Sep 212016
 
mark_hurd_oracle_ceo

Oracle CEO Mark Hurd’s keynote at the company’s Open World conference in San Francisco yesterday illustrated a problem facing businesses around the world and its effects on enterprise software vendors like the one he heads.

“Standard and Poor’s top five hundred companies’ revenue growth is at one percent, their earnings growth is five percent.” “It means what? Expenses are going down.”

“This is the problem that the CEO has,” he says. “Why is it hard to grow revenue. All your investors want you to grow earnings and deliver growth. They have little patience for any long story about why it’s so hard.”

“They don’t care about any issues you may have. Grow earnings, grow cash flow, grow stock price. That’s it.”

Growing in a slow market

As a result of that the easiest way to grow earnings is to grow revenues but when global GDP and markets are flat, the only way to grow is to gain market share, Hurd says. “We have to know the customer better, we have to do a better job of marketing and we have to do a better job of aligning our goods and services to what our customers want. We have to improve our products and processes.”

That imperative for companies to cut their operating costs has had a brutal effect on enterprise IT budgets, “over the past five years, the growth in enterprise IT has been flat.” Hurd says, “the growth in spending has been basically zero.”

Customers drive the market

Like many things in the tech industry, the sector’s growth focus has shifted to consumers, “consumer spending on IT has almost quadrupled in the past decade. So while companies are sort of flat, consumers have been spending like crazy.” Hurd observes, “consumers are more sophisticated, more capable, more knowledgeable and expect better services than ever before.”

“Your customer experience is not being defined by your competitors but by technology fuelled consumers. For instance, AirBnB may be defining customer experience for the hospitality industry.”

“People are using a lot of social technologies in their personal lives,” “we expect ease of use, simplicity, clean interfaces are now things we expect in the enterprise side.”

Crimping innovation

In the enterprise IT sector, Hurd believes the flat market means many companies catering to the corporate market are skimping on Research and Development which in turn is crimping innovation, a factor compounded by cloud providers taking an increasingly larger share of the market.

This is underscored by cloud leader Amazon Web Services spending over ten billion dollars a year on R&D. Hurd’s boast that Oracle is spending half of that shows how the legacy players are struggling.

What stands out in Hurd’s keynote is how legacy providers see cloud computing as their salvation. However Amazon’s dominance in that space is a major obstacle for them.

For consumers, big and small, the shift to the cloud has been a good thing in shaking up the existing industry and making new technologies more accessible to smaller customers. For existing businesses like Oracle, there’s a challenge in adapting to a lower margin, commoditized and quickly changing market.

A bigger question though facing all large corporations, not just software companies, is this new normal of low economic growth. Succeeding in that environment is going require a completely different management and investor mind set to that of the last seventy years.

Sep 202016
 
sdr

One of the things that cloud computing has changed for the software industry are the fat profits – the shift to Software as a Service (SaaS) has seen the margins collapse as the rental model doesn’t offer the same big lumps of cash that the old way of doing business offered.

That has had terrible consequences for a generation of enterprise IT salespeople who lived well on fat commissions as they sold million dollar packages to large corporations and government agencies.

So it was interesting today to hear Oracle’s CEO, Mark Hurd – a master IT salesman himself – claim at the company’s Open World press conference today that operating margins on cloud services are quite good.

Certainly Oracle’s results show that with a claimed 61% profit margin there is money to be made in cloud services however their experience is not typical of the industry. For example, Microsoft’s online products only deliver a third of the profits as the company’s more traditional software lines.

Even with the still fat profit margins, it’s hard to see how a company like Oracle can maintain its old salesman driven model as deals based more on long term service contracts rather than big deals mean there aren’t the lumps of cash for salespeople to grab a slice of.

Older companies struggle with shifting mindsets in their industries and some, such as the taxi business in the face of Uber, take too long to change. Whether software companies like Oracle are navigating the change is something I’ll look at in tomorrow’s post.

Sep 162016
 
oracle-head-office

Ahead of next week’s Oracle Open World, which I’m attending, the software giant has announced its quarterly results which illustrate how software has shifted to the cloud.

The company’s cloud revenues jumped 77% on the previous year which is impressive but represents less than a tenth of the company’s sales.

What would concern Oracle’s shareholders is the stagnation of sales in their main product lines – on premise software makes up 69% of the firm’s revenue but it didn’t grow for the quarter and new license sales dropped eleven percent, which doesn’t bode well for the future.

Oracle’s big announcement in the last quarter though was the acquisition of cloud ERP provider Netsuite for $9.3 billion.

That acquisition will test how Oracle pivots into the cloud, it may well be the Netsuite management teach the parent company some tricks.

 

Jun 102016
 
business return on assets is falling away

Ride service Uber has raised the game for logistics and delivery services in opening a group of Application Program Interfaces for third party developers.

The four functions available in the Uber Rush package cover delivery tracking, quotes and history. They make starting a logistics service or adding functions to a business far easier.

While there is a downside in the risk of being locked into Uber’s service this move will give a lot of developers the opportunity to develop delivery tracking products, for incumbent postal and courier services, this API is bad news on a number of levels.

May 202016
 

Netsuite founder Evan Goldberg hopes the lessons he’s learned from building a software company can help researchers find new ways to treat cancers.

When Netsuite founder Evan Goldberg was contacted by his birth mother it was not all good news, she revealed to him she had one of the BRAC genetic markers, an hereditary trait that indicates a high risk of breast cancer.

A day before the official launch of the BRAC Foundation he has founded with a ten million dollar donation, Goldberg spoke to Decoding the New Economy at the Suiteworld conference in San Jose about how he believes he can help improve the treatement of cancers.

“How I think I can make a difference is applying some of the things we’ve learned at Netsuite,” he explained. “Netsuite has been all about breaking down silos, it’s not a system to run a department, it’s to run a business.”

“Much research and money is focused on a particular type of cancer – breast cancer, lung cancer, prostate cancer but it turns out from what we’ve learned from genetic research that cancers can be more similar to each other across different cancer types than to those in the same organs.”

“So in the same way we’re trying to break down silos between parts of a business, trying to break down silos between researchers, different institutions has sort of been a theme of mine.”

“What’s really interesting this notion of looking at where the cancer started, which is what we’ve been doing for a hundred years, looking at what is the mechanism underneath it is kind of how we’ve looked at business at Netsuite.”

“We’re supporting research in the BRCA Foundation from numerous different institutions and researchers that are looking at all different types of cancer. So bringing them together and cutting through all sorts of silos, these sort of artificial silos – some of which still have value in some ways – but fostering collaboration where there wasn’t any before.”

“It’s not a perfect analogy,” Goldberg admits, “but I do think that this notion of looking at cancer across different dimensions is similar to how we’ve been looking at business.”

“It’s a totally different world, the world of medics, research institutions, hospitals and clinicians, it’s a very different world to the businesses I’m used to deal with. Although there are still similarities in the motivations and the barriers to success.”

One has to hope BRAC Foundation will be successful however Goldberg is the first to admit the bulk of the work lies with the scientists. “The real hard work is done by the researchers,” he says. “Hopefully we can help them.”

Apr 262016
 
group collaboration on a project

Offering free products to students and academics has long been a tactic used by software companies to build their market presence. The current fight for dominance in the cloud is seeing the same tactics being used.

Last week I had the opportunity to talk to Amazon Web Services’ Glenn Gore about his company’s academic support program.

Part of that conversation ended up in a story for The Australian about how researchers are now using cloud computing services and it’s worthwhile looking at how AWS are using this program to cement their products’ market positions.

“We work with the majority of universities across Australia,” Gore said. “It’s part of an international focus around how we support the education sector in general.”

In some respects AWS’s behaviour isn’t new, for years Microsoft, Autodesk and Adobe have had programs offering free or deeply discounted products for academic or student use. The success of those schemes in becoming defacto industry standards is no small reason why these companies have dominated many sectors.

Microsoft themselves have the similar Bizspark program for tech startups and it’s easy to see how that initiative is helping push Azure’s adoption into a field that has been dominated by AWS.

One of the drawbacks though with cloud computing services is the risk of ‘sticker shock’ where customers end up with big bills. One of the universities I spoke to in researching the story recounted how 0ne of their faculties was presented with a huge AWS invoice because their engineers didn’t provision the services correctly.

This is where AWS’s team steps in with advice for researchers, “in the case of Koala Genome Project use the on-demand model, the standing pricing model for the cloud,” recounts Gore in pointing out the nature of their work could use spot-pricing to take advantage of cheaper prices in off-peak times. “As a result of making that one change they were able to do eighty percent more research.”

Getting more research time is always attractive for researchers and Dr Rebecca Johnson who leads the Australian Museum’s part of the koala consortium was particularly effusive about the support from AWS staff,

“What we have been able to access via this partnership with AWS is compute time and compute capacity that we just would not have had access too,” Dr Johnson said in a media release. “It would have cost us thousands and thousands of dollars to create and we just would not build such a computer system these days. You would not create your own computer infrastructure as we would only use a fraction of it anyway. So, it is great for us to piggy back off these already built systems.”

Being a relatively small institution, the Australian Museum is a good example of how cloud computing can work for those without the resources of big universities or corporations in the same way small businesses and startups can access resources formerly only available to enterprises.

Amazon’s programs though show the Microsoft model of getting students and startups onto their systems early pays dividends. It’s good for academic institutions but one wonders whether it’s also another form of vendor lock in.

Apr 052016
 
iKettle-internet-connected-kettle

With vendors shutting down connected devices and restricting data feeds, customers demanding open source software and open standards may be essential to safeguard against companies misusing their power over the IoT.

Last night I had dinner with a group of executives from US telco CenturyLink. During the the evening, conversation turned to the use of US and Chinese routers and the risks of government mandated backdoors in both countries’ equipment.

My thought during that conversation is concerns about software backdoors are a compelling argument for these devices to run open source software, making it harder – although not impossible – for hidden nasties harder to be built into systems.

Google Nest becomes evil

Overnight that argument for open source became stronger in my mind with the news Google Nest were to shut down the Revolv home automation hubs the company bought two years ago.

Google aren’t just stopping support for these devices, they are going to render them useless to their owners. It’s a remarkable move that undermines any confidence customers can have in Google’s hardware offerings.

While Revolv isn’t the first and will be far from the last Internet of Things device to be abandoned by its vendor, its fate indicates the importance of keeping as much of the ecosystem as open as possible – the less vendor lock there is, the less hostage you are to rapacious manufactures.

Locked out of the subscription economy

As we’ve seen with Amazon in the past, the ‘subscription economy opens users to the risk they can be locked out of their data or purchased apps. Now we’re seeing how vendors can lock users out of the products entirely.

With connected cars and homes now becoming common, this is something that should concern buyers. As we see everything from door locks to smoke detectors and kettles being connected to the Internet of Things, the risk of being at the mercy of an unreasonable vendor or malfunctioning software becomes greater.

At least with an open source model, it’s easier to build workarounds when faced with an uncooperative supplier and, in a world full of poorly designed IoT products, it’s possible for the community to review the software and understand its bugs.

The security aspect of open platforms is also critical for the IoT as we’re already seeing a plethora of unpatched devices where vendors have long lost interest in supporting the older products.

Open interoperation

More importantly, open platforms make it easier for devices to work together, something that is critical in connected buildings or industries. At the moment the IoT is a mish mash of competing standards and formats.

Over time it won’t be surprising to see the market demanding more open source applications and data feeds – indeed we’re seeing this happen with artificial intelligence platforms – the proprietary model brings in too many risks and makes the IoT far more complex.

While open source software won’t solve problems such as APIs and data feeds being closed or changed, it does give more power back to users and communities. It’s not hard to understand why vendors though would resist these moves.