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Old world meets new world in clash over cloud services
Last week's spat between Oracle and Salesforce may have been about personalities but it masked a bigger battle
Why would the CEO of a $27 billion revenue vendor feel it is necessary to sandbag the keynote of the CEO of a $2.5 billion business? And why would the marketing department of a $15 billion vendor snipe at that same $27 billion business.
I am of course talking in turn about Oracle, Salesforce.com and SAP and the series of extraordinary jibes, posts and insults slung around the interwebs last week during Oracle Open World. At one level they represent media gifts and sure enough, everyone wanted a piece of it. I suspect we're really looking at something altogether different from the never ending tennis match that goes on between large software vendors.
If you have watched Marc Benioff, CEO Salesforce do keynotes, you'd be forgiven for thinking that you are watching PT Barnum or the Pied Piper of Hamelin. He is that good at whipping up a crowd.
But once you've heard the pitch, the lustre quickly tarnishes. That was my sense listening to Benioff's impromptu rehashing of his Dreamforce opener. It was not until we got to the media Q&A that we really started to hear what Salesforce.com is about. This was the point where, instead of throwing out cheap jokes at Oracle's expense, Benioff got into the meat of why he believes Salesforce.com's model is better.
On the question of multi-tenancy for example he said: "When you open a bank account they don't start another server, so why should software be any different?" It's a point well made but which Larry Ellison, CEO Oracle attempted to shoot down by implying that multi-tenancy is insecure.
Resurrecting the 'co-mingling of data' in the database argument, Ellison made a point of saying that the newly minted Fusion applications are NOT multi-tenant. In making that statement Ellison explained why there is only one price list for Fusion, a topic that has puzzled me for a long time. But he could not provide a single piece of evidence to show that any multi-tenancy system has compromised the data of any company.
Commercially, Ellison's argument makes great sense for his company and its shareholders. It is the license (sic) they need to know that Oracle will sell machines and software in perpetuity. Except that's not the way the world is moving.
As Benioff pointed out, none of the new vendors are taking the single tenant, on premises route. It no longer makes sense when the benefits of multi-tenancy accrue to both vendors and buyers. For instance, I've always felt that the potential for benchmarking is an as yet untapped market, is incredibly valuable.
The vendors who crack the nut of providing this information without compromising individual company data security will become an order of magnitude more valuable and important to their customers than those who cannot.
In the SME space, FreshBooks already provides this kind of data at a very high level but it is at the enterprise level I am more interested. I know it is possible because I recall Zach Nelson, CEO NetSuite saying that he saw the recession coming long before it became publicly understood because of activity he saw among his customers. Workday reckons that it is possible to profitably deliver software as a service for a fraction of the price it would need to charge if it was offering on premises versions. Another plus for both sides of the IT house. And then there are all the compatibility issues of multiple versions that disappear with the multi-tenant model.
What is particularly staggering about Ellison's statement is he already knows that virtualised single tenant solutions are incredibly costly to maintain. That was the case with SAP and its so-called 'mega-tenant' back in the early days of SAP Business ByDesign.
Perhaps Ellison feels that he can get away with it because he has enough loyal customers to keep the old milch cow delivering. I don't
In the meantime, SAP issued a slew of extraordinary pieces on Forbes; advertorial site slamming Oracle's Exalytics and Exadata as variously old and inferior to its offerings. But despite slamming SAP for a lack of taste (among other things), John Appleby of Bluefin solutions came to the conclusion that Oracle is in fear of SAP:
Oracle have no need to build this appliance. It’s architecturally complex and they would make more money out of selling the premium Exadata appliance. So why did they? For my money, because Larry [Ellison] wanted to show SAP that he could also build an in-memory analytics appliance in a short period of time.
Appleby goes on to say that this shows for the first time – in the wider market context – that Oracle might be afraid that SAP’s strategy of in-memory computing with its HANA appliance, is the right strategy. Unfortunately Oracle have missed the point.
SAP HANA is a simple and elegant solution that – whilst not quite there today – will, in its roadmap of future versions provide the following:
- Excellent performance for transactional and reporting systems on the fly
- Integrated planning engine with no separate store like Essbase
- Elegantly architected with row and column stores and the benefits of both
- Generic RDBMS capabilities for all business applications and platforms
Exalytics on the other hand, points out Appleby, is a bolt-on mixed-technology appliance. For Oracle to really compete with SAP, they need to throw out Exadata and Exalytics and build an in-memory RDBMS appliance that can do what both of those appliances do in one. They have the brains to do so – but will they? We will see.
While Appleby may be correct in his assessment, it still brings with it the same problems that Oracle faces. How do you morph a business model away from an addiction to seven figure licensing and maintenance deals to a volume business based upon lower price points, cloud delivery and the potential to reach massive and new customers?
As a part of the solution, SAP tells us it is working hard on its applications store. If it is then I have seen precious little evidence beyond talking points. Instead we hear that HANA is selling like hot cakes and that there are beaming smiles around the mothership in Walldorf. I'll refrain from commenting on that until we see the next set of financial results but I'd be very surprised if that was the case for reasons that require an entire article on their own.
In raising these points, it is becoming increasingly clear that what we are witnessing is the unfolding of an ideological fight. SAP, Oracle and let's not forget Microsoft, represent the inertia of history. Immensely successful, powerful and pervasive.
While Saleforce.com represents what Benioff and others believe is the future, a future where open ecosystems win. Oracle's Ellison may seek to confuse by describing Salesforce.com as the ultimate 'roach motel' there is no denying the fact that developers are flocking to what Salesforce.com has to offer. When you look objectively, it is the only way the newer vendors can hope to emulate SAP, Oracle and Microsoft's success. But I think it goes deeper than that.
The companies I see rapidly adopting cloud technologies are the ones that are building for their future and not attempting to shore up the past. Burberry represents a great example of a company that believes the only kinds of retail business that will survive into the future are those that have a social flavour. Guess who's delivering it? Salesforce.com The same is broadly true for KLM, Bank of America, Kraft Foods, Coca Cola and many others. These companies are no longer prepared to wait for their 'old' vendor partners to deliver.
Elsewhere, I know that some of SAP's largest customers are not hanging about to wait and see what the company comes up with on the mobile front. They're placing their bets now as creators of their own technologies. This is not just build or buy thinking, this is about developing their own ecosystems of developers. If that doesn't send warning smoke signals to the large vendors then I don't know what will.
In the meantime, the rhetoric will continue. But don't let that be a distraction from the real battles.