be getting the same stuff – consulting, design, software…

It appears to me that New World companies are different, they’re disrupting, attracting talent and getting on with it. They back themselves to achieve and, generally speaking, make things happen. Why can’t old world companies have this kind of attitude?