Techaisle Blog

Pilgrimage
Salesforce.com held its annual customer and partner pilgrimage last week called the Dreamforce 2011. This mega event had a whopping 45,000 registered attendees and at least 15,000 were present for the opening keynote by Marc Benioff. The much anticipated keynote was given by Marc Benioff who no doubt he is a master marketer.  He
successfully drilled home the message of Social Enterprise and how Chatter fits
neatly into the vision of new type of collaboration, interaction and customer
acquisition.

In fact not only the keynote but the entire event had widespread case studies from large enterprises that were using Chatter as their hub for all internal conversation. Heavyweights from Coca Cola, Burberry, NBC Universal, Verizon and others were there to lend support and show how Salesforce.com was helping them transform their sales organizations. Even the billboard cut outs had quotes from CEOs of prominent enterprises touting the benefitsof Chatter  on multiple devices such as iPads, Tablets and mobile phones.

Key Announcements
The event was very significant in more ways than one. On the one hand it had four key announcements while on the other it did not talk a lot about SMBs. But contrary to popular sentiments many of the announcements may actually be very relevant for SMBs.

Four Key Announcements were:

1. Chatter: ability to create and maintain a private social network for business and soon to be available (Chatter Now, Chatter Customer Groups, Chatter Connect, Chatter Inline Filters, Chatter Approvals)

 

1. Data.com: ability to create targeted lists from 30+ million business leads from Jigsaw as well as 200+ million in-depth company profiles from D&B and connect them into the CRM process

 

1. Database.com: a database for the business built and used in the cloud

 

1. Touch.salesforce.com: built in HTML5 with the capability of rendering any app built on Force.com platform to any mobile device without modification

SMB Suitability?
While all of the above technologies are great for Enterprises some are better suited for SMBs than others, especially for the less than 100 employees’ businesses. Last year Salesforce.com had revenues of $1.6 Billion with over 100,000 customers (Salesforce.com Annual Report). This suggests an average of $16,000 per customer and much fewer than 100 users per customer. And this leads us to believe that most of Salesforce.com’s customers are upper-mid-market businesses. The above announcements fall firmly within the realm and sweet spot of the 100-999 employee size businesses.

Chatter as an SMB Collaborative Platform
As per Techaisle’s continuous Global SMB research, a small business (1-99) has an average of 8 employees in the US and 20 percent, that is, 1.2 employees per small business are on the Cloud. With this low number of employees will Chatter be a viable option for small businesses? These small businesses are already overburdened and hamstrung with using Facebook, Twitter and other external facing social networking channels? The answer is yes with some modifications. Recent Techaisle study shows that 81 percent of SMBs are adopting mobility solutions, 66 percent of small business employees and 48 percent of mid-market employees either work from home or travel for work at least once a week. For these employees and business owners collaboration is a top of mind issue. To that extent Chatter is a great collaboration tool. Chatter makes the work from anywhere and anytime easier for SMBs. It makes it all the more important for mid-market businesses to adopt Chatter as they have an average of 125 employees per business and 30 percent of them are on cloud.

Database.com & Data.com
This is where the divergence begins. Are database.com and data.com relevant for SMBs? Yes, but the pricing and unpredictable monthly expenditure may limit SMBs’ use and deployment. Database.com is being offered free for up to 3 standard users, 3 admin users, 100,000 records and 50,000 transactions per month. Both a B2C SMB and B2B SMB will have more than 100,000 records but necessarily not 50,000 transactions. It also depends upon the size and vertical of the business. Therefore, it will take time for proper used cases to accumulate before SMBs and their channel partners can begin to recommend such a
solution.

Data.com is quite a powerful tool priced at $99 per user per month. This allows up to 300 records per month to be imported with additional records at $0.50 per record. This is quite an attractive pricing for SMBs.  However, it would be up to their channel partners to show them the value along with some price comparisons. Most SMBs may require more than 300 records per month while others may require less depending upon their coverage areas. More mid-market businesses would be able to use it rather than small businesses.

Jigsaw (genesis behind data.com) suffers from its crowd sourcing practice [in that it is populated by people in exchange of credits to see other people] - often data is not up to date and the proportion of businesses contacts tend to be of large enterprises, so not a lot for SMBs to get records and lists of neighborhood businesses, non-profits and other organizations. This may create a dilemma for an SMB paying customer if they cannot find relevant contacts.

Next Steps for Salesforce.com's SMB Strategy
As the adoption of salesforce.com continues within large enterprises it begins to look like ERP implementations of yesteryears. The cost to switch is tremendous. With a great messaging from Salesforce.com enterprises are willing and able to deepen their relationship with Salesforce.com.

Techaisle’s Cloud Computing research and market sizing shows that Cloud CRM spend by small businesses (1-99 employees) in the US alone is expected to be US$679 million in 2012. While Salesforce.com seems to have done well in the midmarket (100-999 employees) segment, 6 million small businesses (1-99 employees) in the US alone represent a huge opportunity.

Salesforce.com derives over two-thirds of its revenues from the US even though US accounts for just one-fourth of the world’s GDP and even other large tech companies derive a much greater share of their revenues from overseas than Salesforce.com. Techaisle's research shows a significant increase in awareness of and willingness to adopt SaaS solutions in several countries both among SMBs and Enterprises.  In fact only 35 percent of SMB Cloud CRM spends in 2012 is expected to come from the US.

Salesforce.com has yet to show its commitment and plan for a global SMB reach.

Salesfore.com has grown rapidly and the guidance for this year is also for continuation of that trend. However, the market conditions will begin to change with the the dramatic increase in awareness as well as potential supply of SaaS providers especially targeting the SMBs. Techaisle’s global research also finds that SMBs in selected markets also show a significant willingness to adopt various other SaaS solutions. Given the SMBs’ proclivity to purchase multiple solutions from a single provider, Salesforce.com should plan to broaden its offerings beyond CRM and also allow for easy and efficient integration with its
CRM offerings.

Salesforce.com has been a pioneer in the PaaS space with its Force.com offering. The platform is being used primarily by enterprises or channel partners (e.g. ISVs, VARs and systems integrators). To continue its reach within the SMB segments Salesforce.com has to develop a stronger channel ecosystem which could contribute to growth in its subscription base.

Anurag Agrawal
Techaisle

Announcement
Dell just announced its full intention to assist SMBs with their Cloud Computing adoption by launching Dell Cloud Business Applications, a family of integrated SaaS applications with cross-application cloud analytics supported by end-to-end Dell services specifically for SMBs.

Key benefits include easy and affordable integration with existing software; integrated best-of-breed cloud applications selected, tested and backed by Dell; and real-time online analytics and reporting across multiple business functions. Dell Cloud Business applications can solve the top pain points cited by SMB customers contemplating a move to the cloud:
- Integrating applications is expensive
- Out of the box reports are insufficient
- Moving to cloud is harder than it seems.

The total solution announced by Dell includes:

• Access to Leading SaaS Applications (initially starting with Salesforce.com)


• Integration with Existing Software (through  Dell Boomi)


• Real-time Business Visibility and Analytics


• Comprehensive Services

In addition, Dell’s Cloud Business Applications will be delivered through a Dell-branded cloud service complete with business grade single sign-on and security.

First such SaaS application being made available by Dell is Salesforce.com. By re-selling Salesforce's CRM offerings to its existing base of SMB customers, Dell would increase its revenues while Salesforce.com could potentially expand its available market at a lower cost
than it would on its own.

Significance of the Announcement
The announcement is significant in more than one respect. Besides taking the guesswork out for SMBs on what applications to use in the cloud, the ability to integrate across applications both in-house and SaaS as well as real-time business analytics across the
entire business is really important.

Cloud Computing has become an all pervasive terminology promising the holy grail of quick start up and low costs allowing small businesses to focus on their core competencies. We have to pause and think about the reality and outcome in five years. As SMBs increasingly adopt cloud computing and reach a new level of complexity, the very technology that had a low start-up cost for them may become too complex and expensive.
While there are many different reasons for such complexity but the two that stand out are the Complexities in Application Usage and Intricacies in
Data Integration.

Dell’s Cloud Business Applications addresses Complexity Issue Head-on
A recent Techaisle survey showed that while the average number of fee-based applications/services being used has largely remained the same over the last three years, the maximum number of applications being used has shown steady growth.

For example, for US SMBs, that number now stands at 11 applications. This increases the complexity of usage of applications in terms of: different vendors, different billing, different sign-ons and above all inability to exchange data easily.



Dell aims to provide best of breed applications to the SMBs, largely helping them to make decisions on their behalf. Cloud Business Solutions directly speaks to typical SMB questions:

• What can I move to the cloud?


• What solutions are best for my business?


• How will I transfer my data to the cloud?


• Who will train my employees?


• What will be my cost?


• If I move from a Capex to an expense situation as far as my IT investments are concerned, what will be the impact on my financial health?


• How does it affect my cash flow, profitability, etc.?

Dell offerings also provide complete transparency to its SMB customers with regards to all associated costs and monthly single billing.

Dell Boomi – SMB SaaS Data Integration Made easy
As Cloud computing adoption among SMBs grows, the real issue of data integration will come into play. As we see it, there are clearly four stacks of Cloud offerings and it will become imperative for each stack to communicate with the other stack. And with increasing usage of number of SaaS applications following questions become relevant with no easy answers:

• How do I move my data and information across applications?


• How do I have a single sign-on?


• How do I change vendors?


• Will I be able to change vendors?


• How do I migrate my data?


• I like applications from two different providers and I want to run them both but will they interact?

Dell Boomi addresses above questions at an affordable price point for SMBs.

While there are many niche vendors addressing each niche area, the complexity grows manifold as businesses move from one application to another, from one device to multiple devices.



One of the last things that SMBs need is a high-cost of application data integration, a cost that may become higher than the applications they are using. SMBs do not have the time or the budget for such integrations. It is a given that SMBs will continue to work in a hybrid environment with both desktop software and cloud based applications in simultaneous use.

In order to achieve data integration, ensure security and compliance and guarantee multiple device access, Dell’s integration and analytics capabilities built into its Cloud Business Application solutions will provide multiple specializations to an SMB. These very well thought out specializations and roles are:

- Consultants/Business Process analysts, advising on which cloud computing solutions to use
- Developers and Integrators, helping businesses achieve data integration
- Cloud Governance marshals, advising and auditing security and governance issues
- Data Aggregators, specializing in aggregating both internal and external data and making it actionable to businesses through the use of business intelligence applications

A good day for Dell and a good announcement for SMBs. Dell has to get the word out and not only make it a success in the US but also begin its gradual roll-out across geographies. And it cannot leave its channel partners behind. Dell cannot underestimate the usefulness of channels, more so in the emerging markets than the mature markets.

Anurag Agrawal
Techaisle

Major changes at the tech giant will have a trickle-down effect on smaller companies. Here are four things to keep in mind. As the world's largest technology vendor overhauls its business, much smaller companies are certain to feel the effects. That will perhaps be most apparent in the potential spinoff of HP's personal systems group. HP accounted for more than 18% of PC purchases made by small and midsize businesses (SMBs) in the United States in 2010, according to market researcher Techaisle. That was second only to Dell, which sold one in four PCs bought by SMBs last year.

Read on Reprint from Techaisle interview with InformationWeek and article by Kevin Casey of InformationWeek.

Hewlett Packard (NYSE: HPQ) announced yesterday that its board of directors has authorized the evaluation of strategic alternatives for its Personal Systems Group (PSG), including the exploration of the separation of its PC business into a separate company through a spin-off or other transaction.

The company intention seems set on implementing a plan to fundamentally transform its business to drive higher value solutions to enterprise, small and midsize business and public sector customers and went as far as describing the HP of the future “through a portfolio that spans printing, software, services, servers, storage and networking.”

The company has also announced a strategic withdrawal on WebOS and the prospect acquisition of Autonomy Corporation [Cambridge -UK], a data mining software company.

It seems that the company is aiming to get out of the commodity hardware business and focusing on becoming a software & solutions company. New CEO Leo Apothekar seems interested in transforming HP for the future but we think this is done without some fundamentals of the past.

Such a move will be pleasing to financial markets, since a possible withdrawal from PC business will undoubtedly ensure better financial ratios [YTD PSG represents 30% of segment total revenue and 16% of segment operating profits but is the lowest OP generating segment at 6%] but such a move is unlikely to create strategic advantage.

Whilst delivering higher value solutions is a key survival aim, less than 10 years ago, HP had paid $25 billion [Compaq Computers acquisition] to become the undisputed market leader worldwide. A new PC brand [and company] can be readily made, but the synergies sought then, and what the current HP can benefit from, will largely be lost in a new outfit.

A broad portfolio benefits SMBs

Techaisle research shows that SMBs rely heavily on the expertise of others with regards to the ICT needs. This support requirement takes many shapes and forms but single brand sourcing is a major aspect of this “peace of mind”. By spinning off the PC business, this powerful lever will be lost – with probable consequences also affecting other printing and networking businesses.

Channel Management Lock In

HP over the last two decades has built one of the best channel partner networks in the industry. Our research shows that these channel partners have been very loyal to HP, partly due to the brand, but also due to HP managers’ ability to capitalize on the range. By laying out partner business plans that neutralize competition, many IT vendors have simply been unable to attract sufficient interest on volume sales by resellers – locked in on a combination of bonuses and accelerators spanning the overall range, thus making it not worthwhile to really push other brands. Take away the PC share, and now the game is more open for all. Epson, Ricoh, Xerox, Lexmark all can have a stab at the mixed channels.

Spin-Off / Sell-Off?

For the reasons above, a spin-off would be tough but a sell-off might just end up being the stuff of nightmares.  There are not many suitors that have the interest and clout to take on such business and so the list is short – and we think all are likely to bite back.  Rumored Korean giant could benefit as much as HP did when they acquired Compaq, but Compaq was taken whole and no longer exists. Passing just the PSG business may well make the rest open for flanking strategies – and Korean ICT vendors are world master at that.

The Move to Services

When IBM spun off its PC business, it made sense because IBM already had all the IT stacks in place and its PC business was never really focused on consumers. Q3 filing of HP puts services almost as important to PCs and with the undergoing shift in computing mode [from client/server based to power everywhere] perhaps a refocus can be good – but Oracle, IBM, Fujitsu, Cisco and HP are all focusing on the software & services markets which will soon become very crowded again. This is, however, “a soon” and not “a now” – so profitability is still there.

Web OS

Power everywhere also demonstrates that HP can lose out. WebOS’ attempt to compete in the mobile OS world seems uncertain and the market is well set on the iOS, Android and WP7 triad. HP today also announced they will stop production of devices loading WebOS and that is a clear sign of loss of faith in this arena.

Concluding Remarks

Although based on our researched facts, we acknowledge that our analysis is limited by the lack of internal soft guidance on matters such as politics or personnel skills. To fully evaluate the risks, these are just as key ingredients but, structurally, either Spin-Off or Sell-Off of its PC business seems a very risky decision. HP’s strategy is a clear nod for IBM’s successful software and services strategy but then IBM was never so fully entrenched in the Consumer and Small Business Markets.

Finally, if a new PC Company is formed, at current data this will be the most profitable PC Company on the planet. A company capable of operating with the sole purpose of PC business but without the CIOs relationships it has today.  Things will not be easy.

Structurally, another Lenovo style company might be good for the new Lenovo style company as it will be entirely focused on the market but it will not have the same relationships as today nor will have the new HP.

By the way - to save on branding, the new PC Company could be called “Compaq”...  plenty of people will be happy about that.

Paolo Puppoli
Techaisle