Unintended consequences of the cloud – part II

As I was pointing out yesterday, there are many unintended consequences from any emerging technology platform — the cloud will be no exception. So, here are my next three picks for unintended consequences from the evolution of cloud computing:

4. The cloud will disrupt traditional computing sales models. I think that Larry Ellison is right to rant about Cloud Computing. He is clearly aware that if cloud computing becomes the preferred way for customers to purchase software the traditional model of paying maintenance on applications will change dramatically.  Clearly,  vendors can simply roll in the maintenance stream into the per user per month pricing. However, as I pointed out in Part I, prices will inevitably go down as competition for customers expands. There there will come a time when the vast sums of money collected to maintain software versions will seem a bit old fashioned. In fact, that will be one of the most important unintended consequences and will have a very disruptive effect on the economic models of computing. It has the potential to change the power dynamics of the entire hardware and software industries.The winners will be the customers and smart vendors who figure out how to make money without direct maintenance revenue. Like every other unintended consequence there will be new models emerging that will emerge that will make some really cleaver vendors very successful. But don’t ask me what they are. It is just too early to know.

5. The market for managing cloud services will boom. While service management vendors do pretty well today managing data center based systems, the cloud environment will make these vendors king of the hill.  Think about it like this. You are a company that is moving to the cloud. You have seven different software as a service offerings from seven different vendors. You also have a small private cloud that you use to provision critical customer data. You also use a public cloud for some large scale testing. In addition, any new software development is done with a public cloud and then moved into the private cloud when it is completed. Existing workloads like ERP systems and legacy systems of record remain in the data center. All of these components put together are the enterprise computing environment. So, what is the service level of this composite environment? How do you ensure that you are compliant across these environment? Can you ensure security and performance standards? A new generation of products and maybe a new generation of vendors will rake in a lot of cash solving this one.

6. What will processes look like in the cloud. Like data, processes will have to be decoupled from the applications that they are an integral part of the applications of record. Now I don’t expect that we will rip processes out of every system of record. In fact, static systems such as ERP, HR, etc. will have tightly integrated processes. However, the dynamic processes that need to change as the business changes will have to be designed without these constraints. They will become trusted processes — sort of like business services that are codified but can be reconfigured when the business model changes.  This will probably happen anyway with the emergence of Service Oriented Architectures. However, with the flexibility of cloud environment, this trend will accelerate. The need to have independent process and process models may have the potential of creating a brand new market.

I am happy to add more unintended consequences to my top six. Send me your comments and we can start a part III reflecting your ideas.

Public versus private clouds: why one size does not fit all

There has been a lot of discussions these days about private and public cloud. More discussion has been generated because  both Amazon.com and Salesforce.com have added a Virtual Private Network (VPN) option to their public cloud services.  What does this mean in the context of how customers will move to cloud computing? It is clear from the research that I have been doing that the private cloud and the hybrid cloud are real and will be part of the computing landscape for a long time.  The emergence of the virtual private cloud is an early indication that customers some customers want a better guarantee of their data. The combination of a public cloud with the privacy offered by a VPN is only going to grow over the coming year.

So, is a Virtual Private Cloud still a public cloud? I particularly found the blog published by Amazon’s CTO,Werner Vogel’s  announcing the virtual private cloud fascinating. On one hand, the private virtual cloud announcement is a proclamation that customers want to be able to have secure access to services on the Amazon EC2 Cloud. On the other hand, he is quite clear that this there is no such thing as a private cloud.  Clearly, it is in Amazon’s best interest for customers to focus on public clouds. Vogel states in his blog that “What is called private clouds have little of these benefits (he means characteristics of the cloud) and as such I don’t think of them as true clouds” The four characteristics of the cloud he points to include:

• eliminating costs – lowering both capital expenses and operating costs
• elasticity – avoiding complex procurement cycles and improving time to market
• and removing undifferentiated heavy lifting by off loading data center operations

While I agree that there are many situations where this is an ideal approach for many businesses, I don’t think the situation is black and white. There are indeed shades of gray. In my view, a private cloud has to be architected to be different than a traditional data center. But like a traditional data center, it is protected by a firewall and sophisticated security.  A private cloud will almost always be combined with some public cloud services (either capacity, software as a service, or platform as a service). So, I’ll take each of the three characteristics mentioned in Vogel’s blog and explain my view based on the fact that customers will make both economic and technical choices.

• eliminating costs – In reality there are data centers that work pretty well and are core to the business. The company has made an investment and therefore would not necessarily be able to lower costs. However, I expect that even if a company decided to go with a private cloud, there will be good reasons to use capacity on demand to fill gaps and expand for projects. In addition, a very large company will have the financial means to establish its own cloud that will be much more cost effective. A cost/benefit analysis of using a public cloud versus a private cloud is not straight forward. It requires a deep assessment of lots of different factors.
• elasticity – It is quite clear that many data centers do not have an efficient way to procure resources to users. However, if a data center is rearchitected to enable self-service provisioning, it can be transformed to better support users. Again, I expect that customers will take advantage of additional capacity or platform services even if they have private cloud services. This is especially true for companies where their computing infrastructure is the foundation of their business.
• removing undifferentiated services – This will really depend on whether the data center helps a company differentiate itself. There are definitely services that offer no value to the bottom line that should be placed in a public cloud (with a VPN for security, in some cases) such as electronic mail. However,  where these services are at the core of the business and probably need to be in a private cloud. Many companies will select which services are not differentiated and which ones are and create a hybrid environment. Companies will have to do their homework both in terms of focus and costs. It might initially cost more to move a service such as email to a public cloud but will have huge resources in the long run. In other situations, paying per hour, etc. may be a lot more costly than you might imagine.

My bottom line is this. The cloud will continue to evolve over the coming decade and there is no one approach that will become the standard. The cloud is primarily an economic proposition that will require careful evaluation. Companies need to understand what their business is, what the value and role of the data center is and what is the best set of services available. The good news is that with the evolution of the cloud companies will have lots of good options.

The end of maintenance?

I admit that I didn’t read the whole article but then I really didn’t have to. I knew what Marc Benioff, CEO of Salesforce.com was trying to start. I remember many years ago seeing Marc at an industry conference where he proudly announced the end of software.  A nice marketing approach that definitely got everyone’s attention. Of course, at that time Marc was working on a little software as a service enviornment that became Salesforce.com. The rest is history, as we like to say.  Now, Marc is on a new mission to attack maintenance fees. While it is clear that Marc is trying to tweak the traditional software market I think that he is bringing up an interesting subject.

Software maintenance is not a simple topic to cover and I am sure that I could spend hundreds of pages discussing the topic because there are so many angles. Maintenance fees began as a way of ensuring that software companies had the revenue to fund development of new functionality in their software products. It is, of course, possible to buy software, pay once, and never pay the vendor anything else. Those situations exist of course. Ironically, the better designed the software, the less likely it is that customers will need upgrades. But, clearly that circumstance is rare.

There are major changes taking place in the economics of software. Customers are increasingly unhappy with paying huge yearly maintenance fees to software providers. Some of these fees are clearly justified. Software is complex and vendors are often required to continue to upgrade, add new features, and the like. There are other situations where customers are perfectly happy with software as is and only want to fix critical problems and don’t want to pay what they see as exorbitant maintenance fees.

Now, getting back to Marc Benioff’s comments about the end of maintenance. Here is a link from Vinnie Mirchandani’s recent blog on the topic.Marc is making a very important observation. As the world slowly moves to cloud computing for economic reasons there will be a major impact on how companies pay for software. Salesforce.com has indeed proven that companies are willing to trust their sales and customer data to a Software as a Service vendor. These customers are also willing to pay per user or per company yearly fees to rent software. Does this mean that they are no longer paying maintance fees? My answer would be no. It is all about accounting and economics. Clearly, Salesforce.com spends a lot of money adding functionality to its application and someone pays for that. So, what part of that monthly or yearly per user fee is allocated to maintaining the application? Who knows? And I am sure that it is not one of those statistics that Salesforce.com or any other Software as a Service or any Platform as a Service vendor is going to publish. Why? Because these companies don’t think of themselves as traditional software companies. They don’t expect that anyone will ever own a copy of their code.

The bottom line is that software will never be good enough to never need maintenance. Software vendors — whether they sell perpetual licenses or Software as a Service– will continue to charge for maintance. The reality is that the concrete idea of the maintenance fee will evolve over time. Customers will pay it but they probably won’t see it on their bills.  Nevertheless, the impact on traditional software companies will be dramatic over time and a lot of these companies will have to rethink their strategies. Many software companies have become increasingly dependent on maintenance revenue to keep revenue growing.  I think that Marc Benioff has started a conversation that will spark a debate that could have wide ranging implications for the future of not only maintenance but of what we think of as software.

My Top Eleven Predictions for 2009 (I bet you thought there would be only ten)

What a difference a year makes. The past year was filled with a lot of interesting innovations and market shifts. For example, Software as a Service went from being something for small companies or departments within large ones to a mainstream option.  Real customers are beginning to solve real business problems with service oriented architecture.  The latest hype is around Cloud Computing – afterall, the software industry seems to need hype to survive. As we look forward into 2009, it is going to be a very different and difficult year but one that will be full of some surprising twists and turns.  Here are my top predictions for the coming year.
One. Software as a Service (SaaS) goes mainstream. It isn’t just for small companies anymore. While this has been happening slowly and steadily, it is rapidly becoming mainstream because with the dramatic cuts in capital budgets companies are going to fulfill their needs with SaaS.  While companies like SalesForce.com have been the successful pioneers, the big guys (like IBM, Oracle, Microsoft, and HP) are going to make a major push for dominance and strong partner ecosystems.
Two. Tough economic times favor the big and stable technology companies. Yes, these companies will trim expenses and cut back like everyone else. However, customers will be less willing to bet the farm on emerging startups with cool technology. The only way emerging companies will survive is to do what I call “follow the pain”. In other words, come up with compelling technology that solves really tough problems that others can’t do. They need to fill the white space that the big vendors have not filled yet. The best option for emerging companies is to use this time when people will be hiding under their beds to get aggressive and show value to customers and prospects. It is best to shout when everyone else is quiet. You will be heard!
Three.  The Service Oriented Architecture market enters the post hype phase. This is actually good news. We have had in-depth discussions with almost 30 companies for the second edition of SOA for Dummies (coming out December 19th). They are all finding business benefit from the transition. They are all view SOA as a journey – not a project.  So, there will be less noise in the market but more good work getting done.
Four. Service Management gets hot. This has long been an important area whether companies were looking at automating data centers or managing process tied to business metrics.  So, what is different? Companies are starting to seriously plan a service management strategy tied both to customer experience and satisfaction. They are tying this objective to their physical assets, their IT environment, and their business process across the company. There will be vendor consolidation and a lot of innovation in this area.
Five. The desktop takes a beating in a tough economy. When times get tough companies look for ways to cut back and I expect that the desktop will be an area where companies will delay replacement of existing PCs. They will make do with what they have or they will expand their virtualization implementation.
Six. The Cloud grows more serious. Cloud computing has actually been around since early time sharing days if we are to be honest with each other.  However, there is a difference is the emerging technologies like multi-tenancy that make this approach to shared resources different. Just as companies are moving to SaaS because of economic reasons, companies will move to Clouds with the same goal – decreasing capital expenditures.  Companies will start to have to gain an understanding of the impact of trusting a third party provider. Performance, scalability, predictability, and security are not guaranteed just because some company offers a cloud. Service management of the cloud will become a key success factors. And there will be plenty of problems to go around next year.
Seven. There will be tech companies that fail in 2009. Not all companies will make it through this financial crisis.  Even large companies with cash will be potentially on the failure list.  I predict that Sun Microsystems, for example, will fail to remain intact.  I expect that company will be broken apart.  It could be that the hardware assets could be sold to its partner Fujitsu while pieces of software could be sold off as well.  It is hard to see how a company without a well-crafted software strategy and execution model can remain financially viable. Similarly, companies without a focus on the consumer market will have a tough time in the coming year.
Eight. Open Source will soar in this tight market. Open Source companies are in a good position in this type of market—with a caveat.  There is a danger for customers to simply adopt an open source solution unless there is a strong commercial support structure behind it. Companies that offer commercial open source will emerge as strong players.
Nine.  Software goes vertical. I am not talking about packaged software. I anticipate that more and more companies will begin to package everything based on a solutions focus. Even middleware, data management, security, and process management will be packaged so that customers will spend less time building and more time configuring. This will have an impact in the next decade on the way systems integrators will make (or not make) money.
Ten. Appliances become a software platform of choice for customers. Hardware appliances have been around for a number of years and are growing in acceptance and capability.  This trend will accelerate in the coming year.  The most common solutions used with appliances include security, storage, and data warehousing. The appliance platform will expand dramatically this coming year.  More software solutions will be sold with prepackaged solutions to make the acceptance rate for complex enterprise software easier.

Eleven. Companies will spend money on anticipation management. Companies must be able to use their information resources to understand where things are going. Being able to anticipate trends and customer needs is critical.  Therefore, one of the bright spots this coming year will be the need to spend money getting a handle on data.  Companies will need to understand not just what happened last year but where they should invest for the future. They cannot do this without understanding their data.

The bottom line is that 2009 will be a complicated year for software.  There will be many companies without a compelling solution to customer pain will and should fail. The market favors safe companies. As in any down market, some companies will focus on avoiding any risk and waiting. The smart companies – both providers and users of software will take advantage of the rough market to plan for innovation and success when things improve – and they always do.

What happens to SaaS in a tough economy?

I participated in a SaaS event this week that was sponsored by IBM.  It was sort of a funny feeling to be at a very good, positive event that focused on SaaS as a platform right in the midst of an economic meltdown.  In some ways, I had one of those out of body experiences. What am I doing talking about the future of SaaS when the world seems to be crashing and burning. As we sat listening to speakers and talking to each other the stock market went down 700 points. I met many different software executives from companies that are creating very significant SaaS based offerings — and they are getting good traction from their customers.

But the question remains and one that I will attempt to answer is what will happen to SaaS in this economy. I think that SaaS is going to be hugely successful in this economy. First, it is clear that customers are growing increasingly comfortable with the idea of using software that is managed by a third party vendor and hosting provider.

Now not all these vendors are equal. It is actually tricky to ensure success in a SaaS world.  After all, if you buy a regular software license and then decide that the software is not as good as you thought, you are stuck. Now, next year you might forgo the maintanance fee, but you still own the code.  It is different with SaaS. If you decide to take on the 30 day free trial there is no guarantee that you will become a life long customer. Likewise, if you do take the plunge and sign on for a month or two, there is also little guarantee that you will become devoted to the application. My point is that becoming a good, profitable and predicatable SaaS vendor is harder than it looks. Basically, you’ve got to be pretty good to make it.

Now, back to the economy and SaaS. Customers who will still need software even in a horrible market are going to think twice about captial expenditures.  Do you really want to spend a lot on servers and storage and the like? I predict that in tough economic times paying someone a monthly or even a yearly fee and letting them buy the capital intensive stuff will be just the ticket.

So, I think you will see the really smart SaaS vendors that know how to proactively nuture their customers so that they will really use their technology will win.  These smart SaaS vendors will also figure out the meaning of scalability, performance, and managability.  They are already figuring out how to make their software configurable and they are even creating versions that appeal with vertical market segments.

This economic climate may be making us all a little crazy and scared but there are some nice opportunities for those who are willing to solve customer problems. This will be the beginnng of the SaaS renissance and I think it will be a positive move for customers and the market.

Ten things I learned about Citrix..and a little history lesson

I attended Citrix’s industry analyst event a couple of weeks ago. I meant to write about Citrix right after the event but you know how things go. I got busy.  But I am glad that I took a little time because it has allowed me the luxury of thinking about Citrix as a company and where they have been and where they are headed.

A little history, perhaps? To understand where Citrix is headed, a little history helps. The company was founded in 1989 by a former IBMer who was frustrated that his ideas weren’t used at Big Blue.  The new company thought that it could leverage the future power of OS/2 (anyone remember that partnership between IBM and Microsoft?).  Citrix actually licensed OS/2 code from Microsoft and intended to provide support for hosting OS/2 on platforms like Unix.  When OS/2 failed to gain market traction, Citrix continued its partnership with Microsoft provide terminal services for both DOS and Windows.  When Citrix got into financial trouble in the mid-1990s, Microsoft invested $1 million in the company.  With this partnership firmly in place, Citrix was able to OEM its terminal servicer product to Microsoft which helped give the company financial stability.
The buying spree. What is interesting about Citrix is how it leveraged this position to begin buying companies that both supported its flagship business and move well beyond it.  For example, in 2003 it acquired Expertcity which had two products: GoToMyPC and GoToMeeting.  Both products mirrored the presentation server focus of the company and enhanced the Microsoft relationship. In a way, you could say that Citrix was ahead of the curve in buying this company when it did.
While the market saw Citrix as a stodgy presentation focused company things started to change in 2005. Citrix started to make some interesting acquisitions including NetScaler, an appliance intended to accelerate application performance,  and Teros, a web application firewall. There were a slew of acquisitions in 2006.  The first of the year was Reflectant, a little company in Lowell, Massachusetts that collected performance data on PCs.  The company had a lot of other technology assets in the performance management area that it was anxious to put to use.  Later in the year the company bought Orbital Data, a company that could optimize the delivery of applications to branch office users over wide area networks (WANs).  Citrix also picked up Ardence, which provided operating system and application streaming technology for Windows and Linux.
Digging into Virtualization. Clearly, Citrix was moving deeper into the virtualization space with these acquisitions and was starting to make the transition from the perception that it was just about presentation services. But the big bombshell came last year when the company purchased XenSource for $500M in cash and stock.   This acquisition moved Citrix right into the heart of the server, desktop and storage virtualization world.  Combine this acquisition with the strong Microsoft partnership and suddenly Citrix has become a power in the data center and virtualization market.

The ten things I learned about Citrix. You have been very patient, so now I’ll tell you what the things I thought were most significant about Citrix’s analyst meeting.

Number One:  It’s about the marketing.  Citrix is pulling together the pieces and presenting them as a platform to the market. My only wish is that some company would not use the “Center” naming convention for their product line.  But they have called this Delivery Center. The primary message is that Citrix will make distributed technology easier to deliver. The focus will be on provisioning, publish/subscribe, virtualization, and optimization over the network.

Number Two: Merging enterprise and consumer computing. Citrix’s strategy is to be the company that closes the gap between enterprise computing and consumer computing.  CEO, Mark Templeton firmly believes that the company’s participation in both markets makes it uniquely positioned to straddle these worlds.  I think that he is on to something.  How can you really separate the personal computing function from applications and distributed workloads in the enterprise?

Number Three.  Partnerships are a huge part of the strategy. Citrix has done an excellent job on the partnering front.  It has over 6,000 channel partners.  It has strong OEM agreements with HP and Dell and Microsoft.  Microsoft has made it clear that it intends to leverage the Citrix partnership to take on VMWare in the market.

Number Four: Going for more. The company has a clear vision around selecting adjacent markets to deliver an end-to-end solutions.  Clearly, there will be more acquisitions coming but at the same time, it will continue to leverage partnerships.

Number Five: It’s all about SaaS. Citrix has gained a lot of experience in the software as a service model over the past few years with its online division (GoToMyPC and GoToMeeting).  The company will invest a lot more in the SaaS model.

Number Six. And its all about the Cloud. Just like everyone else Citrix will move into Cloud Computing.  Because its NetScaler appliance is so prevalent in many SaaS environments, it believes that it has the opportunity to become a market leader. It is counting on its virtualization software, its workflow and orchestration technology to help them become a player.

Number Seven:  Going for the gold. With the acquisition of XenSource combined with its other assets, Citrix can take on VMWare for supremacy in virtualization.  This is clearly an ambitious goal given VMWare’s status in the market.

Number Eight.  Going after the Data Center market. Citrix believes that it has the opportunity to be a key data center player. It is proposing that it can lead its data center strategy by starting with centralization through virtualization of servers, desktops, and operating systems and provide dynamic provisioning, workflow, and workload management.  Citrix has an opportunity but it is a complicated and crowded market.

Number Nine: Desktop graphic virtualization.   Project Apollo, Citrix’s desktop graphics virtualization project seems to be moving full steam ahead and could add substantial revenue to the bottom line over time.  However, there is a lot of emerging competition in this space so Citrix will have to move fast.

Number Ten: Size matters. And speaking of revenue — Citrix is ambitious. While its revenues have topped $1 billion, it hopes to triple that number over the next few years. And then, what? Who knows.

Cloud Computing: a work in progress or a silver bullet?

I have seen some research recently that suggested the CIOs are not seriously thinking about Cloud Computing. Is this a leading indicator on this emerging market or is it looking in the rearview mirror? I vote for the rear view mirror theory. Here is why. If you are the typical CIO, you are thinking about everything from your budget, how to reduce energy costs in your data centers, proving to the CEO and CFO that your investments are indeed showing a return on investment or at least giving you a competitive weapon. In our research we are in fact seeing that many CIOs that are implementing new infrastructure and plans for new efficient data centers and innovative Service Oriented Architecture are making progress.
However, when I see research about doubts about clouds I can come to only one conclusion: fear of the unknown. What is a cloud? A cloud is an Internet based set of services based on a Software as a Service (SaaS) approach. Typically a single vendor controls this hardware, networking, software, and management environment.
Many CIOs and IT managers simply don’t understand what this means. It isn’t their fault. I have yet to see an article or announcement from a major vendor that makes it clear what a cloud really is (other than something that might mean rain). If I were a CIO struggling with all of the problems of a down market and requirements to make everyone happy I would be skeptical too.
Is Cloud Computing simply another word for outsourcing infrastructure? I believe that many CIOs will see it this way. After all, like outsourcing, clouds mean that computing is no longer on premise. There are obviously key differences between Cloud Computing today and outsourcing. The most obvious difference is the rationale for use. Today companies tend to use clouds for a specific test environment or to in essence host an application by a trusted supplier.
Over time, I think that CIOs will come around and accept that Cloud Computing is actually a valuable approach that is cost effective and trustworthy. However, in my view, it is going to take careful planning to gain the trust of business oriented CIOs. Here are what I think are the top challenges for achieving commercial clouds.

1. A cloud can hide many benefits and many sins. Therefore, a CIO has to be able to get under the hood of a cloud environment so that it is clear what the technology architecture is. Many problems are already surfacing because the existing cloud environment cannot scale and does not have a sophisticated management capability.

2. What exactly does the organization want to use a cloud for? Is it in place of a data center? If so, the CIO needs to do a lot of homework and establish a very well constructed Service Level Agreement with financial incentives and penalties.

3. Does the organization view a cloud as a standalone environment for one use? If so, how does it connect to an existing infrastructure and how easy is it to move data and other content from one site to another?

4. What happens if the cloud fails? Is there a back up plan? This is especially important if employees and/or partners and customers are dependent on the application or system that lives in the cloud. What happens if the cloud supplier goes out of business?

5. How proprietary is the cloud and how does that impact integration? This is important if you decide to leave one environment for another or even decide to bring the application back in-house. For example, some clouds may have designed their own languages for integration that might mean that an organization is stuck with an expensive rewrite.

Conclusion: there are no silver bullets or silver linings. Now, I think that Cloud Computing is going to be a very important transition in the maturation of distributed computing. In the long run, it will provide the type of utility computing that some of us have been talking about for decades. However, like anything else in the technology world, it is not a simple fix to complicated problems. It is an IT infrastructure made up of technology components that have to be managed, scaled, and secured – to name but a few issues. I expect that we will see a lot of failures in the coming year that will seed doubts among potential customers. At the same time, it will open opportunities for smart companies who have the vision to bring the pieces together and make this stage of computing a reality. At least we won’t be bored!

Can Microsoft Pull Virtualization, SOA, Management, and SaaS Together?

For three years in a row I have attended Microsoft’s server and tools analyst briefing. This is the vision of Microsoft that focuses on the server side of the company. A few years ago I predicted that this part of the company would get my vote in terms of growth and potential. I stand by my position. While Microsoft’s desktop division is suffering through a mid-life crisis, the server side is flexing its muscles. The transition towards power on the enterprise side is complicated for Microsoft. The challenges facing Microsoft is how to make the transition from its traditional role as champion and leader of the programmer to a leader in the next generation of distributed computing infrastructure. If Microsoft can make this transition in a coherent way it could emerge in an extremely powerful position.

So, I will provide what I think are the five most opportunities that the server and tools division of Microsoft is focused on.

Opportunity One. Virtualization as a foundation. The greatest opportunity, ironically, is also the greatest threat. If customers decide to virtualize rather than to buy individual licenses, Microsoft could suffer – especially in the desktop arena. At the same time, Microsoft clearly sees the benefits in becoming a leader in virtualization. Therefore, virtualization is becoming the focus of the next generation of computing infrastructure both on the server and the desktop. Microsoft is making many investments in virtualization including the desktop, the hypervisor, the applications, the operating system, graphics, and overall management (including Identity Management). One smart move that Microsoft has made is to invest in its hypervisor intended to come out soon as HyperV. Rather than offering HyperV as a standalone product, Microsoft is adding the hypervisor into the to the fabric of Microsoft’s server platform. This is a pragmatic and forward thinking approach. If I were an independent hypervisor vendor I would hit the road right about now. Microsoft’s philosophy around enterprise computing is clear: unified and virtualized.

Microsoft’s management believes that within five to ten years all servers will be virtualized. To me this sounds like a logical assumption both in terms of manageability and power consumption. So, how does Microsoft gain supremacy in this market? Clearly, it understands that it has to take on the market leader: VMware. It hopes to do this in two ways: providing overall management of the management framework (including managing VMware) and though its partnership with Citrix. There was a lot of buzz for a while that Microsoft would buy Citrix. I don’t think so. The relationship is advantageous to both companies so I expect that Microsoft will enjoy the revenue and Citrix will enjoy the benefits of the Microsoft market clout.

Microsoft has been on an acquisition binge in the virtualization market. While they haven’t created the buzz of the Yahoo attempted acquisition, they are important pieces to support the new strategy. Investments include: Kidaro for desktop virtualization management (that sits on the virtual PC and is intended to provide application compatibility on the virtual desktop. Another investment, Calista Technologies, provides graphics virtualization that offers the full “vista experience” for the remote desktop. Last year Microsoft purchased Softricity, which offers application virtualization and OS streaming. Microsoft has said that it has sold 6.5 million Softricity seats (priced at $3.00 per copy). Now, add in the HyperV and the ID management offerings and things get very interesting.

One of the smartest things that Microsoft is doing is to position virtualization within the context of a management framework. In fact, in my view, virtualization is simply not viable without management. Microsoft positioned virtualization around this portfolio of offerings in the context of a management framework (System Center) for managing both the physical and virtual environment for customers.

Opportunity Two. Managing a combined physical and virtual world. Since Microsoft came out with SMS in the late 1990s, it has wanted to find a way to gain a leadership role in management software. It has been a complex journey and is still a work in progress. It is indeed a time of transition for Microsoft. The container for its management approach is System Center. Today with System Center, Microsoft has its sights on managing not only Windows systems but also a customer’s heterogeneous environment. Within the environment Microsoft has included identity management (leveraging active director as the management framework including provisioning and certificate management). This is one area where Microsoft seems to be embracing heterogeneity in a big way. Like many of the infrastructure leaders that Microsoft competes with, Microsoft’s leaders are talking about the ability to create a management framework that is “state aware” so that the overall environment is more easily self-managed. Microsoft envisions a world where through virtualization there are basically a pool of resources that are available and can be managed based on business policies and service levels. They talked a lot about automating the management of resources. Good thinking, but certainly not unique.

Microsoft is making a significant investment in management – especially in areas such as virtualization management, virtual machine management. More importantly, through its Zen-based connections (via Citrix) Microsoft will offer connectors to other system management platforms such as IBM’s Tivoli and HP’s OpenView. That means that Microsoft has ambitions to manage large-scale data centers. Microsoft is building its own data centers that will be the foundation for its cloud offerings.

Opportunity Three. Creating the next generation dynamic platform. Every company I talk to lately is looking to own the next generation dynamic computing platform. This platform will be the foundation for the evolution of Service Oriented Architectures, social networks, and software as a service. But, obviously, this is complicated especially if you assume that you want to achieve ubiquitous integration between services that don’t know each other. Microsoft’s approach to this (they call it Oslo) is a based on a modeling language. Microsoft understands that achieving this nirvana requires a way to establish context. The world we live in is a web of relationships. Somehow in real life we humans are able to take tiny cues and construct a world view. Unfortunately, computers are not so bright. So, Microsoft is attacking this problem by developing a semantic language that will be the foundation for a model-based view of the world. Microsoft intends to leverage its network of developers to make this language based approach the focal point of a new way of creating modular services that can dynamically change based on context.

This is indeed an interesting approach. It is also a bottoms-up approach to the problem of semantic modeling. While Microsoft does have a lot of developers who will want to leverage this emerging technology I am concerned that a bottoms-up approach could be problematic. This must be combined with a tops-down approach if this approach is to be successful.

Opportunity Four. Software as a Service Plus. I always thought that Microsoft envied AOL in the old days when it could get customers to pay per month while Microsoft sold perpetual licenses that might not be upgraded for years. Microsoft is trying to build a case that customers really want a hybrid environment so they can use an application on premise and then enable their mobile users to use this same capability as a service. Therefore, when Microsoft compares itself to companies like Salesforce.com, Netsuites, and Zoho they feel like Microsoft has a strategic advantage because they have full capabilities whether online or off line. But Microsoft is taking this further by taking services such as Exchange and offering that as a service. This will be primarily focused on the SMB market and for remote departments of large companies.

This is only the beginning from what I am seeing. Services such as Live Mesh, announced in April, is a services based web platform that helps developers with context over the web. Silverlight, also announced this spring is intended as a web 2.0 platform. Microsoft is taking these offerings plus others such as Visual Earth, SQL Server data services, cloud-based storage, and BizTalk services and offerings them as components in a service platform – both on its own and with its partners.

Opportunity Five. Microsoft revs up SOA. Microsoft has been slow to get on the SOA bandwagon. But it is starting to make some progress as it readies its registry/repository. This new offering will be built on top of SQL server and will include a UDDI version 3 service registry. For Master Data Management (MDM) – single view of the customer, Microsoft will create an offering based on SQLServer. It also views Sharepoint as a focal point for MDM. It intends to build an entity data model to support its MDM strategy.

While Microsoft has many of the building blocks it needs to create a Service Oriented Architecture strategy, the company still has a way to go. This is especially true in how the company creates a SOA framework so that customers know how to leverage its technology to move through the life cycle. Microsoft is beginning to talk a lot about business process including putting a common foundation for service interoperability by supporting key standards such as WS* and its own Windows Communications Foundation services.

The real problem is not in the component parts but the integration of those parts into a cohesive architectural foundation that customers can understand and work with. Also, Microsoft still lacks the in-depth business knowledge that customers are looking for. It relies on its integration partners to provide the industry knowledge.

The bottom line
Microsoft has made tremendous progress over the past five years in coming to terms with new models of computing that are not client or server centric but are dynamic. I perceive that the thinking is going in the right direction. Bringing process thinking with virtualization, management, and federated infrastructure and software as a service are all the right stuff. The question will be whether Microsoft can put all the pieces together that doesn’t just rely on its traditional base of developers to move it forward to the next generation. Microsoft has a unique opportunity to take its traditional customer base of programmers and move them to a new level of knowledge so they can participate in their vision of Dynamic IT.

Why did CODA move to Salesforce.com?

After meeting Steve Pugh, CEO of CODA Financials, Inc., I wanted to understand why this mid-market financial applications vendor decided to build its next generation infrastructure on Salesforce.com’s infrastructure. I found the decision making to be quite interesting. First, for some background, CODA decided that it was time to move. The company has a habit of migrating to the next big platform of the day. The company started out writing its applications for the HP 3000 in the late 1970s and then moving to Digital Equipment’s VAX platform in the 1980s. After that CODA moved its code to the AS/400. The next platform was client/server in the 1990s – which was basically a browser-based environment. Now fast forward to the current decade. CODA decided to build the platform on top of salesforce.com. CODA was familiar with Salesforce.com because the company is a Salesforce customer.

The objective of the movement to a new platform was based on the ambitious plan to do for financial products what Salesforce has done for CRM. Needless to say, it is quite an ambitious goal. CODA management began to appreciate the potential for Software as a Service as a way to build customers faster than the sales process of on premise software. Before making the decision to use sforce (salesforce’s development platform), the company performed an ROI analysis. The challenge for the company was the cost of writing the code from scratch internally. Basically, development management realized that they would have to write for a multi-tenant environment that would have required several years of work to get the right infrastructure services in place. They simply couldn’t justify the expenditure or the time lag required for development. Without having to worry about any specific software infrastructure, CODA’s developers focused on customer facing features.

Unlike some of the companies that have built on top of sForce, CODA is a large company that serves mid-market companies. Salesforce needs CODA as much as CODA needs them. Salesforce needed to prove to the market that its platform could support a major application. CODA’s application is starting into the beta stage. So far, the company is happy. It has saved time and money. Now the proof will be to see if customers adopt its new SaaS platform.
CODA wrote its application with Salesforce’s Java like language called Apex. Therefore, the company is locked into the Salesforce platform. While there are always choices to be made and perhaps CODA is making the right one. It is clearly right from an ecosystem perspective since Salesforce will help CODA sell into its customer base. Long term CODA will have to read the tealeaves, just like it did when it committed to platforms such as the AS/400 and the VAX.

Is there beef behind SalesForce.Com?

I have been following Salesforce.com since its founding in the mid-1990s. Initially the company started by creating a contact management system which evolved into the sales force platform it offers today. Last month I attended a small dinner meeting in Boston hosted by Marc Benioff, Chairman and CEO of SalesForce.com, for some partners and customers. I met the Steve Pugh, CEO of CODA Financials, a subsidiary of Coda, a UK based developer of accounting software. I was intrigued that the company had built its new generation financial application on top of Salesforce.com’s infrastructure. In my next post, I’ll talk about Coda and why they made this decision. But before that I wanted to take a look at the Salesforce platform.

What is most interesting about Salesforce is that it intended to build a platform from day one. In my discussions with Marc in the early days he focused not specifically on the benefits of CRM but rather on “No Software”. If you think about it that was a radical concept ten years ago.

Therefore, It goes without saying that Salesforce has been a Software as a Service pioneer. For example, in June 2003 launched sforce, one of the first web services based SaaS platforms. It offered partners a published SOAP-based API. Rather than viewing Salesforce as an application, it views it as a “database in the sky.” It interprets this database as an integration platform. Likewise, from a customer perspective, Salesforce has designed its environment to “look like a block”. What does that mean? I would probably use a different term maybe a infrastructure blackbox.

Salesforce’s approach to creating its ecosystem has been incremental. It began, for example, by allowing customers to change tabs and create their own database objects. Next, the company added what it called the AppExchange which added published APIs so that third party software providers could integrate their applications into the Salesforce platform. Most of the applications on AppExchange are more like utilities than full fledged packaged applications. Many of the packages sold through the AppExchange are “tracking applications” for example, there is an application that tracks information about commercial and residential properties; another application is designed to optimize the sales process for media/advertising companies; still another package is intended to help analyze sales data.

But this is just the beginning of what Salesforce has planned. The company is bringing in expertise from traditional infrastructure companies like Oracle and BEA — among others. It’s head of engineering came from eBay. Bringing in experienced management that understands enterprise scalability will be important — especially because of Salesforce’s vast ambitions. I have been reading blogs by various Salesforce.com followers and critics. Josh Greenbaum, whom I have known for more than 20 years has been quite critical of Salesforce and has predicted its demise (within 18 months). He makes the comparison between Salesforce.com and Siebel. While any company that has risen as fast as Salesforce.com has will be a target, I do not believe that Salesforce.com is in trouble. There are two reasons I believe that they have a good chance for sustainability: their underlying SOA architecture and the indications that ISVs are beginning to see the company as a viable infrastructure.

So, what is the path that Salesforce is following on its quest for infrastructuredom (is that a real word — probably not). One of the primary reasons for my optimism is that Salesforce.com has a combination of traditional development through a procedural language it calls Apex that is intended to help developers write stored procedures or SQL statements. While this may disappoint some, it is a pragmatic move. But more important than Apex is the development of a standard XML based stylesheet interfaces to a service designed for use with Salesforce applications. This allows a developer to change the way the application looks. It is, in essence, the interface as a service. A third capability that I like is the technique that Salesforce has designed for creating common objects. In essence, this is a basic packaging that allows a third party to create their own version of Salesforce for its customers. For example, this has enabled Accenture to create a version of Salesforce for its customers in the health care.

But what is behind the curtain of Salesforce? First, Salesforce uses the Oracle database as a technique for serving up file pages (not as a relational database). But the core Intellectual Property that sits on top of Oracle is a metadata architecture. It is designed as a multi-tenancy service. Salesforce considers this metadata stack as the core of its differentiation in the market. The metadata layer is complex and includes an application server called Resin. The Resin Application Server is a high-performance XML application server for use with JSPs, servlets, JavaBeans, XML, and a host of other technologies. On top of this metadata layers is an authorization server. The metadata layer is structured so that each organization has a unique access to the stack. Therefore, two companies could be physically connected to the same server but there would be no way for them to access each other’s data. The metadata layer will only point to the data that is specific to a user. The environment is designed so that each organization (i.e., customer) has a specific WSDL-based API. In fact, the architecture includes the approach of access APIs through the WSDL interface. There are two versions of WSDL — one general and one for a specific customer implementation. If a customer wants to share data, for example, they have to go through the general WSDL interface.

Salesforce’s approach is to use XML based interfaces as an integration approach. It has used this to integrate with Google Apps. Salesforce has already begun partnering with Google around Adwords. This move simply deepened the relationship since both companies are faced with competitive threats.

The bottom line is that I think that Salesforce.com is well positioned in the market. It has an underlying architecture that is well conceived based on a SOA approach. It has created an ecosystem of partners that leverage its APIs and rely on its network to build their businesses. Most importantly, SalesForce.com has created an application that is approachable to mortals (as opposed to software gods). Companies like Siebel, in contract, created a platform that was complicated for customers to use — and therefore many purchased the software and never used it.

Salesforce.com is not without challenges. It needs to continue to innovate on its platform so that it does not get caught off guard by large (Microsoft, SAP, and Oracle) players who aren’t happy with an upstart in a market they feel entitled to own. They are also at risk from upstarts like Zoho and open source CRM players like SugarCRM. If Salesforce.com can collect more packaged software vendors like Coda to build their next generation applications on top of Salesforce’s environment, they may be able to weather the inevitable threats.