Choosing technology over customers

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

Warren Buffet (1930 – ) World’s most successful investor

I recently received a blog post from Software Advice on – Why the Technology Matters – An Analysis of Consona’s Acquisition of Compiere. That blog post made me think about my recent posts over the last few months on Cloud Computing and Google Apps etc in May, June, my blog post last year on ERP and this year’s – Leveraging IT for Competitive Advantage – Myth or Reality? The ERP blog post covered the recent acquisitions that had happened within the competitive ERP arena and Leveraging IT for Competitive Advantage – Myth or Reality? attempted to address whether competitive advantage could be realised through effective use of IT.

Now, as we all know from the blog post, Warren Buffet’s (World’s most successful investor) management style and CIOs, the technology business is not considered a viable investment by him as he admits that he doesn’t understand technology and considers technology too volatile.  So, when Don Fornes wrote that he thought Consona had acquisitioned Compiere ‘because the Compiere product is built on a very modern technology stack and is designed to run in a cloud computing environment’ it made sense.

This was also confirmed by a quote by Consona’s CTO, Steve Bailey, ‘Compiere is the world’s leading open-source ERP solution and the products are brilliantly architected. They run on a fully open-source stack (e.g., Java, Linux, JBOSS, Postgres), utilize a browser-based AJAX UI based on the Google Web Toolkit, and are fully operational either on premise or on a utility cloud platform like Amazon…’

Don went on to say, ‘While Consona has acquired a number of software companies based on this model, that doesn’t seem to be the strategy behind the Compiere deal. Compiere brings only 130 customers to Consona and I doubt Compiere’s open-source business model was generating big profits. Instead of buying customers and profits, Consona seems to be thinking ahead about how they can lead the market in the next generation of technology. The acquisition is more about growing organically – selling more Compiere systems – than it is about harvesting customer support contracts.’

‘Why is this all relevant to software buyers? Because there is a big shift underway from client/server systems installed “on premise” to cloud-based or software-as-a-service systems that are hosted in a secure data center and accessed through a web browser. Moreover, the open source movement is producing underlying technology that is not only free, but increasingly really good stuff. Software vendors that don’t make the transition will wither on the vine.’

‘To highlight the significance of this model, consider that a bunch of brilliant Google engineers built some cutting edge user interface technology (Google Web Toolkit) and open sourced it. Compiere turned around and used it in their products. Google did a big part of Compiere’s engineering for free…and will continue to do so. Now that’s efficient development.’

‘Compare that to an application software company that has to pay ongoing royalties to an infrastructure software company for the privilege of developing on its outdated database or development tools. The smart engineers long since left both companies so they could work on cooler projects at more modern software companies. The mediocre engineers that remain are having a hard time developing new features on old code. Sales are declining and customers are defecting (albeit slowly because it’s hard to switch).’

‘You don’t want to be that customer that is trying to defect but fears the switching costs. You want to be the delighted customer that loves their software because it works today and will work tomorrow, regardless of what new requirements emerge.’

As we are constantly bombarded by marketers and pushed towards cloud computing models, please remember that (as Marcela Cueli said in his article),

‘For a start, cloud computing is not a technology but a model of provision and marketing IT services that meet certain characteristics. Cloud is all about computer services, not products:

* The infrastructure is shared. Multiple clients share a common technology platform and even a single application instance.

* The services are accessed on demand in units that vary by service. Units can be, for example, user, capacity, transaction or any combination thereof.

* Services are scalable. From the user’s point of view, services are flexible; there are no limits to growth.

* The pricing model is by consumption. Instead of paying the fixed costs of a service sized to handle peak usage, you pay a variable cost per unit consumption (users, transactions, capacity, etc.) that is measured in time periods that can vary, such as hour or month.

* Services can be accessed from anywhere in the world by multiple devices. The cloud model leads to basically two different kinds of clouds: private and public. The public clouds are those that offer IT services to any customer over the Internet. Private clouds offer IT services to a predefined group of customers, with access through Internet or private networks. You might have also heard about internal and external clouds. The former are a subgroup of the private clouds, and provide services within the same company or corporate group. The latter may be public or private and provide services to other companies.’

To conclude, this is exactly what I have been discussing in my blog posts over the last year or so. Don’s thoughts are increasingly reflective of the technology blogosphere as technology writers’ such as Don and I understand the repercussions of the effects of cloud computing on traditional client/server models and associated revenue streams, licensing etc.

There are many facets that I have covered over the last year or so that lead companies to be in this vulnerable position where they have to resort to acquisitions to remain contenders within their marketplace. My blog posts mentioned earlier have considered these, so apart from the above posts, I will leave you with some other posts that should help companies and their management become successful.

What is Cloud Computing? Its Pros/Cons and making it work

Lawmakers question the security of cloud computing

Can IT Management failure be caused by a deadly disease? Part I

Can IT Management failure be caused by a deadly disease? Part II

I listened, you spoke but did we communicate?

IT benchmarking

The CIOs agenda and memberships

Challenges facing CIOs at the UK’s leading companies

 

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About mubbisherahmed
I am passionate about IT and its ability to deliver cost effective, value for money solutions that can enhance performance and in many cases provide competitive advantage by using a range of solutions and approaches in innovative ways.

4 Responses to Choosing technology over customers

  1. mubbisherahmed says:

    Fred Held, Former Marketing and Operations Executive Mattel for McDonald’s and Burger King. Executive Consultant IBM commented the following on a SM site:

    Yes, technology companies have a choice. The choice is to grow as fast as this economic sector or faster. If a technology company does both innovation and acquisition it has the potential or rapid growth in sales but more importantly in return on assets employed.

    Cloud computing is not all hype. It is a natural extension of the growth in computing power and bandwidth. Large companies can offer cloud computing to its affiliates on a global basis and smaller ones can outsource all the servers to a data center at reduced costs, pay as you go capacity usage and as you need incredible computing power.

    A fun question to answer as a former IBM Executive consultant. They were the originators of grid computing.

    Fred

    I replied:

    Fred, thanks for your insight. I agree, Cloud Computing is not hype as businesses look at ways of utilising, as you say, ‘grid computing.’

    A well thought out, insightful answer that captures quite succinctly how to innovate and acquisition successfully while explaining cloud computing in a ‘snappy’ way.

    Thanks for your contribution.

  2. Ross Dodwell says:

    Mubbisher,

    I think Cloud Computing is the next major iteration of technology, at least as big as the personal computer. Almost makes me wonder if we are going back to a centralized “mainframe” style technology.

    However, it makes total sense. Why would each shop have its own IT shop, resources and expenses, when they can be consolidated for less cost, better quality, more timely updates, and stability?!

    Keep up the good work!!

    Ross

    • mubbisherahmed says:

      Hi Ross,

      Thanks for your feedback and good to hear from you again. Yes, you are absolutely correct, there does seem to be a shift towards ‘mainframe’ type technologies for a wide range of reasons including environmental and cost considerations (Can help decrease costs in many instances).

      Apart from all your points listed already, we live in a global society now and international commuters need access to their IT applications and ‘cloud computing’ is one of the best ways to utilise and gain access to these resources ubiquitiously at a cost effective price.

      Thanks for the support and glad that you enjoyed the article.

      Mubbisher

  3. mubbisherahmed says:

    Taylor Lilley left the following comment on a social media site:

    Acquisition and innovation aren’t either/or tactics, they both serve growth by providing an influx of new ideas, infrastructure, and methodologies. The fact that they may be perceived as either/or in a climate of increased fiscal prudence suggests that people are thinking non-creatively, when other strategies involving co-operation, colaboration, strategic alliances are just as feasible and potentially more economical.
    And cloud computing isn’t all hype, it’s just that because the image it conjures is less easy to grasp for most non-tech people than that of your brimfull hard drive and blinking modem, people don’t understand it yet, and are reluctant to have faith. There’s an argument that its poor branding. Clouds obscure blue skies, and are impossible to grasp or secure. That may prove not to be how people want to think of their information systems. It isn’t an image or a reality that connotes security, privacy or transparency.

    Michael Casde added:

    Mubbisher:
    Great question.

    I agree with Taylor that acquisition and innovation are not mutually exclusive, in fact they are both means toward the strategic goal of staying relevant in the market. Businesses that are not leaning forward tend to be sliding backwards (even if they don’t know it).

    One of the fasinating facets of human nature is that we are hardly ever satisfied with anything. If someone finds a way to make something ‘better’ we typically want to have it. In business, it is critical to always have one eye on the horizon, the cutting edge, while providing customers the best currently available.

    Cloud computing is an example of taking an existing status quo (namely the internal IT department) and shaking it up, making it more flexible and responsive. Is it hype? I doubt it. Companies these days are in a neverending search for non-core activities to shrink. IT support, systems and infrastructure can be a great big cost. However, in most companies, the IT systems support reporting and back office functions, like billing and procurement. In these companies, IT does not add a distinct competitive advantage. So, save some money and avoid maintaining IT services in house with Cloud computing. Its the new “outsourcing”.

    From what I have heard from other financial leaders is that Cloud computing is being looked at primarily as a cost saving measure in mature companies. In most cases, critical IT infrastructure for larger companies is being kept in house. However, smaller businesses that are outgrowing their current systems are strongly considering Cloud options.

    Companies providing these services need to do a lot of work to help potential clients understand how they have overcome issues like security and access to data. I have had experience operating financial systems in a hosted environment, which is akin to Cloud computing and found the solution to be faster to implement, easier to maintain, secure and in full compliance with our Business Continuity Plan.

    Best regards,
    –mike

    I replied:

    Hi Taylor/Mike,

    I agree, that Cloud Computing is generally misunderstood and in many cases not understood at all. For years, within IT, whenever IT had to be setup, it was all about selecting the hardware, software and communications links. Finally, thanks to Cloud Computing it is much more easier to setup, especially for new startup businesses.

    I have written a cloud computing introduction, please feel free to forward it on to anyone who may benefit:

    What is Cloud Computing? Its Pros/Cons and making it work
    http://tiny.cc/mXOJA

    Other recent blog posts that have looked at Cloud Computing:

    Google Apps – The myth, hype and reality
    http://wp.me/pw27T-9r

    Cloud based ERP. Fact or fiction?
    http://wp.me/pw27T-93

    Weather bulletin – Google Cloud and icy Microsoft downpour
    http://wp.me/pw27T-8O

    Regards,

    Mubbisher Ahmed

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