CIO-Reinvented Blog - By Prashanth Rai

Two different points of view of using the Force.com platform for SaaS Applications

Came across a couple of posts analyzing SaaS economics, there is some real interesting content out there. Two specific posts of interest are one by Dennis Howlett titled SaaS economics Part 1: it’s not looking promising based on the research done by  David Skok who, in collaboration with investment banker Pacific Crest Securities and Open View, an expansion stage VC firm and another by Tomasz Tunguz titled Benchmarking Veeva's S-1 - How 7 Key SaaS Metrics Stack Up. Both are very informative reads. But would like to focus on one specific area regarding their comments around the use of Force.com for developing SaaS applications or ISV apps on top of.

One view is the operational costs of delivering SaaS application using Force.com Platform:

The other view is R&D costs for a company that uses Force.com as their platform to build the SaaS Application, using Veeva's datapoint:

 

Some  interesting data points:

• research says that companies building their own infrastructure are growing at median rate of 27% while those using third parties enjoy growth of 56%
• Amazon is often held up to be the gold standard for providing best value and so it proves, coming in at 6% of revenue. The surprise was the cost of Force.com operations at a whopping 15% and well above anything else
•  Veeva’s (developed on Force.com platform) investment in R&D has averaged 12% over the past four years, 42% lower than the median during the same period. 
• Veeva is the most profitable company in this basket of public SaaS companies. Over years 3-6 from founding, the business recorded a median profitability of 12.3% and was profitable in each of the four years.
  

Salesforce - A Vertical View (Dreamforce)

The vertical strategy announced by Salesforce in April of this year is a key aspect of Salesforce’s strategy to get to their indicated 20 billion $ target (at Dreamforce). The vertical strategy is critical to help focus and make deep roads into the “Enterprise” segment of the market. By 2018 the addressable market for Salesforce is expected to go up to 82 Billion$, with enterprises being about 70% of that (57 Billion$) and SMB’s constituting the rest.

 

The break up of the 2018 TAM by the chosen vertical’s is as follows (Approx):

 

Vertical	TAM - 2018 ($ Billion) (Approx)
Financial Services/Insurance	18
Communications/Media	14
Public Sector	10
Health Care/Life Sciences	8
Automotive/Manufacturing	7
Retail/Consumer Products	6

 

This is supported by the expanding foot print of products / solutiions the latest of which is Wave / Analytics cloud which takes that addressable market up to 48 Billion at this time, as against the 35 Billion it previously had.

 

Was checking out the slide deck of the analyst presentation made by Salesforce as part of Dreamforce, There is a lot interesting insights / data out there. But there were three slides on the land and expand strategy in 3 verticals - Financial Services, Media & Manufacturing.

 

Overall the numbers seem pretty impressive, But some observations:

• The Manufacturing customers starting deal size was approximately 1/3rd that of the other two verticals, but from a total spend (revenue for SF) point of view 5 years it was higher than the other two verticals 
• The Manufacturing customer didn’t start with sales cloud, but instead started with Service.
• The Manufacturing customer never adopter chatter
• Even later the Manufacturing company adopted Marketing cloud and not sales cloud. Looks like the manufacturing company is selling through and agent or dealership
• In all the 3 vertical’s platform or force.com was one of the first 2 solutions to be adopted after the land.

  

SAPPHIRE–2012 Day 1

Had a good first day at #SAPPHIRENOW, lots of interesting sessions. Below is a summary of my notes from all of todays session its in a mind map converted into a PDF, if anybody wants the original mind map file send me a email.

The document can be accessed here.

Looking forward to Day 2

Prashanth Rai

Day 1 at SAP Teched 2011 the highlights

Today was the keynote of Vishal Sikka, Below are some of the highlights from the keynote and other meeting from the day:

Mobility:

• SAP’s SUP based apps have 26 Million users (22million just in the US) already. As compared to the 20 Million SAP users after 30 years.
• Its interesting that they mention really strong pipelines for both SAP HANA & SAP SUP. With the current state of IT budgets that’s a really interesting data point. Makes me wonder what the conversion of this pipeline would be like.
• The deal size for these mobile applications for the services portion range from 50-150k, So there isn't too much of a push by the large IT Services players. Its more the small and medium sized services players that are making a big push in the space.
• The single largest hindering factor in the adoption of SUP / Mobility is the lack of talent.
• Mobile app certifications are free till the end of the year
• SAP planning a Cloud based service for developers to discover, help build and certify mobile apps on top of SUP.
• Gateway is core to the integration strategy to the underlying business suite

In Memory:

• HANA the software part license cost to customers is based on the size of the database, This is interesting. But makes me wonder if this will work for the customers. It will greatly depend I suppose of what the rate or dollar cost multiple would be for each GB of the database.
• Have a site focused on HANA - www.experiencesapphana.com
• Heard some of the customer case studies of HANA
  • Medtronic   - Project still to go live (16 B $)
  • Nongfu Spring (494.25 M $)
  • Yodabashi 
  • HILTI (2 Billion $)
• HANA is number one in market awareness in the category of in-memory databases
• HANA’s Grand Unification approach - HANA will start with replacing Datamarts then move on to Data warehouses and finally reach the traditional transactional applications.
• B1 will be the first of the transaction apps to adopt HANA as the backend.

Other Areas:

• Leveraging RDS Hunter Douglas was able to go live with SAP in 8 weeks flat.
• SAP MDM they have 1000+ customers
• Have 65000 productive Netweaver systems - 16000 BW, 10000 Enterprise Portal , 5000 BPM/PI.
• 4.0 release of BO will be going to into GA 16th of this month( Friday)

Some broader Themes:

Intellectual Renewal - During the key note Hasso Plattner mentioned that he has mandated Vishal Sikka with Intellectual renewal of the company two years back – We are seeing the results of that through a variety of initiatives. I believe that now its time that SAP took the intellectual renewal beyond technology and product and bring it to the implementation world – were the rubber hits the road. This is going to be a lot harder.

BITS are increasingly replacing atoms, Value is bring created by dissolving layers and structures, Fueled by a cycle of connectedness, disintermediation and ease of use.

Vishal Sikka - NoSQL will replace everything is complete non sense.

Prashanth Rai

Gamification or Game IT–A Real Enterprise Software Trend - SAP Teched 2011

Honestly before todays keynote, I had never really spent time thinking about Gamification and how it could be leveraged in the enterprise. So todays keynote, was pretty insightful, and to SAP’s credit their conferences most of the time seem to drive our thought process to areas that we hadn't spent much time thinking about. Gamification is one such area.

We are still in the very early days of Gamification or GAME IT and its going to change a lot before it gets the kind of adoption levels that were suggested during the Keynote - 70% of global 2000 companies will have leveraged Gamification by 2016.

But the underlying principals / concepts seem very relevant to today’s organizations. The organizational model has changed, In the current world Information + Engagement + Creativity + Collaboration are most important for organizations. But getting it is becoming more and more difficult for a variety of reasons like distributed organizations, multi cultural workforce, significant pressure, increased work loads etc.

Game IT might be able to address, some of these challenges. But one area that I felt that was covered sufficiently during the keynote today, but I would be interested in reading about is how GAME IT/ Gamification can help shape the culture of an organization. I believe that will be the killer app for Gamification.

Infact I think an immediate use case for gamification is how to make “Weekly Status Calls” more interesting. I think those calls have become an exercise of monotony, need to think of some ways of bringing Game IT into the mix there. Welcome any inputs. Below are some of the highlights of from the Gamification Keynote:

• Keynote by Jane McGonigal (@avantgame)
• Gaming (Gambling) is not Gamification
• Interesting stat it took - 100 Million hours to create the whole of Wikipedia, currently people invest 3 billion hours a week playing online games, If we get them to take some of this time and invest it in doing something useful but in a gaming model – Imagine the value that can be created.
• 10 Positive emotions created by games
  • Joy
  • Relief
  • Love
  • Surprise
  • Pride
  • Curiosity
  • Excitement
  • Awe and wonder
  • Contentment
  • Creativity
• Gamification or GAME IT – Focuses on the question of How do we bring these 10 emotions to the work place,to innovation challenges & to customer relationships.
• Gamification or Game IT defined - Inventing new work and business practices that engage employees, customers and consumers as effectively as a good game.
• Games can make us more creative, ambitious etc., its important to see to put these into place to help us solve business challenges.
• Case Study - Zappos – Face Game, Objective - More collaboration across departments.
• Some interesting stats:
• Gamification is on the move - 20+ Million $ in Gamification startups in last 12 months.
• Its expected that by 2016 there will be a 2.8 Billion$ spend in Gamification
• 2014 A primary Gamification platform will become as important as Facebook, eBay or Amazon. Gamification core focus is innovation.
• 70% of global 2000 companies will have leveraged Gamification by 2016
• 99% boys / 94% girls play games regularly
• 2015 More than 50%of organization that manage innovation processes will gamify them.
• What is a game? -  Games are unnecessary obstacles we volunteer to tackle.
• Trivia/Thoughts/Comments:
  • Its inevitable soon we will all be gamers.
  • Massively multiplayer thumb wrestling – Played at Teched with all participants.
  • Gamer addiction was written about 3000 years ago.
  • 500 hours before the game starts becoming fun.
  • The opposite of play isn't work – its depression.
  • Eustress – Positive stress.
• Work is more fun than fun- Gamification helps realize that.
• The objective of Gamification is to create Super empowered hopeful individuals

Prashanth Rai

(image credit – dcclark)

SAP Teched 2011–The Mobility Focus…

On the Pre-Conference day at  SAP Teched 2011, there has been a lot of discussion on SAP Mobility. It was quite a useful deep dive into the area. Some interesting observations from the same:

Lot of the usual suspects in terms of use cases were discussed , one of the things that changed this time was how even in the usual suspects they were lots of efforts being made to leverage the native capabilities of the mobile devices to improve the application and increase its value.

The popularity of mobility apps is no longer in the press / media, companies are aggressively looking at mobility applications

There are close to 100 mobile apps that SAP has in the works at this time, Lots of partner apps are also going to be there. Cant help but wonder how customers are supposed to identify the wheat from the Chaff.

Though we didn’t get to see the whole list we saw a partial list with some apps with interesting names were Virtual Boardroom & CIO Dashboard.

Over 80% of companies expect to outsource mobility app development.

Given the wealth of APPs that SAP seem to bringing to the market place, I cant help but wonder why they don’t go with the Razor/Blades business model for the SUP platform (Razor) and the mobility apps (Razors).

Though its interesting that SAP is going to provide the source code for the mobile apps and the mobile business objects they will be using in the apps for customization and extending by the end users.

AFARIA is the ace in the hole for SAP mobility product set, It offers a wide range of capabilities at the same time, I think there could be some concerns that it puts true big brother capabilities easily into the hands of the enterprises. I think organizations that are going to deploy AFARIA on all their employee devices will need to have new privacy contracts drawn up with them.

Some interesting stats - 54% report at least one security breach in the last year, 33% report using data encryption on mobile devices, 61% report that business use of smart phones is their top security concern, 33% report requiring advanced authentication for corporate network access

Mobile Application - Business Case evaluation variables – Positioning, Target Users, Business Impact, Implementation Cost, Device dependence, Confidentiality & Accessibility.

Not being a cost center or bring more of a profit center has been the holy grail of IT organizations, I think mobile apps is a good way for them to go about doing that. They need to behave like startups rethinking the enterprise value chain particularly with the end customers.

Clearly defined interoperability strategy, One of the things that never stops to be discussed or confuse people going down the path is the whole discussion on interoperability. SAP is now clearly defining the interoperability mechanism of each of the Netweaver stack items ( Like BPM, BRM, Portal, MDM etc.).

SUPs value proposition – Detailed Device management, Reusable Mobile business objects, Online/Offline capabilities, Backend integration capabilities, Multi device support (current / future).

SUP Pre Generate CRUB UI interfaces for the device model selected for the MBOs.

SAP Gateway – There seems to be an increased focus on Gateway, and is being looked at as an established mechanism to access the SAP systems from SUP. Allows non SAP familiar people to build external apps without underlying SAP system knowledge. Focused to address the challenges of accessing the ever complex underling SAP system.  Provides easy easy ways to generate gateway objects – Needing no coding. Basically exposes business suite content as simple non SAP specific / REST API’s. Typically used for UI applications (not A2A stuff). This is a core piece of the strategy to get to 1 billion users. Support OData (XML). SAP Gateway is built completely on ABAP. Not good to expose other systems (Generators go against SAP systems only).

SAP SUP Roadmap:

Prashanth Rai

Offshore IT Services Providers – The Arbitrage?

Most discussions that I have had/read about is about how the increasing costs at offshore/low cost locations and the forced increase of onsite presence for these companies due to visa issues is going to eliminate / diminish the cost arbitrage advantage that these providers have traditionally had. But here is an interesting prediction by the Everest Group.

We expect increased wage inflation in the low-cost destination countries, and increased fourfold pressures as currencies of developing countries increase relative to their nation currencies of the Euro and Dollar. Nevertheless, we still expect it will become cheaper for providers such as Infosys, Wipro, TCS and others in that class, to provide work out of their low-cost destination locations relative to the cost of delivering them onshore. This is not to say we expect pricing drops from these firms; indeed, they will likely be vocal in pointing to their rising costs as a strong rationale for pricing increases. This arbitrage increase will apply to the overall cost of delivering the work, and may be misunderstood at an individual person or job class level. The reason for this surprising and counter-intuitive prediction is that we believe the class of providers that has mastered talent factories will be able to apply lean process improvements, and continue down-shifting their work to more junior and cheaper resources, overall widening an already growing arbitrage gap. This downshifting of work, which has been under way for a number of years, will be accomplished without materially affecting the quality of the services delivered.

Offshore providers are probably looking at various ways to make this prediction come true, but its not going to be easy. To make this a reality I think a big factor would be the use of tools / prebuilt solutions / use of products / platforms / solutions, the whole version 3.0 of the IT Services industry.

Prashanth Rai

Top of mind …

Haven't been blogging much in the last couple of months, now its time to get back on the horse. As a first post below are a few topics that have been top of mind based on some really interesting conversations that I have had in the recent past. Over the next couple of months I am going to delve into these topics in greater detail.

Transformative IT – Internal IT innovation / value addition and providing a revenue stream / business model (Big Data, Analytics, IT as game changer)

Aggregating telematics information from their product in the field and taking this information and providing analytics to the different departments within the company and also providing that information to the customers also as a service . Armed with this information the customers are able to run their business more efficiently to start with but I believe the information can be leveraged by the customers to fundamentally rethink their business model.

Business intelligence roadmap (Business Intelligence)

Another scenario an organization has basic BI solution in place and they are in the process of upgrading their ERP and are rolling out the ERP to other geographies. But in the meantime they have a distributed BI environment. But the big question they are faced with how do they put an effective analytical pattern in place for the future. What are the products , solutions, technologies they must plan to be using. What gives them the biggest bang for their buck.

IT application mess - Where do I start? Need to reduce cost

Another organization which has grown through acquisitions has a myriad of small / mid sized ERP’s + other systems and the recession came along and business crashed / halted. But now the business wants more support from IT to enable the process of recovery but doesn’t have any additional budget to spend,so they need to have savings from their current IT budget to be able to fund some of the initiatives that they would like to do to support the business.

Forever Implementations

This is a common story implementations that are overrun by months more likely years with costs that are much much over budget and most importantly not being perceived as value adding to the business or worse being irrelevant. And this is specifically true given the amount of innovation we are seeing in the solution market place. Once the blame game starts its all over the place, but I think we need to fundamentally rethink how these implementations are being done – Time to rethink the implementation methodology. And this particularly true for business intelligence or analytic pattern applications. 

IT Services industry time to reimagine

Its going to be time of transition for the IT Services industry, Was recently reading about Infosys’s version 3.0 - third of Infosys's revenues coming from products and so-called platforms, up from the current eight per cent. Version 1.0 was the time of the global delivery model that took six to seven years to get there. Infosys 2.0, where they brought down application, development and maintenance from 90 per cent to 30 per cent of our revenues lasted about 11 years. This is going to get interesting.

Prashanth Rai

(Image thanks to Link)

A Discussion with the SAP CIO @ SAPPHIRE 2011

As a part of the Sapphire conference got to spend sometime with the CIO of Oliver Bussmann , it was a very interesting conversation. Below are some excerpts from the same.

Oliver joined SAP around the 2009 time frame and in the first 100 days defined the following key strategic objectives for the IT organization that was in alignment with the overall organization's goals of being 20 Billion Euro in revenue by 2015 & having a profitability of 35%. Which was a significant in revenue per employee for the organization. The strategic objectives for the IT Organization were:

1. Define a new governance model – Business information officer model (Works with each COO & CEO) – And fundamentally rethinking from Corporate / line of business strategy
2. Improve running cost, particularly on the infrastructure side - Demand for development projects was going to explode keeping in track the growth planned – And it was going to need a  global delivery model – Also key decisions on what to keep in house , what you want to do outside. Increase by 80% capacity and increase cost by only by 30% – Manage Curriculums / Job training etc
3. Define an Enterprise Architecture model – Mid term plan was to map business road map to it.

He also seems to have done a serious benchmarking effort. Gartner / Mckinsey did the benchmarking, they compared his business with other Hi-Tech enterprises and some companies in other industries as well.

Mckinsey reviewed it again in 2010 one of the key points identified was that they were about 10-15% better in cost. They had a few items to work on like storage outsourcing, network consolidation etc.

His role As CIO drastically changed after August last year. His role evolved to being a Strategic CIO, one who is helping the organization on the front office/selling/positioning & not just as an enabler. The “In memory” topic was where they brought him out of the closet. From October of last year his direct customer engagements have increased significantly.

But as the CIO the critical measure that he is constantly monitoring is their Unit cost and weather they are staying competitive or not. He is constantly trying to cut down his “run cost” as much possible.

Other takeaways from the session:

• On where his employees are spending time? Top Apps from an internal perspective are:
• T&E management
• Shopping
• HR Self service – Time sheet
• For T&E they implemented the latest version of the software – ERP – Got mixed reaction. Usability was indicated as they challenge – but as they dug deeper they started different perspectives - Did we provide enough documentation / training – Are processes consistent from all regions'. Usability was only a small %.
• The CIO Isn't responsible for the tools for development that is taken care build organization
• Focused on IT contingent labor initiative – Vendor management systems. SRM implemented. Supplier visualization automated.
• Looking at new strategy to support the Education business line.
• Leverage Third party – Vertex – Tax / Credit card management / Jive for communities.
• Pushing hard on virtualization – Already 50% virtualized.
• Moving to cloud with apps like carbon impact etc.
• BI On demand is being used.
• Streamworks is also used on-demand – more integration with CRM / PLM / BI .
• Going to Sales on Demand for certain lines of business.
• BYD for Joint ventures
• Global support – Their Custom Code 10% is only – 2.5% is actively used. The rest can be deactivated. This they found out when they upgraded.
• This customization is being looked at very critically. Board level approval is required for customization. Who sponsors the project. They talk to the product teams also – Product team individual's are part of each of the projects done internally.
• Closely monitors - What amount of CPU/Memory is being used by Custom Functionality
• Part of the hi-tech industry executive council.

He is focused on running IT like a business.

Prashanth Rai

Innovative solutions are only half the battle, Consumption and Value creation is the key!!!–SAPPHIRE 20011

This year at Sapphire we have ring side seats to some really interesting innovations that are happening in the “Enterprise software” space. Over the last couple of days I have seen some really interesting solutions , technologies and products.

To SAP’s credit they have now put a lot of innovation out there, specifically around mobility , business analytics solutions. SAP has accomplished some really neat things and I am sure there are more announcements to come in the key note tomorrow. And this is not factoring in some of the projects that they have in the “works” that are very interesting too, like “SAP River” etc.

But I think they now have two key challenges :

• Communicating it clearly to the customer – In an simple way
• Enabling customers to consume these innovations with truly transformative results

This part of the journey is going to be a lot harder (not trivializing the effort so far) , but this is where the rubber hits the road and is the real test of these solutions.

And if some of these “innovations” are as disruptive as expected by SAP, how customers go about consuming this will also need to be fundamentally different. Yes SAP talks about the stable core and innovations on top. If some of these technologies and solutions are to have the real impact then customers will need to re-invent their IT organizations and their approach to these solutions / projects.

This is a hard problem, Today I listened to many customer stories – Disney, Coca Cola, Bank of America, Under Armor, Canadian Rail and so on and I think in each of the stories the topic moved away from the product or solution to the “implementation” related challenges really fast. How is SAP going to enable this?

Also all this new solutions and innovations , its important that there be a clearly defined roadmap / path to these technologies and this path shouldn’t just be linear, it should prepare for or more accurately focus on leap frogging. How can customer leap frog from where they are to the latest and greatest? I believe that in some way the “Cloud” component will be an important part of this leap frogging approach.

Prashanth Rai