Decoding the new economy

Profiting from the industrial internet

How will companies make profits from industries being shifted to lower cost structures?

Opening the first official day of Oracle Open World, CEO Mark Hurd spoke with James Fowler, the Chief Information Officer of General Electric about the company’s digital transformation.

Fowler described how the company intends to be driving $15 billion in revenues from its digital operation in the face of stagnant industrial spending.

Earlier in the presentation Hurd had described the problem of stagnant spending facing all major industrial companies, whether they are enterprise software providers like Oracle or engineering organisations like GE, where companies are ‘sweating the assets’ ruthlessly.

For GE, making a compelling argument for companies to reinvest in new capital equipment is essential while Oracle is facing an industry wide decline in revenues and a structural shift to cloud technologies which Hurd described in stark tones.

Last year, he claims, the major tech companies saw a gross decline of $16.4 billion in revenues while cloud services only picked up by billion meaning the market shrank by fifteen billion dollars.

That decline would deeply worry a salesperson like Hurd given the declining market means smaller commissions and fewer sales so it’s unsurprising the company is pivoting as hard as it can into the cloud.

GE on the other hand is making a huge bet on the future of its market by proactively shifting onto digital and cloud services.

The challenge though for all these companies is making money from these new business models those who figure it out will be the industrial giants of the next century. There’s no guarantee any of today’s will be among them.

Killing the business of complexity

A simpler business environment means lower margins. If you profit from complexity you have a problem

“The cardinal sin of the computing industry is the creation of complexity,” is quote attributed to Oracle founder Larry Ellison and often repeated at the company’s Open World forum which I’m attending at the moment in San Francisco.

For the computer industry that complexity has been a very profitable profitable business with everything from the local computer shop through to the big technology vendors and integrators.

One of the biggest beneficiaries of that complexity were the salespeople, big complex enterprise deals meant big commissions.

With the shift to cloud services and apps, those fat margins and commissions have evaporated, leaving the lucrative old models of business stranded. IBM are probably the greatest victim of this while Microsoft are, once again, showing the company’s ability to evolve in the face of a fundamental market change.

For the salespeople the days of fat commissions are over, with thinner margins it’s not possible to pay big lump sums for winning contracts.

The simplification of the computer industry is changing the fortunes of many IT businesses, but that change isn’t limited to the tech sector or their salespeople as those fundamental changes are rippling into other sectors.

A constant claim by Internet of Things evangelists is that the IoT will squeeze inefficiencies out of businesses and this is exactly what we’re seeing with cloud and mobile based services like Uber and AirBnB.

If you’re in a business that profits from market inefficiencies then it might be time to figure out how to survive in a low margin environment. The challenge facing companies like Oracle is one whole industries are now having to face.

Rethinking business IT

How is business being reinvented in a world of cloud computing.

Last week at the AWS:Reinvent conference in Las Vegas, I had the opportunity to interview the company’s Global Head of Enterprise Strategy, Stephen Orban about where he and Amazon see the direction of the cloud computing market and how business practices are being reinvented.

Among the things we discussed was Orban’s seven best practices for a company’s journey to the cloud, gleaned from his own experiences in his AWS role of advising clients on adopting and his previous experiences as a technology officer at Dow Jones and Bloomberg.

Orban laid out what he thinks are the keys to success in a company heading to the cloud in his own blog post and during our conversation he expanded on his ideas which also very much reflect the changing role of the CIO or IT manager.

Supporting the C-suite

The first point is the IT department has to understand the business and align technology with the organisation’s objectives.

“Somebody who understands technology who can merge technology with the business needs” will be better able to win the confidence of management says Orban.

Doing that is the key to winning support from the executive suite Orban believes. Once CIOs have that trust from senior management it gives their teams the space to experiment with new ways of delivering value to their companies.

Education

“The second thing is to provide training and education,” Orban says. “People tend to get a bit anxious of what they don’t know, particularly when it affects their jobs.”

In Orban’s experience, having informed staff makes them more open to change within the business, “with the transformation I went through at Dow Jones, most of what we accomplished was because of the people who’d been there a long term. They had the institutional memory but they were very open minded.”

Foster a Culture of Experimentation

One of the great benefits of cloud computing is how it lowers the costs of experimentation and development, “gone are the days when it cost hundreds of thousands of dollars, even millions, to try something.” Orban says.

Learning what works and fails is essential, he believes. But as long as there is executive support then a tolerance towards unsuccessful experiments will develop in the organisation.

Working with partners

Outside parties are essential to most organisation’s IT systems and Orban believes partner ecosystems have changed with the advent of cloud computing. “There’s a whole new breed of partners that have been going through this,” he says in citing ‘born in the cloud’ software developers and systems integrators who are changing how projects are being delivered.

Build a Center of Excellence

“Creating a center of excellence is, I think, one of the key practices any organisation should invest in. You want a body of people who can institutionalise best practice within an organisation,” observes Orban.

As cloud services take away the complexity of computer systems it becomes an opportunity for organizations to rethink boundaries between the IT department and business operations.

Move to the cloud

Given Orban’s employer it’s not surprising he sees cloud computing as key to a company’s transformation however he admits that few organisations will make the jump straight into cloud services.

“Hybrid will be a part of every enterprise’s journey. Any company who’s been doing IT for any period of time will have existing investments,” he says. “Our view is that we will make it as easy as possible to create that bridge.”

“We do believe in the long run that enterprises will find they become so much more effective over here (in the cloud) they will move in that direction.

A Cloud-First Policy

Once an organisation has its cloud strategy and experimentation culture in place then having a ‘cloud first’ policy, “it reverses the burden of proof away from ‘why would you use the cloud?’ to ‘why wouldn’t you?'”

While Orban is emphasising the Amazon Web Services view of the world where ultimately all business computing will be done on the cloud – preferably their cloud – his views illustrates the change facing businesses as they implement online technologies.

For most, the availability of easily accessible cloud computing services is an opportunity to rethink their business processes and how organisations can deliver the best products quickly to their customers.

Fading giants move to support each other

Merging two fading giants is unlikely to save their fortunes in the face of a declining industry.

Two struggling tech giants are reportedly set to merge with persistent rumours that Dell is about make an offer for storage provider EMC.

Both companies have been hit by shifts in the computing industry with cloud computing undermining both businesses, Dell was also hit by the collapse of the Windows upgrade cycle which changed the buying patterns of computer purchasers.

A combined company offers some theoretical advantages in bringing together one of world’s biggest server companies with a storage business, however it’s difficult to see how the two businesses combined would slow the decline of the segments both are strong in.

Mergers can slow the decline of companies like EMC and Dell, but without innovating and finding new opportunities to exploit it’s unlikely they can recover lost ground.

Splunk and the marathon to make IT sexy again

Can Splunk use data analytics to make IT sexy again?

“We’re early in the marathon but making good progress”, opened Godfrey Sullivan, the CEO of Splunk, as he opened the company’s annual conference in Las Vegas today.

Helping businesses understand their data has proved lucrative for Splunk with the analytics company seeing a 46% increase in year on year revenue to $148 million for the last quarter with the organisation narrowing its losses over the same period.

As with all tech conferences, the focus in the opening keynote is on new product announcements. For Splunk, the main release is its latest enterprise version of Splunk Enterprise 6.3 billed as delivering faster results, better analytics and tying into the masses of machine data being collected from the Internet of Things.

Machine data as a cornerstone

That IoT data is a key part of Sullivan’s strategy of “making machine data more accessible usable and valuable to everyone.” The company also highlights their alliances with IoT data consolidator services such as Xively and Octoblu.

Security is another focus of Splunk with the launch of Splunk User Behavior Analytics (UBA) that analyses usage patterns on networks to identify risky or suspicious activity and a version upgrade of their their Enterprise Security.

The original business of Splunk was to monitor server log files and that IT focus remains with their new IT Service Intelligence (ITSI), an improved IT monitoring and analytics service.

Sullivan’s key message was that IT departments can be offering ‘operational intelligence’ as they gather and analyse data from all aspects of a business. “IT departments have to earn a seat at the table”, as Splunk’s CTO Snehal Antani says and providing rich data analytics, in his view, enable this.

Surprising a bank

Antani cited one of his previous clients, a bank which would ordinarily would deal with ten million dollars of deposits a day so an alarm had been set for when less than half of that had been received by midday.

One day that alarm sounded, and the IT department assumed there was a problem with the bank’s systems. After checking, they found everything was running normally so flagged deposits were unusually low to senior management.

It turned out to be a competitor had launched a successful campaign to open new accounts which had caught the bank by surprise. “The CMO acted as if he’d been hacked,” Antani recalls.

Antani’s anecdote illustrates how business data is no longer just the concern of the IT department and a small group of geeky business analysts, with real time information every part of an organisation can improve its performance.

For Splunk, using data to improve all aspects of business its key message to the market and one it hopes to drive its business forward although it’s highly unlikely they’ll achieve Antani’s hopes of “making IT sexy again.” That would take much more than a marathon.

Paul travelled to the Splunk.conf in Las Vegas as a guest of Splunk

Xero and the US cloud accounting challenge

Xero starts its serious push into the US cloud accounting market

Last month I wrote a piece for Business Spectator on how competition in the Australian cloud accounting market was hotting up with the re-entry of Intuit and Sage.

One of the divides between vendors was whether online accounting services scale globally with one group – including MYOB and Reckon – saying that deploying services in different jurisdictions added complexity while others believed a global product was necessary to achieve scale.

The most obvious member of the global scale camp was Xero, the company that has pioneered the growth of cloud accounting software. Two years ago we interviewed the company’s founder Rod Drury about his ambitions for the company and the direction of the cloud accounting market.

For Xero though, growing globally isn’t easy. While its most successful market has been in Australia, that country has many similarities with Xero’s native New Zealand and the company has found the UK and US markets tougher.

Renewing Xero’s US push

To deal with a much bigger and diverse market, the company appointed Russ Fujioka, a veteran of Dell, Abode and the various venture capital companies, to lead its revamped operations in the United States and Decoding the New Economy caught up with Russ recently at Xero’s San Francisco office.

For Fujioka, the key to growth in the United States market is the small business sector with the US recording nearly half a million new business registrations across the nation each year.

“You see the M in ‘SMB’? We don’t want to be playing to that market,” says Fujioka in emphasising the Xero’s focus on the small business sector.

Fujioka also sees opportunity in what he calls the ‘pre-accounting’ sector, the roughly 18 million self employed contractors and freelancers who don’t need a full fledged accounting service but need access to basic bookkeeping, invoicing and expense tracking.

Dealing with diversity

While the 28 million US small businesses represent a huge opportunity to Xero, the market also presents challenges with, unlike the New Zealand, Australian and UK markets, hundreds of banks and thousands of different state and local tax regimes.

To deal with the complexity of local tax and employment rules, Xero announced a partnership with Avalara to provide the data feeds for calculating sales taxes and payroll obligations, something that is essential to Xero’s business plans, “payroll is fundamental to our offerings.” Fujioka says.

Also fundamental are accountants and book-keepers where co-opting them as sellers of the service has been part of Xero’s success in Australia and New Zealand with Fujioka seeing a fifty-fifty split between those businesses signing up directly and those going through advisers.

The changing accounting industry

Like the rest of the world, the accounting profession is going through major changes as much of the transactional work becomes automated, Fujioka sees this as an opportunity for companies like Xero to add value to the industry and help individual firms become more akin to system integrators and technology advisers to their clients.

The ultimate aim for Fujioka is to make Xero the site, or app, that every small business starts and ends their day with, “we really want to be that single pane of glass for small business – you start your day with us, you end your day with us and during the day you check your status on your Apple Watch.”

For Xero, the key to global success is cracking the US market. The challenge for them is to capture a new generation of business owners and accountants.

Paul travelled to San Francisco as a guest of Salesforce and Splunk

Category: cloud computing

Fading giants move to support each other

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