Keep it simple stupid! Building solutions that people want to use.

I wrote yesterday about the need to read manuals, and today I wanted to talk about the need to build simple and elegant solutions. My popular example is from my own life when I used to run a business intelligence software product development team and we did lots of exciting innovation, but some of this was really for rocket scientists only. We were building a rocket to take off from Houston to moon, while the end user was ok taking a car from Trophy Club to downtown Dallas (30 minute ride).

Yesterday, I got some tweets back about whether a software solution should be so intuitive that there should not be a need for a manual. In some cases this is true, but if you are using a complex engineering product, the case is definitely not about the UI or usability. Some products just have been built along the years with huge amount of features and functions and it is just not possible to explore these features without somebody guiding you, whether it is a video or a manual. I tend to learn more from online video presentations that are more “to-the-point” and will guide you through the process.

In my workshops I remind people that they should not be building solutions for themselves, especially if they have been around for a while (like myself). They should be building for the new  generation of users that are born with Internet and mobility. This generation assume expect Internet and mobility to be there and this generation does not really care about where the data resides… as long as they have access to it.  My daughter Daniela is a good example of the new generation. She would not tolerate an app that “she does not get” and that is not fun to use. That is by the way a common trend among teenagers of today. Try to get them to use a solution that is built 10 years ago with agonizing screens, multiple steps to get the task done. You can’t force these youngsters to use these kind of systems and therefore I believe many mature software organizations are really struggling to create something that is user friendly. One way to do this is by acquisitions as we have all seen happening this year.

One typical approach for the mature ISVs is not to re-create the current solution, but to identify the Minimum Value Product (MVP) that will match the new market entrants and this gives the potential for the mature ISV to get into the game and then add new functional layers on top of the platform itself. When I recognized this, my mind went back to my doctoral dissertation where I was optimized a software product platform for an analytical application software and how this could be used as part of your software product line engineering. Have you look at your software product development strategy from MVP perspective or are you trying to “cloud enable” your existing solution? If not, you should really think through how your transition to cloud and app world will look like especially if you have an existing on premise solution that could eventually become obsolete. These are strong words, but this is what I am seeing out there.

Business Analytics is on the rise again with Big Data leading the way

It is fun to see how some things will just continue being relevant. Business Analytics, Data Warehousing and lately Big Analytics are topping the charts. Based on my own feelings, Big Data really took off the second half of 2012 and we also included that in our business modeling workshops as one optional extension that software vendors (ISVs) should look at. Harvard Business Review brought Big Data to the forefront in its October 1, 2012 magazine with Andrew McAfee and Erik Brynjolfsson (guru whom I followed when I worked on my PhD) with an article “Big Data: The Management Revolution”. According to the authors, Big Data is far more powerful than analytics of the past, specifically in making predictions.

One of the key reasons for the sudden explosion if Big Data has to do with the urge to achieve competitiveness by getting a better understanding of your customer, its behavior and the only way to do this is to enable massive analysis of data and in the past, this has not been possible with on-premise environments due to scalability issues. With new cloud technology such as Azure Big Data, ISVs and end user organizations can scale up the analytics/calculations based on the need (in bursts) and scale down when the calculation is done. There are quite a few new interesting startups in the Big-data-as-a-service domain (Zoomdata, Bidgely, Ginger.io, AgilOne, Continuuity). I expect this trend to continue specifically as cloud platforms enable startups to innovate without having to invest huge amount of capital in hardware and use the elasticity of the cloud instead.

What I expect to happen during 2013 is that you will hear more about real cases of Big Data use and conferences such as BigData TECHCON appear on your radar screen. Big Data is no longer about if there is technology to do it, it is more about finding the people that understand it and how to utilize it. According to McKinsey & Company, there will be a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million managers and analysts with the know-how to use the data to make effective decisions”. The McKinsey article breaks down the importance of Big Data very nicely, including things such as dealing with policies around privacy, security, intellectual property and even liability. There is a full report that can be downloaded from McKinsey web-site.

How does all this rely back to software vendors that I work with on a daily basis? If you are an ISV that deal with lots of data, you have to have a game plan for Big Data. Even if you do not care about it, your customers will be asking for it going forward. It is the same what has happened with the Cloud. Three years ago, the question about cloud was almost non-existent in many domains and today an ISV can’t really survive without the cloud. How about that as being a guiding factor for Big Data.

Personally I feel this is very exciting to me as Analytics, Data Warehousing, Business Intelligence has been my core domain for more than 20 years. Even my doctoral dissertation Evaluation of a Product Platform Strategy fro Analytical Application Software from 2004 is still relevant and explains the drivers that a software vendors should be looking at from a software product platform and software product line perspective. The link will download the dissertation (in English) and it is in PDF format.

Expect to hear more about Big Data from me during 2013 as it will be even more relevant than during 2012.

Cloud ISV: make sure you understand your ecosystem play – example of Intuit and Microsoft collaboration on software platforms to create a foundation for solution developers

I have written several times in my blogs about ecosystems and the role that ecosystems play. I recently run into an interesting article in the Redmond ChannelPartner with the header “Intuit Extends Cloud Pact with Microsoft”. As I am working with Microsoft ecosystem every single working day, I became interested what the article was all about. Intuit has been building a Partner Platform (IPP) that was reported by Mary-Jo Foley already back in January 2010. I am a longtime QuickBooks Online user so I have a pretty good picture of Intuit’s SaaS delivery model at least from 2003. I believe Intuit was one of the first software companies to introduce a full-blown accounting solution for the SMB market and my company still uses it every single day.

In January 2010 Jeffrey Schwartz reported that Microsoft and Intuit stroke a cloud pact for small business where Windows Azure would be the preferred PaaS platform for Intuit and Intuit App Center.  This value proposition is obviously good for ISVs that can build solutions to the waste QuickBooks ecosystem with integration not only to QuickBooks data but also between QuickBook applications.

The idea behind this Intuit Partner Platform (IPP) is to help developers to build and deploy SaaS applications that are integrated with QuickBooks data and also to give huge exposure for the ISV on the marketplace that Intuit provides for its partners. This marketplace (Intuit App Center) has thousands of applications that can be used with QuickBooks and other QuickBooks third-party solutions.

Let’s look closer to why Intuit and Microsoft need each other. I read an interesting blog entry from Phil Wainewright that includes very interesting remarks about software platform that happens to be the topic of my Ph.D. dissertation (Evaluation of a Product Platform Strategy for Analytical Application Software). The blog entry from Wainewright includes following picture:

 

You can read more about this topic and download Wainewright’s report “Redefining Software Platforms – How PaaS changes the game for ISVs) for Intuit” and this can be found by following this link.

When you review the picture above in more detail, you will find interesting and relevant information how Windows Azure and Intuit IPP platform play together. According to Wainewright, the conventional software platform capabilities are all about functional scope of the development platform whereby cloud platforms add three additional distinct elements according to Wainewright: Multi-tenancy, Cloud Reach and Service delivery capabilities.  The service delivery capabilities have to do with provisioning, pay-as-you-go pricing and billing, service monitoring etc. The multi-tenancy is typically not something that the PaaS platform provides automatically without the application developer building the multi-tenancy logic to the application. I still hear people saying that a legacy application that is migrated to the PaaS platform will automatically become multi-tenant. This is not true as each application has to be re-architected to take advantage of things such as scalability (application increases compute instances based on load).

The idea behind Intuit IPP platform according to Wainewrite is that Intuit has built service delivery capabilities that can be abstracted from the functional platform that is on the left hand side of the picture. The idea that Intuit had initially was to be able to provide support for any PaaS platform to be integrated to the IPP platform which I think is a good idea by not practical considering how fast the PaaS platforms are evolving and the amount of investments that are put into them.

One thing to remember is that all cloud platforms such as Windows Azure has already moved on the horizontal axis whereby the situation and clear cut separation between functional platform and service delivery capabilities is no longer that obvious. This also means that any Microsoft ISV that builds additional infrastructure elements to Windows Azure has to be carefully aligned with Microsoft product teams as there might be a danger to be irrelevant as some third-party functionality will be covered with the functional platform itself (PaaS platform) like Windows Azure. I have seen the same situation with some ISVs working with BizTalk extensions that suddenly have become part of BizTalk itself. Microsoft is very clear with its ISV partners that they should focus on vertical functionality or features that are unlikely to be part of the Microsoft platform in the short-term.

A new post from Jeffrey Schwartz on August 11th, 2011 explains how Intuit IPP and Microsoft Azure will be even more integrated as Intuit will drop its native development stack and instead “focus on the top of the stack to make data and services for developers a top priority” according to Schwartz. In reality this means that Intuit will invest heavily in Windows Azure SDK for IPP and make developing an app on Azure and integrating it to QuickBooks data and IPP’s go-to-market services easy and effective. Microsoft released some more information about this partnership in the Windows Azure blog. The two companies have launched a program for this called “Front Runner for Intuit Partner Program” that explains what the developers get by participating in the program. The site portrays three steps: Develop, Test and Market and there is a video that explains what it means.

So what should we learn from this blog entry? First of all, every development platform (PaaS etc.) will evolve and my recommendation for the ISV is to focus and invest on one that you think is here in the long run. I think this example from Intuit is a great example of a company that was initially in the race of competing in the PaaS space to some extent to conclude that the investments to keep the competition going is just too huge and this led to the conclusion to select Microsoft Azure as the foundation for IPP. Intuit will be much better off by focusing on building logic on-top of Windows Azure by participating in SDK development an ensuring that any solution specific development can be easily integrated into Windows Azure platform. Intuit will therefore focus on providing data and services for developers to use with Windows Azure PaaS platform.

Microsoft has been in the development tools and platform development since its foundation so they are much better off to do those kinds of massive investments. I think this is very smart from Intuit and this enables Intuit to have a scalable solution that developers can rely on even if the decision was not easy according to Liz Ngo from Microsoft. Alex Chriss (Director, Intuit Partner Platform) from Intuit explains this in his blog why Windows Azure is a good foundation for Intuit development. Also, Intuit provides a tremendous opportunity for ISVs like CoreConnext and Propelware report based on the blog from Liz Ngo.

Software ecosystem will continue to evolve and EVERY ISV has to figure out how its solutions will meld to be part of different sub-ecosystems. This will also require efficient and well-defined Application Programming Interfaces (API) from all parties to be able to create an integrated solution based on service oriented architecture (SOA).

Let me known if you know other good examples where software ecosystems mesh nicely with each other.

Cloud as foundation for innovation: Are you willing to take your company outside your own comfort zone when innovating products?

I got the burst and desire to write this blog entry after having read an article about Microsoft and Toyota forming a partnership to develop new IT-based services for electric vehicles when to recharge. Think about it. In the future, the cloud will become the place that connects devices and vehicles and if this is not an opportunity for ISV’s, what is? Also, when you add mobile solutions to this formula of the cloud, you have something that can become big and create a new market for the ISV.

I will never forget the day when I was sitting in an advisory panel with other software executives when one of the participants from a large software company suddenly said with a loud voice to the entire group: you are looking at your business inside the box, not from outside. That was the first time when I had a real wakeup call how the cloud can change not only our lives, but also how products are innovated and how we can make a difference with software.

The cloud has unfortunately lots of hype around it, but many Independent Software Vendors (ISV’s) such as M-Files (Motive Systems) has taken Microsoft Azure as an enabler of new opportunities and not just as an “object for migration”. M-Files is the first Document Management Solution that is built using Windows Azure as the foundation with tens of thousands of users around the world. Windows Azure provides a scalable and robust platform for an ISV to build solutions that can be distributed around the globe.

Anybody can migrate to the cloud, but the winners are the vendors that really look at the current business model and make something bigger of it like what M-Files decided to do. As a software vendor, M-Files will rely upon Microsoft to build data centers and infrastructure to these centers and the role of M-Files will be to innovate on top of this infrastructure. Windows Azure and SQL Azure are part of a Platform-as-a-Service environment (PaaS), but without an application Windows Azure is just infrastructure and there is nothing that you can do with it. Microsoft relies on Independent Software Vendors (ISVs) to build applications that can then be deployed to the Azure cloud and be part of the Windows Azure Marketplace or Windows Azure DataMarket with the possibility to accelerated sales. Other solutions such as Dynamics CRM 2011 Online are positioned to another category (SaaS) and can be consumed “as is” or by customization by the company or a System Integrator (SI).

ISV’s are living in turmoil. Some of them have built solutions for years with an architectural model that will be hard to move to any cloud infrastructure even if there was a desire. There are many alternative ways to make the transition, and one of them is to do a gradual move by building extensions that utilize the cloud and this gives the ISV the taste of the cloud and what it really is to develop to that environment. Sometimes the architectural model just is meant to be for the cloud and those are the lucky ones that are typically in the minority.

Having travelled the world, having seen hundreds of ISV’s, I am convinced that the ones that do not even have a transition plan will have huge issues going forward. I have analyzed the situation from System Integrator (SI) and Independent Software Vendor (ISV) perspective and I have to say that both groups will benefit from the cloud if positioned correctly. The former can serve the latter in the transition and the latter should be thinking and innovating outside the box. Think big, do not think about migration, but think about things that you were not able to do in the past that you can do now. Ulf Avrin provides advice in his blog entry in the transitioning to the cloud and what types of changes one can expect in the transition.

Do you have a transition plan in place and are you going to benefit of the cloud?

Third Ecosystem, Cloud Platforms and New Mobility Era in the workings

The market is sizzling with comments of the recent Microsoft/Nokia collaboration decisions. Some blog entries estimate that this marriage will be a problem for other OEM vendors using Windows Phone 7 while some blog entries estimate that this decision is very bad for Google. Only time will tell what this will lead to, but from a market research and analysis perspective, the decision what Nokia did is a game changer for the mobile industry. It is now a game of three, as I am not going to count RIM with is BlackBerry platform to be a real contestant going forward. Others agree like can be seen in InformationWeek article.

The decision from RIM to change the operating system for its upcoming BlackBerry PlayBook to be different from the BlackBerry OS6 kills the possibility for success in my mind.  Those thousands of BlackBerry apps will have to be rewritten for the new OS unless RIM provides some kind of emulator or converter for its developers. I doubt it. For a software development organization to start working on a platform with diminishing returns is not appealing unless you are really focused on a niche market that requires something that is specific to BlackBerry OS. According to a recent Engadget news bulletin, there will be four different flavors of PlayBook tablet coming out. I have been a BlackBerry user for years due to the unlimited worldwide AT&T data plan that the operator used to offer. Mine is still to keep, but new clients won’t get it. My BlackBerry Torch works nicely, but the question is whether it will keep its competitiveness going forward? Maybe it is time for me to consider something new as well…

The market has also changed to become more mobile, where the requirement of any solution is to be able to be accessed by a mobile device and this is why the market is introducing different mobility devices as well as tablets of different shapes and forms. Here again, it will be an ecosystem play and my personal hope is that Microsoft will also deliver a tablet operating system that will be optimized for tablets with long battery life etc.

One of the main arguments that Nokia and Microsoft gave in their announcement of strategic collaboration was to build a strong ecosystem with different types of ecosystem players. The ZDNet blog entry included following picture that shows how the overall ecosystem thinking that Nokia and Microsoft is looking at.

If you review the picture in greater detail, the mobile device will really become the central hub for both personal and business use which by itself is not anything new. What I think is new is that the ecosystem thinking will push through this time with force and this is what Stephen Elop calls for third ecosystem. The rationale behind this term is that for Nokia and Microsoft to be able to compete with Apple’s iOS and Google’s Android, this partnership has to really build an ecosystem that encompasses phones, developers, mobile services, partnerships with carriers, and app stores to distribute software. The future is less about hardware and physical devices; it will be more about solutions and how they integrate in both home and business environment.

One of the key issues for Nokia’s poor market share in the US has been the relationships (or the lack of) with carriers and this is where I believe this new partnership will also help.  US has been specifically bad for consumers as operators have been able to control what devices they carry and this has not been Nokia’s strenght. I believe this will also change with this new relationship and lead to broader handset selection in local operator stores such as AT&T.

What does it mean for system integrators (SI) and independent software Vendors (ISVs)? It really provides a new opportunity to build innovative solutions to an ecosystem that is far bigger than Microsoft has ever had in the mobility space. Windows Phone 7 is now the principal operating system for the smart phone platform and this also requires Nokia to get Microsoft partners onboard to build solutions to their existing ecosystem. The current Microsoft partner network has skills in many areas that might not exist in the Nokia ecosystem. The same applies the other way around.

Just to review some of the upcoming possibilities or permuations that could potentially drive the business for Nokia development organizations. This change requires a change in development environment to .NET, XNA and Silverlight. Current Microsoft developers can partner with Microsoft partners to form alliances or build pockets of teams like IAMCP (International Association of Microsoft Channel Partners) teaches its partners to do. There are lots of different types of new arrangements and opportunities and following list is by no means comprensive, but gives and idea of the endless permutations that will be part of the future of Microsoft/Nokia ecosystem development.

  • Nokia developers migrate their current solutions to support Microsoft technology such as Dynamics CRM, AX, GP, SL etc.
  • Current Microsoft mobility partners decide to invest in solutions that they have been thinking of but with the lack of market share, did not decide to do so. Now with the added Nokia ecosystem, the opportunties just became much more lucrative
  • Both Microsoft and Nokia developers decide to create innovative solutions that utilize the cloud as foundation. Microsoft brings to bear one of the biggest cloud investment of all times (Windows Azure). Each cloud center costs more than 500 billion to build.
  • Microsoft SharePoint partners realize the new mobility opportunity is huge and decide to invest in solution development using Windows Phone and place the solution in Windows Phone Marketplace as an app
  • Windows Phone 7 has been positioned initially in the consumer space, but with Nokia stepping to the plate, it will become a serious player in the enterprise mobility space as well.
  • System integrators (SI) have a tremendous opportunity to build a Windows Phone practice as the ecosystem now suddenly became much bigger. Also, to some organziations Symbian has just been too cumbersome from development perspective as has been reported by numerous developers and development organizations.
  • Solutions are becoming more social and Windows Phone 7 integrates already today with gaming platform and other similar services.
  • Etc.

I am sure there are lots of other great opportunities and it will be your own imagination that is the only limitation on what can be done. The development environment is based on Visual Studio 2010 combined with frameworks as XNA. If you decide to include cloud development, Microsoft provides development kits for Windows Azure. Everything is integrated to Visual Studio 2010 whereby the learning curve from one environment to the other is less of a hassle.

The competition to the Microsoft/Nokia collaboration is not standing still. Google with Android and Apple with iPhone are aggressively competing of the same developers and some have even decided to take an unfair approach in soliciting people that are impacted by this strategic relationship like was reported by InfoWorld. The competition has also recognized that platforms and ecosystems are what really matters in the future like was reported by a recent article in Wall Street Journal.

The more I think about this change, the more I see opportunities that entrepreneurs can take advantage of. One should not be naïve, but estimate each decision from a company perspective what is the best way to approach this new strategic relationship. I am convinced that in a few weeks once more information comes available you will see things happening that would not have happened without this Microsoft/Nokia collaboration. And what is most important, consumers will benefit of this move as the competition will increase and developers can focus on building applications and accumulate intellectual property on top of the platforms.

Will Independent Software Vendors (ISVs) without a cloud strategy have a slow but certain death?

Independent software vendors (ISVs) and system integrators (SIs) will have a wakeup call very soon unless they spend some time contemplating how the cloud will change their strategy. What I am seeing around the world is that innovative ISVs and SIs are eating the lunch of traditional and more established vendors and I expect this trend to continue. This is not just a change from client/server era to cloud architectures; the change will have a tremendous impact on how we consume software and what end user organizations expect ISVs and SIs to deliver. My company is getting requests from very traditional end user organizations to move their solutions to the cloud and this is happening in an ever increasing pace. The most logical move is to move email and document collaboration to the cloud to be followed by accounting if you are in the SMB space.

My professional career started when the mini computers were the hot platform for software development. Mainframes were still very much the main platform for large organizations, but mini computers with HP 3000, Digital VAX/VMS and UNIX grew in market share. It did not take long until client/server architectures grew in popularity and this is the era where I led product development of more than 20 software products in the business intelligence/data warehousing and forecasting/planning domain. 

Jumping forward to the cloud era (ignoring some trends such as PC etc.), I have heard many people referring that it is the same thing as mainframe era. In some respect it is, but there are considerable differences as well. These differences have to do with how we innovate and how we build software to be consumed by the outside world. The mainframe era was more contained to services inside the corporation and any outside connection was controlled via physical machines or in some cases pre-determined integration mechanisms. Cloud era will not change this, but it will change the way organizations interact from within the organization to the outside world and how they consume services provided by software vendors.

The cloud era is completely different to any prior era when you view it from software development perspective. The software world (Internet at large) includes a massive amount of services providers that expose services that can be consumed by third-party software development organizations. A good example of this is Microsoft Azure platform and the new services Dallas (codename as of now) that allows developers and information workers to easily discover, purchase, and manage premium data subscriptions. In this case it will be more about data, but it could be anything, anything at all that software vendors are melding into their solution and building a composite application. Gone are the times were small ISVs were focusing on building infrastructure elements/components. I can still remember the times when software vendors were developing infrastructure to enable applications development. I have also been forced to spend money on building proprietary communication protocols based on SNA and TCP/IP as it gave our solutions a competitive edge. This is history and will never come back again.

Is consumer buying behavior also changing how corporations will buy software in the future?

I am tempted to claim that consumers are driving buying behavior in corporate world as well. Executives are now exposed to software solutions on the net and are forcing corporate IT to view the cloud world with applications that are consumed based on use. Executives download apps to their smart phones and get exposed by younger generation how apps are used from the net. The question that many executives might have is why some of the internal applications that are used in the corporation are so clumsy to use and any change to the system takes weeks/months to accomplish. You have probably read in business papers and magazines that sales of traditional enterprise solutions are not growing anymore the way they used to. It could be market saturation, but I also believe that there is a fundamental change in adding solutions that take care of the issue and not try to solve all of the problems in the world. This could be very smart for many smaller vendors that sell high quality packages to enterprises with a price point that is very low. It is about easy buying and I know that large enterprise deals are hard to get in today’s economic environment.

There are still enterprise solutions that will not work in the cloud due to many reasons. It could be due to regulatory issues but I am convinced that with time, regulators and lawmakers will have a wakeup call where any country’s competitiveness is founded on openness and not on closing the borders.  With the buying behavior changing, some less complex areas are already making huge progress like an interesting software vendor in the security play called Spectorsoft. The company sells and develops Internet monitoring software for home uses, business, education, and government. Most of the sales happen over the Internet and the software is assumed to be easy to install and to use. This will be the most typical scenario when it comes to software purchase.

Software buying can happen in 30 thousand feet

When you review your own shopping behavior, you will also understand how most solutions will be bought in the future. A few days ago on my flight from Seattle to Dallas on American Airlines, a gentleman sitting beside me was doing extensive search on products and made finally multiple different transactions by using his credit card. This has been made possible with innovation in wireless space where American Airlines provides wireless access for its passengers. It is fascinating to think about the new software era and compare it to the era when I started by software career. We can now sign up for CRM solutions without having to talk or consult the software vendor. We can deploy accounting packages in our company such as Intuit Quickbooks Online and we can manage our daily personal financial lives by using cloud solutions such as Mint.com. We can be sitting in 30.000 feet conducting business without really thinking about it. Another gentlemen that was on the same flight was chatting on Microsoft Office Communicator the entire flight with multiple people whereby he did not miss any working hours as we were flying towards east. He seemed to spend most of our 4 hour flight using the messenger.

My company is run in the cloud and any solution that is not SaaS-based, will not be considered

I run my business in the cloud. We have not owned or managed a single server since I started TELLUS more than five years ago. All of our operations are managed from the cloud such as accounting, email, collaboration, project management etc. I do not consider any new solutions that are not SaaS-enabled and this is the situation with many other organizations as well. The market is moving into “targeted” point solutions where we buy and consume services from the cloud. Integration of these solutions to possible onsite applications needs to happen either in the cloud or in some on-premise integration software tool. Integration still remains a factor that prohibits large organizations to move its operations to the cloud, but there are already numerous different solutions that enable integration between on- premise and off-premise (cloud) solutions. With time and new cloud solutions in the enterprise space, integration issues will become easier and new standards and interfaces for integration will emerge.

Maybe not this year or the next, but I am convinced that solutions will be based on “good enough” concept where organization buy solutions they consume on the need, and not on the “elephant” model we have been used to. A typical ERP project with customizations will probably be forgotten in the future and workflows and processes will be built in a new way that does not take down the company from both cost and labor perspective.

Large organizations with ongoing cost cutting can stifle innovation

What makes the new cloud ecosystem interesting is the innovation that can happen around it. Any software company, anywhere in the world and of any size, can bring new innovation and become something in the new cloud era. Some large organizations have been focusing on cost cutting avoiding risks instead of taking bold moves to create new market entries or new products. One of these fatalities has been Nokia as it has been reported by the press like New York Times recently.

According to the press, Nokia has had many of the ideas and prototypes built that Apple is now riding with, but management has not had the courage to make them to become true. Then on the other side of the spectrum is Apple that is known for bold moves such as iPhone that Nokia positioned to consumer with marginal importance. It reminds me of Nokia’s miss on the Motorola flip-phone market with the results of huge downfall in the US markets.  With new leadership by Stephen Elop Nokia is trying to change its course. The change has already started by two senior executives leaving the company. The first announcement was when Nokia smartphone head Anssi Vanjoki decided to leave. The second noticeable departure was last week  by Mr. Ari Jaaksi, the leader of MeeGo platform. I am sure we will hear more news in the upcoming weeks of additional changes. The incumbent Apple has also been able to put many established smart phone vendors in disarray and the rise of Android phone software platform will give additional grief to all vendors, including Apple.

Software is everywhere and software will be embedded in our daily lives.

I expect the software market to bring new innovative solutions that combine the cloud with smart devices that communicate to the cloud. This will create new opportunities for ISVs around the world and the winners will be the ones that are innovative and create new solution areas and products. Software is part of our lives already today and will continue to be even more so in the future. Embedded software will continue to rise in importance which will also create new opportunities for rising ISVs around the world.

One of the leading software development tool vendors MetaCase has been able to penetrate the embedded software space with its innovative domain-specific modeling tool that enables more effective variation of software products from a platform. This type of software product line engineering will also be of great importance to enable rapid variation of embedded software solutions and still maintaining the quality of the end product.

A couple of weeks ago I had TXU Energy install two new thermostat controllers to my house that enables me to control heating and cooling in our two story house. We have two cooling units and each of them can now be controlled from the Internet and enables us to save hundreds, if not thousands of dollars each year. The temperature in Texas is brutal in the summer so any optimization of cooling has a big impact on our electricity bill. I can create multiple profiles based on our family patterns (when we are in and out) and the system feeds information to the cloud and the cloud provides me information how to optimize my electricity consumption. This is a terrific example of intelligent use of web services, where I have much better handle of my daily/weekly/monthly electricity use.

Another example of smart devices is Fitbit device that enables me to track and control my calories burnt, steps, distance and sleep quality automatically. Whenever I am close to my laptop with the Fitbit device, it automatically loads data of my daily movement to the cloud. I can compare other people in the same age and get additional information of my health based on real data, and not on some assumed numbers that I have estimated. This is made possible by intelligent and embedded software that is becoming even more relevant in the future.

Cars are full of software devices and embedded software. My son and wife has a Ford car and both of them have Microsoft Sync that enables automated synchronization of music playlists, phone books and hands free phone use when driving. The system also provides information about vehicle health, business search, traffic alerts, 911 assist and many other things. All this is managed by GPS, wireless and Internet technology. 

Software ecosystems with cloud will change ISVs whether they want it or not.

Some software domains have been slow to move to the cloud space, but this is also changing and I will be writing another blog entry of this topic very soon. One of these domains is business intelligence/data warehousing space. There as some challenges in the BI/DW arena concerning the cloud, but many of these perceived obstacles will hopefully go away sooner or later with new innovation and solutions.

Some ISVs in smaller countries/regions have been protected from competition, but the cloud will also change this slowly but surely. There will always be new software vendors (ISVs) that are soliciting business across borders and many organizations are willing to test out new solutions even if they do not know anybody from the software company. Yet again, watch your own behavior when consuming web services/solutions. Do you really care where the solution is from? The only thing you might want to make sure is that the SaaS/Cloud vendor has an option to take backups of the data to a local environment in case the vendor disappears from the marketplace.

ISVs can’t avoid developing for the cloud anymore. I am surprised how some enterprise vendors and SMB ISVs defend their turf by concluding that cloud is not an option in their software world. Not only are these conclusions wrong, they might be lethal for the company when considering the future.  According to research, cloud adoption is accelerating specifically in the US market and if old trends are intact, rest of the world will see similar kind of growth as well.

Another clear trend that I have noticed is that organizations do not care anymore to have hugely complex applications/solutions and prefer to buy user friendly solutions that can be quickly deployed. I am convinced that the famous multi-year ERP deployment era is gone and organizations require solutions that can be easily purchased and quickly deployed. What ISV organization have to recognize is that the perception of solutions is changing whether we want or not and the price points and the usability and deployment is change forever. It will still take a few years for most organizations to move towards consumption-based software world, but it will happen as we have seen in so many cases.

If you are an ISV, you do not want to miss this window of opportunity to be innovating something new and get your footprint in the market. Does your company have a strategy for the cloud yet? If you don’t, you should take action now before your competition will eat into your market share.

Law #1 of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas: Less is more!

If you have been active in the SaaS world, you have most probably heard of Bessemer’s Top 10 Laws of Cloud Computing and SaaS. These top 10 laws are defined to help to navigate in the world of SaaS, specifically for the ISVs that want to transition to the SaaS world and the ones that have a dream of starting a SaaS-based company. Let’s drill into the top 10 rules of Bessemer. These “laws” are built on hundreds of conversations with cloud executives around the world and Bessemer Venture Partners is one of the best known investors in cloud companies. The latest, Winter 2010 release of the Top 10 Cloud Computing Laws are:

  1. Less is more! Leverage the cloud everywhere you practically can.
  2. Get instrument rated, and trust the 6C’s of Cloud Finance.
  3. Study the Sales Learning Curve and Only Invest behind Success.
  4. Forget everything you learned about software channels. The internet is your new channel and Technology enabled Service providers are among the few partners that actually care if you succeed.
  5. Build Employee Software. Employees are now powerful customers, not just their managers.
  6. By definition, your sales prospects are online – Savvy online marketing is a core competence of every successful cloud business.
  7. The most important part of Software-as-a-Service isn’t “Software”, its “Service”.
  8. Leverage and monetize the data asset.
  9. Mind the GAAP. Cloud accounting is all about matching revenue and costs to consumption… besides the professional services.
  10. Cloudonomics requires that you plan your fuel stops very carefully.

Each of these laws had lots of detail information and logic behind it and I would recommend you to read the whitepaper that describes all of this in greater detail.

What I would like to accomplish is to portray these 10 Laws in respect to the Business Model Canvas (from Dr. Alexander Osterwalder et al.)  that I described in a prior blog entry ISVs are re-learning Business Models from multiple different perspectives using Business Model Canvas. The business model canvas portrays the dimensions in an overall business model. This Business Model Canvas is an excellent tool/framework to analyze any business, including a SaaS or traditional enterprise software business. I will break this analysis into multiple blog entries and will start by analyzing the first law (Bessemer Cloud Computing Law 1 #1: Less is more!)

Law #1: Less is more!

This law suggests that the software company (SaaS vendor) leverages the cloud wherever it can, both internal systems as well as own product offerings. This enables the software vendor to “eat its own dog food” with the experiences that a real customer would have of the solution use. This law also suggests that the vendor focuses on its own core competence and leaves everything else outside to be managed by others. This relates to at least three business model canvas building blocks: Key Resources (KR), Key Activities (KA) and Key Partnerships (KP) but can also have an impact on Cost Structure (C$). Let’s analyze why I am referring to these canvas building blocks.

Key Resources (KR) in the Business Model Canvas is needed to create the solution that is defined in the Value Proposition (VP) and delivered to the Target Customer Segments (CS). These resources can be physical, intellectual, human or financial. Bessemer Law #1 emphasizes to focus on SaaS vendor’s own core competencies and leave the rest to other vendors to deal with.

Key resources (KR) should not be used to install software, but to focus on key delivery using a PaaS (Platform-as-a-Service) or IaaS (Infrastructure-as-a-Service) platform that others will maintain for the SaaS vendor. Software development of today should be to focus on building value over a software product platform where the value is built using the platform and where the developer can assume to have basic functionality built into it as infrastructure services and these services can be consumed using well-defined application programming interfaces (APIs) and standards.

The Bessemer #1 Law suggests building single instance, multi-tenant software solutions with a single version of code in production. Having been in the software business for 20+ years, this objective is truly something that I would highly recommend if possible. The whole idea behind my 2004 doctoral dissertation was to review how Analytical Application Software could be applied in a product platform setting and using software product line engineering with the idea to create an optimized core platform that developers could utilize in derivative software development.

Key Resources also define how well the SaaS company knows its domain, how well investors think that the SaaS company is going to be able to deliver the Value Proposition that has been defined for the company. The areas where the company does not have skills or are competitive should be left to Key Partners (KP) that can take care of providing the service. This could be outsourced product development of non-key software components and this is where a cloud provider such as Microsoft comes to play as well.  The SaaS vendor should evaluate its key competencies in a realistic way and focus on the areas where they know they can survive and leave the rest to Key Partners.

This type of building value-add is part of a SaaS vendor’s  Key Activities (KA)  and infrastructure development such as building scalable data centers is left for companies like Microsoft that is investing billions in huge data centers around the world and taking the pain off ISVs and software development organizations of having to worry about hardware, scalability and Service Level Agreements (SLA). An example of this is Microsoft Windows Azure  that represents an operating system in the cloud and provides a foundation for ISVs to build value-added solutions.  With this model, the SaaS vendor will save money in infrastructure costs and therefore it has a direct impact on Cost Structure (CS).

The Bessemer’s top 10 cloud computing laws can be viewed through the lenses of Business Model Canvas as was described in this blog entry.  I will continue on this series until all Bessemer’s top 10 cloud computing laws is covered using the Business Model Canvas.

ISVs are re-learning Business Models from multiple different perspectives using Business Model Canvas

The past year has been exciting time from a research perspective.  I have spent several months pondering, reading and talking to software vendors about the change that is taking place in the business models. I have been lucky to be the leader of more than 20 software products, both as head of development (CTO) as well as CEO.

Two years ago, the market was not really talking about cloud computing other than saying that it might be coming.  The situation is different now, even organizations such as Microsoft are announcing their plans and their need to provide cloud-based solutions. Based on Steve Ballmer’s March 2010 speech, about 70% of current Microsoft employees are working on cloud-related project today and that figure will reach 90% within a year. That is a very aggressive move from Microsoft and during Microsoft Worldwide Partner Conference (WPC) in July 11-15, 2010 Microsoft executives will give the direction for its partners for Microsoft FY11 how the cloud and cloud strategy needs to be part of Microsoft partner strategy.

I see at least three different scenarios (there are other variations as well) when thinking about software vendors (ISVs):

  1. A startup that does not have any legacy to deal with and can create an innovative solution without having to consider current clientele
  2. An established ISV that wants to build a cloud solution that is an extension to current traditional onsite model
  3. An established ISV that has to move to the cloud by replacing existing solution and having clients to move gradually to the new environment.

The market is different today, even if many ISVs are still in denial that it will not reflect their business. This could be fatal for many as what I have seen is that there are new startups that don’t have the burden of legacy to think about and these new startups will come with solutions that are “good enough” for end users and suddenly the legacy ISVs realize that they are losing market share.  This is the law of business and you just have to look at Nokia and how their dominance in the smart phone market is threatened due to newcomers that do not have to think about existing customers, converting existing solutions to a new platform and all of the stuff that I had to worry when building business intelligence solutions for enterprises. Our primary objective was to ensure seamless conversion from one database/application release to the other. Look at the mobility market. How successful do you think the legacy operating system supporters will be when there are new entrants that don’t have to worry about anything? I am sure you get my point.

What is it that these traditional ISVs have to worry about when moving to the cloud environment? What kind of change are they looking at? To get to the foundation of this change, I felt that we had to have a good framework to build from.

I looked at a bunch of different business model frameworks and ended up with an amazing model that is developed by hundreds of companies under the leadership of Dr. Alexander Osterwalder and they have created a fabulous book about this called Business Model Generation and it is written by Alex Osterwalder and Yves Pigneur. It was impressive of many reasons, but I think the main thing about the model is the business model canvas that portrays all of the needed elements that a company has to think about. Let’s look the business model canvas from Alex Osterwalder.

Business Model Canvas

So, what has this canvas to do with software vendors (ISVs)? When you review the dimensions, it becomes pretty obvious. Let’s take one at the time.

  • Customer Segments: every software vendor has to select the market segment they are going to play in. Working on a horizontal solution will require lots of money, so a smaller software vendor is better off having a target market segment
  • Channels: you have to deliver your solution either via direct sales or building a channel. However, the traditional channel concept is fading with time due to the SaaS delivery model. There are still going to be traditional licensing for a while, but new entrants will build solutions that could in some cases bypass the channel
  • Customer relationships: are you going to be the one managing the customer relationship or will you work through an indirect model such as retailers
  • Value propositions: one of the fallacies that software vendors have is to build a solution that does everything. Without a clear and crisp value proposition, a software company really can’t grow. I have seen so many times startups with terrific engineers creating the best rocket ship that exist in the planet, but the rocket ship was something that nobody wanted in the first place.
  • Key Activities:  these describe the activities that you have to be very good at. In other words, you have to identify your core competencies that make the software solution tick and that you have the right type of approach to the development, whether it is traditional software or software based on the cloud delivery.
  • Key Resources: In the end of the day, it is all about your people that make things happen. Key resources could be people, but it could also be physical assets, intellectual property that you might have or financial resources.
  • Key Partners: Software vendors have relied on partnering as long as I remember it and Microsoft is a good example of this as more than 90% of their revenue comes from the partners. There are many types of partnerships, some are loose and some are long-term with common objectives for success.
  • Revenue Streams: How are you going to make money on your business? Does your value proposition reflect a need on the market that organizations/end users are ready to pay for? Do you have a product that resonate a possible channel delivery model?
  • Cost Structure: Your value proposition and product has to be created and delivered, and do you have a business model that can carry the cost?

The question that you might have is how this business model canvas can be used and why should it be used? I have found multiple reasons for its effectiveness and here are some of them:

  1. You get an immediate view of the overall business and how each canvas element impacts the overall business.
  2. When you start looking at the market segment for example, you get pretty quickly to a situation where you have to ask yourself whether the business model makes sense at all.
  3. A traditional ISV can view the business model canvas from traditional perspective, but if it is changed to a SaaS/Cloud model, it become very obvious that the revenue stream and cost structure as well as channel discussion brings up things that might become issues for the ISV
  4. The business model canvas has been developed and tested by hundreds of companies, so I have a good feel that it has gone through so many iterations that it really does work and we use it to model things

The software market is undergoing a fundamental change and this change is also driving all types of vendors such as us to evaluate our value propositions and how to work with companies in the software space. Cloud computing is disruptive for the software market and this can be seen even with big players such as Microsoft and their move to providing cloud solutions such as Windows Azure, Microsoft Business Productivity Online Standard Suite (BPOS) and Microsoft Dynamics CRM Online.

I like to define Windows Azure as the operating system in the cloud and targeted towards software vendors (ISVs) to build solutions on top of Azure. BPOS is also disruptive as Microsoft markets and sells it directly to end user organizations and the traditional Microsoft partners (classic partners) have to reinvent themselves with value added services that compensates the lost revenue of installing servers and management of other physical equipment. I know there are many Microsoft partners that are struggling, but this has nothing to do with Microsoft, it is a trend that is taking place regardless of vendor.

Besides the financial model, SaaS is changing channel models as Phil Wainewright describes in his article “SaaS channel models morph into shape” where he gives examples of how interoperability between clouds will be of huge importance going forward. I think this is a tremendous opportunity for software vendors to innovate and build cloud extensions that utilize and consume services from different vendors. Microsoft Dallas project is a good example where applications can consume data from different vendors using REST API interfaces. I expect the discussion of channel development in the SaaS world to continue as is stated in the blog entry “Change the (SaaS) Channel Please, it’s a Rerun” by Lincoln Murphy

I would like to conclude this blog entry by saying: I have seen fundamental changes in the software market during my 20+ years and the cloud is one that you really have to pay attention to. I said this during my PhD dissertation  Evaluation of a Product Platform Strategy for Analytical Application Software defense in 2004, and I am saying this again today. Get ready, learn and find your own niche in it.