Most of the time

On-demand vs. traditional software licensing: apples and oranges

Sandhill Group had a good article this week on hybrid business models for software, written by Timothy Campbell of Steelwedge Software. An excerpt:

Venture capitalists and pundits are bullish about the potential of the on-demand model; in fact, many VCs now require that a company have an on-demand model before they consider making any investment in the company. As a result, CEOs are scrambling to develop an on demand model strategy to complement their traditional license model.

A pure on-demand model can be extraordinarily taxing, ... time-to-cash is significantly longer in the on demand model, leading to higher cash burn rate issues. With the size of investment rounds from VCs getting smaller, such models become very difficult to sustain.

As a result, it is almost an imperative that software companies pursue a hybrid strategy, going to market with both on demand and license models, which provide the broader market access and appeal of the on demand model, while also delivering on the operational benefits of the license model.

On a first reading, I appreciated the detailed comparison of the two business models and the discussion of differences in  licensing, development, deployment, sales and partners. On re-reading, though, I saw that the article had missed the significance of the evidence it laid out. It's as though Darwin had laid out his findings from the Beagle, pointed out the incremental variations in species, and then concluded that intelligent design was the basis for it all.

My primary conclusion from Timothy's material and my own experience (or prejudice) is that on-demand software addresses different kinds of problems than on-premise (and traditionally-licensed) software does. Timothy says this clearly:

On demand models work well when the value proposition involves simple, well-defined and broadly accepted business process. Moreover, the processes supported by on demand software can function well standalone - as a result systems that automate such processes require less integration with other business systems. The sales pipeline management processes addressed by salesforce.com is an excellent example of this scenario, as are business processes such as customer service, help desk, payroll tracking, budgeting, procurement of business supplies, and expense report management.

However, trying to automate processes that are not well defined, are complex, are tightly linked to other business processes, or are not ubiquitous - typically attributes of a white space in the enterprise software market - is a greater challenge for the 'vanilla' style of on demand software solutions.

In addition, Timothy seems to equate on demand with subscription licensing, and on-premise with traditional perpetual licensing models. Deployment and licensing are separate issues. IBM has for many years sold some of its on-premise software based on a subscription license, which includes support. It's also the way Red Hat "sells" Linux -- albeit with the software license at zero and "support" at 100%. Microsft's software is also offered as two separate components which are also payable over time. That makes a traditional license for deployed software look very like an on-demand subscription. It's true that perpetual licensing has mostly been applied to on-premise software, and subscription or usage licensing to on-demand software ... but those are business decisons rather than strictures of some kind.

So, while I think Timothy's article is a great read, and offers thoughtful analysis in the hyped on-demand discussion,  we need to think and write even more clearly about deployment choices and licensing. In my opinion, the "right" hybrid model will offer customers and ISVs a number of deployment and licensing choices that are not mutually exclusive:

• on-demand in stand-alone and relatively well-understood domains; on-premise for customized, mobile or highly-integrated software
• Pay-as-you-go models for early adoption; subscription for long-term commitments and support; perpetual licenses as the lowest cost for lon-term license acquistion.

I suspect Timothy feels that a hybrid is a bit of an arm-wave over the issue, as he concludes his article this way:

A clear license vs. on demand go-to-market during the scaling phase will significantly improve the probability of success by freeing the management team to focus on growth-related issues and not have to deal with the conflicts of a hybrid strategy.

Perhaps he wrote about hybrid strategies in order to get a forum in a VC environment where:

... VCs now require that a company have an on-demand model before they consider making any investment in the company

PARTNERING WITH MICROSOFT: The Insider's Guide for Start-ups

Microsoft and IBDNetwork will be hosting a one-day symposium on Tuesday November 29th at the Microsoft campus in Silicon Valley. Information and registration for the event is available here. A summary of the event ...

For emerging companies, building and nurturing strong partnerships is critical to your success. Start-ups, VCs, and business development executives are invited to this one-day symposium, hosted by Microsoft’s Emerging Business Team (EBT) to learn how to maximize opportunities, build strategic initiatives, and develop a successful partner engagement with Microsoft.

The event is titled "Partnering with Microsoft ..." and we want to share our best advice on working effectively with us. Here is some helpful pre-reading: Behind the Veil: how the Microsft Emerging Business team works.

Most of our team will be there, and will share our view of opportunities and some relevant product plans. However, we'll all get even more out of the event if you share your candid vews. Please bring your advice about how we can work better with startup companies and VCs.

Office Open XML to be submitted to ECMA

Microsoft announced today that the Office Open XML document formats for Word, Excel and Powerpoint will eb submitted to the ECMA International organization for approval as an open standard.  A number of companies agreed to work with Microsft in a technical committee to create the ECMA standard, including Apple, Barclays, BP, teh British Library, Essilor, Intel, NextPage, StatOil and Toshiba.

It's good to see this happening. The pressure from  the State of Massachusetts has received a lot of publicity, and there has been some unnecessarily abrasive writing on the subject.

The real value is an access standard that can evolve as documents gain more capability. The headline aside (Microsoft to Give Office Access to Rivals) the Financial Times pointed out:

The [European] Commission is eager to promote e-government services, but is concerned about access to public documents created in proprietary formats such as Microsoft Office. It is keen to ensure that all EU citizens are able to access electronic government documents without being obliged to buy a specific company’s software.

Really Simple Sharing -- extensions to RSS

Don Dodge just alerted me that Ray Ozzie blogged yesterday about Simple Sharing Extensions to RSS. The technology itself is interesting and appears to be adaptable beyond its original design.

Early on, after we had a prototype going, I met with Dave to tell him about it and perhaps get him involved. Immediately at our first meeting he spotted its potential to solve something else he had been thinking about – replicating changes among OPML lists or outlines being managed within different services or by different people. He challenged us to see if the same SSE mechanisms could be applied to OPML. As it turned out, only minor changes were required. In essence, by connecting these dots between what we’d done to extend RSS and his vision for OPML, Dave's catalyzing a new form of decentralized collaborative outlining.

What's perhaps more interesting is Ray's focus on simplicity:

We’re pretty excited about the extension - well beyond the uses that catalyzed its creation.  It’s designed in such a way that the minimum implementation is incredibly easy, and so that higher-level capabilities such as conflict handling can be implemented in those applications that want to do such things.

and on the importance of community for both adoption and improvement:

We’re releasing the SSE specification under a Creative Commons license – Attribution-ShareAlike. I’m very pleased that Microsoft is supporting the Creative Commons approach; you can see more about this at in the licensing section at the end of the spec.

Compassoft buys Wimmer Systems

Another move from Compassoft (see the recent Masters of Metadata post). On the heels of their purchase of UK-based Spreadsheet Auditing Limited, the company announced today that they are buying Missouri-based Wimmer Systems and Wimmer's DaCS product.

DaCS (Data Compliance System) adds compliance features like tamper-prevention, auditing, and digital signatures to Excel spreadsheets. This helps companies who use spreadsheets for corporate reporting comply with regulations like 21CFR11 and SOX 411.

Paul Bach, Compassoft's CEO gave me some additional details:

Wimmer Systems and their technology DaCS is today resold by ABB, the $22 billion a year Swiss multinational.  DaCS is currently installed and used at over 60 of the largest pharmaceutical and life sciences firms worldwide including Alcon, Allergan, Amgen, AstraZeneca, BASF, Baxter, Bayer,  Bristol Myers Squibb, Eli Lilly, GlaxoSmithKline, Immunex, Janssen, Medtronic, Pfizer, Schering-Plough, Wyeth, etc.  ABB resells the technology as part of their Life Sciences and Financial compliance efforts.  DaCS which is an EXCEL plug-in written in VB and it provides Compassoft with real-time logging and spreadsheet change control, the ability to rollback changes to an exact moment in time, selective enforced change documentation, electronic signature control over changes, electronic authorization and approval.

DaCS broadens the Compassoft product line, certainly, so it's another smart technology acquisition.

It says even more,though, about Compassoft's strategy, and the support they have from their investors. Compassoft knows that enterprises require credible references for what they buy, and they like to buy from other large companies.  The Wimmer acquisition (and its relationship with ABB) adds a very impressive set of customers and references, and lines up ABB as a high-profile worldwide sales arm and systems integrator for Compassoft's product line.

Super smart shopping.

Note: 21 CFR Part 11, the FDA guidelines for trustworthy electronic records, requires companies to employ procedures and controls designed to ensure the authenticity, integrity and when appropriate the confidentiality of electronic records, and to ensure that the signer cannot readily repudiate the signed record as not genuine.

The appeal of the relentlessly snide

Trey Wildridge, a colleague at Microsoft, just sent me Robert Cringely's blog on the subject of Microsoft's recently leaked memos from Bill Gates and Ray Ozzie.

Cringely's (or whoever wrote under that pseudonym) major premise is that the memos are a PR exercise, written to be leaked. While I am very doubtful that the memos were meant to be leaked, we may never know. However, it is naive to think that they were written without regard to the possibility they would be leaked. Experienced executives in any public enterprise are aware that emails get leaked or discovered and most write with that in mind.

Cringely's not naive, so what on earth would make him lead with that? There are clear clues in the rest of the article. He goes on to repeat the usual "evil, stupid Microsoft" mantra. He drags out every cliche: bad software, predatory practices, greedy, .. etc. Everything, in fact, but the claim that Microsoft's mother wears combat boots.

I have a working premise that large, successful public companies do well by doing good. Good for customers, investors, partners, suppliers, employees. That's not just Pollyanna's view. There's plenty of academic support for it. One that deeply researches Microsoft's effect on the software industry is "Winners, Losers and Microsoft" by Stan Liebowitz and Stephen Margolis. A summary of its conclusions (from the publishers -- the Independent Institute):

• Software prices fall dramatically in markets where Microsoft is a major player, but prices show no strong tendency to fall over time if Microsoft is not a factor in a given market.
• Claims that dominant but inferior technologies can “lock out” better competitive products are not supported by the data. This not only applies to software, but also to other technology markets (i.e. VHS vs. Beta video recorder battles).
• Superior products tend to dominate in high technology, even if inferior products are backed by lots of money. For example, Intuit’s Quicken has dominated Microsoft Money for several years despite intensive efforts by Microsoft to promote Money. And AOL, Yahoo and Google haven't been beaten by MSN, even through Microsoft incorporated software for the MSN into its Windows operating system.

Also (and this is the single most important reason Bill and Ray wrote their memos):

Liebowitz and Margolis demonstrate how a high-tech company can go from a dominant market leader—as Lotus once was in spreadsheets—to an also-ran with astonishing speed.

So, again, why would Cringely trot out tired old cliches like this. The guy who wrote Accidental Empires is smarter than that, isn't he?

Yes he is. But sadly, Robert Cringely is one of the writers who realize that relentless demonizing and snide views offer a surer and easier path to readership than thoughtful analysis.

Let's demand -- and reward -- better writing than this.

WebexOne ... wow

I just signed up for the 30-day free trial of WebexOne, EMC's on-line collaboration service (previously Intranets.com, and purchased by WebEx* in August). I'm really impressed, and I'd say Intranets.com was a bargain at just $45M. I'm also embarassed I hadn't checked it out sooner.

The pricing seems remarkably low, ranging from $20 to $10 per user per month. Actually, it is even lower (about $4.50/user/mo) for larger groups and including the discount for a full-year subscription.

I haven't used all the features yet, but the browser-based interface is, so far, intuitive, attractive and -- most important --  fast.

For the file-sharing alone it looks like a no-brainer for small businesses or associations who need to share information easily. I'm anxious to try out the database feature, as I've been looking for an easy way to create and consolidate simple activity reports in my team.

I sync'ed my Outlook calendar and contacts immediately and simply, and I invited five other Microsoft folks to join me. The first reaction from one of them was "wow."

In the small business market, WebexOne leaves the major collaboration vendors (IBM, Microsoft, Oracle, Novell) looking a little slow.

* In my original post I wrote " ...purchased by EMC." I cannot explain why I wrote that, but I have corrected the post :-) Thanks to Mike Pastore at Intranet Journal for the correction.

Large enterprises considering their collaboration options ...

I haven't blogged for a while. For the last couple of weeks I've been inundated with requests to speak to customers (all Fortune/Global 100) about Microsoft's collaboration strategy. There seem to be four main drivers for this sudden uptick:

• Existing Notes customers are examining their options. Those I speak to (to be fair, that may be a self-selecting audience  -- but I do think it's typical) are stabilizing their investment in Notes development. None is concerned that IBM will drop Notes support, but they all believe that Notes isn't a strategic application platform going forward.  In almost every case, IBM Workplace is also under consideration, so it's likely a Microsoft-Workplace decision. The question is usally "when, where and how do I move?"
• Rapid uptake on some of the newer Microsoft products, especially Sharepoint and Live Communications Server. Sharepoint's integration with Office make it the natural and simple alternative to the chaos of desktop storage and the complexity of high-end document management systems. Not surprisingly, a lot of the questions center on integration of Sharepoint with products like Documentum, which are still required for highly controlled or regulated document management. Live Communications Server is benefiting from strong integration in Sharepoint and Office (especially Outlook), its interop with Yahoo, MSN and AOL instant messaging systems, and its unified inbox and call forwarding capabilities. Yesterday's announcement that Microsoft plans to acquire Media-Streams will likely bring more attention to our VoIP plans.
• The wraps are off Office 12, and companies are noticing Sharepoint's evolution as a Business Intelligence gateway.
• Clarity on Groove as an integral part of Office 12, integrated with Sharepoint, Infopath forms,  and Live Communications Server

Workplace also has a few big things going for it:

• Potential for Linux clients and servers as well as Windows. technically the server choice is broader, but the long run view is Linux or Windws on x86 hardware
• Promise of low-cost deployment from the server
• Some novel ideas arounding connecting ideas in "activity threads"

These companies play their cards pretty close to their chest, so who knwos how these situations will pan out. If I had to guess, I'd say the big challenges Workplace has to overcome are:

• Office integration. IBM will do an OK job, but they'll never make the investment to put, say, Sametime presence into Outlook, Word, etc.
• A confused email story. IBM loves the Notes/Domino installed base, but retaining Notes email means retaining a non-Workplace directory, and a non-Workplace database.
• Little/no instant messaging integration with the consumer network

I'd really like to hear alternative views. So post here or email me.

Microsoft Shakes Hands With European/Israeli Start-Ups, VCs

Article from Venturewire on Microsoft Emerging Business team in UK, Germany, Israel, and France and their outreach to the startup and venture capital community. You have to subscribe (well worth it) to read the full article, but here are a couple of snippets:

Microsoft Corp. is reaching out to start-ups and venture investors across Europe and Israel in an effort to increase the number of companies creating new applications and launching new businesses around its products.

The Redmond, Wash.-based company is now developing a program for the U.K. that would offer access to Microsoft's sales and marketing resources, customer networks, training programs, and technologies. Already, comparable programs are underway in Germany, France, and Israel to support start-up companies and work with local venture capitalists.

....

I posted a while back on how the Microsft Emerging Business team works, but I didn't say much about our international team. We have a virtual team located and operating worldwide, and each member of the US team is also responsible for ensuring good contacts and support for the folks outside of the US. I am responsible for smooth operations with our team in the UK (presumably because English is my first language and I have mastered some of the trickier dialects) and China (because I asked first :-)