Spectral Analysis

My ride from San Francisco Airport to Redwood Shores, Calif., tells the story of my entire trip to the West Coast last week.

Southbound on Route 101, traffic was lighter than I was accustomed to in my more than 10 years of visiting the area. Northbound, there was a five-mile backup, which caused me to miss a meeting later on in the city.

Two sides of the road, two different stories, and that’s this recession in microcosm. Innovation continues even while the economy rights itself and older companies like GM deal with bankruptcy courts.

Big-Ticket SaaS

I spent my time visiting many companies, listening to their executives discussing plans for the year ahead. The recession? Yup, it’s there, so what? Let’s talk about the future. And so we did. While much of what I heard was interesting and fun, most of it was delivered under embargo so, I will paint a picture in broad strokes now and comment later as more information trickles out.

I met up with Ken Rudin for coffee. Ken’s an old friend and the founder of the recently defunct LucidEra, a SaaS (Software as a Service) business intelligence company that I wrote about recently. What struck me about our conversation was his assessment of the capital markets. According to him, it takes between US$60 million and $80 million to launch a SaaS company these days. Most of that cash is for the marketing effort required to embed a new idea into the public conscious.

That’s a lot, and it’s no wonder that VCs are much more interested in investing in late-stage SaaS companies right now. I expect that this is simply a function of the economy and people’s risk tolerance, but it is certainly sobering.

Industry Spectrum

I missed a meeting in San Francisco due to the traffic jam but spent considerable time with Xactly, Oracle and SAP. Somewhere in the blur, Google said it was going to deliver an operating system, too. At the end of it all, I had the impression that I had seen a continuum of the industry.

At one end, I place SAP; at the other there’s Salesforce and its partners. In between, there are many other companies like Oracle. My criteria for evaluation are SaaS capability, social media readiness and marketing. Here’s how I see things.

All of the companies I visited have really good technology, and if pure technology was the only criterion, I might have a hard time distinguishing them. But SaaS is the future, and you simply have to judge companies by their SaaS adoption — it at least needs to be a criterion.

For SaaS alone, the nod has to go to Salesforce and its partners like Xactly. However, that group is followed closely by Anthony Lye and his CRM team at Oracle. I am not sure who leads in social media readiness, and all three have interesting offerings.

Tricky Footing

For the moment, Oracle is managing a successful straddle strategy, keeping one foot in the on-premise world and another in SaaS. As a business proposition, a company like Oracle can only straddle as a means to convert its business. Anything else is a catastrophe, with the only difference being a quick demise or a drawn-out wind-down. Managed well, a straddle can even work, and now Oracle’s straddle is working.

On the other hand, SAP seems to be having trouble deciding where to place its feet. It is the least SaaS-oriented big software supplier I know, but that said, they have a lot of very good technology, and they have a good story to tell about social media. What SAP lacks, in my humble opinion, is marketing. They seem unable yet to articulate their story about how they go to market in CRM in a SaaS era. Nonetheless, I came away from my meeting with SAP believing they are addressing the key concerns of their customers, including some aggressive approaches to social media.

Of course, the all-time champion in marketing CRM and SaaS is Salesforce. They spent many millions inventing the space, and now they are doing very well. Marketing is not their problem, and Google’s Chrome OS announcement only helps them.

Something to Fight For

A while ago, I wrote that the back office is the birthplace of computing in general, and to a degree it makes sense for the back office to cling to a premise-based computing model. The opposite might be true for the front office, with its need to be mobile and involved with the customer. So it is no surprise to me that SAP — a paradigmatic back-office company — is more culturally an on-premise vendor.

The same argument can be made about Oracle. Although the company certainly has a robust suite of ERP products, its orientation has always been as a sales-driven company even before it got into the CRM business. It is no wonder to me that Oracle is straddling on-premise and on-demand worlds right now.

Xactly looks to be in the catbird seat in its market. Having bought Centive earlier this year, Xactly primarily faces competition from Callidus in the sales performance management arena — a prospect that delights founder and CEO Chris Cabrerra. The competition is similar to what’s happening further upstream in enterprise software. Xactly is the SaaS challenger in a good market, while Callidus is the established player running a straddle strategy.

If Callidus can complete its straddle quickly, the two companies can fight for supremacy, but my thinking is that the market will be big enough for both — especially since markets avoid monopolies for good reasons. Still, the company with top billing usually gets better terms and greater market share, so there is definitely something to fight over.

A Moment

Lastly, amid all this, Google said it would deliver a stripped-down operating system — Chrome — designed to get people to the Internet where they can consume cloud-based applications. In the era of the SmartCar and costly energy, Chrome may be a metaphor in development for efficiency and low cost in computing.

Of course, Chrome would be a significant threat to Microsoft’s position in operating systems and applications. Chrome would certainly simplify life for people who increasingly use computers like appliances, but I think the people, applications and appliances that the Google OS would best target might not be in sight yet.

Just as I can see a cultural affinity between the back office and premise-based computing, there is an affinity between conventional non-cloud computing and some businesses. We might be in a moment when everything shakes apart — a time on which we may look and nostalgically say that there was once a time when there was just one desktop OS, a small number of styles of computing and social CRM was in its infancy.

It’s good to know that there’s work being done on all of these fronts and that the market will continue bringing out innovations. Final metaphor: I never thought I would say this, but it was wonderful to see a traffic jam on Route 101.