THINK IT Services

The year of the Cloud has come to a climax at Salesforce.com’s Dreamforce conference in San Francisco where over 30,000 registrants converged to celebrate the rapidly expanding world of ‘on-demand’ solutions and collaboration tools.

Salesforce.com used the event to beat back the recent efforts of Oracle and Microsoft to gain a share of the Cloud Computing market with a new round of initiatives aimed at building on its phenomenal momentum and success.

The two most significant announcements on Day One were Salesforce.com’s offer of free Chatter accounts across its customer base along with a public version of the social networking service in February, and a new Database.com offering as a spin out of its Force.com Platform-as-a-Service (PaaS).

Day Two began with the news that Salesforce.com plans to acquire the Open Source oriented, Ruby-based application development platform, Heroku, for $212 million in cash. Salesforce.com and BMC Software also announced that they are joining together to offer RemedyForce, a new Cloud-based IT service management and support offering built on Force.com. Salesforce.com also unveiled SiteForce, a new and improved version of its website design tool which was introduced previously.

Talking About Chatter

A year ago, Dreamforce attendees responded to the unveiling of Chatter with a lot of apprehension about why they should permit a Facebook-like social networking tool into their organizations. In response to this lukewarm reception, Salesforce.com put its marketing engine to work to overcome this hesitancy and has generated growing customer acceptance. 

Much of the opening session of Dreamforce was focused on the practical benefits of Chatter in corporate environments through a series of demos of use-cases and customer success story testimonials. Salesforce.com also emphasized how Chatter bridges the old and new worlds of the business user by linking to Microsoft Outlook and mobile devices.

Salesforce.com announced Chatter Free to extend its reach further into organizations beyond the sales and marketing departments. This initiative will permit Salesforce.com users to invite others within their organizations to utilize Chatter, in the same way Facebook users can invite friends to join their social networks.

With less fanfare, but possibly of greater significance, Salesforce.com plans to also roll out a public Chatter.com service in February aimed at popularizing Salesforce.com’s social networking capability in the open market. Both these moves will broaden Chatter’s footprint within organizations and brand equity in the marketplace. These moves will also make the folks at Facebook rethink whether they should have pursued the corporate market rather than relinquishing it to Salesforce.com. It will also get the attention of SuccessFactors which has been proclaiming that its Business Execution Software solution has a greater installed base of end-users than Salesforce.com.

Fortifying Force.com

Salesforce.com isn’t just seeking to permeate the enterprises via Chatter. It also wants to convince the developer world, both independent software vendors (ISVs) and internal enterprise developers, that Force.com is a credible PaaS for a new generation of enterprise-class, Cloud-based, mobile apps.

In its typical style, Salesforce.com unveiled Database.com as a new capability even though it is actually a part of Force.com which has been unbundled to create a new standalone offering and point of entry to Salesforce.com’s PaaS environment.

The standalone Database.com capabilities are being offered to respond to the changing way in which applications and databases are being architected in a more pluralistic fashion in the Cloud. The goal of Database.com is to democraticize database development, and give Salesforce.com’s customers and partners another reason to expand their use of its applications and PaaS. 

Salesforce.com has also been working hard to fend off competitive claims and developer concerns that its Force.com PaaS is too proprietary. It made a strong move in this direction with its alliance with VMware earlier this year, which produced VMforce.

Salesforce.com’s acquisition of Heroku reinforces this point, quickly giving Salesforce.com a strong foothold in the Open Source/Ruby application development environment, and immediate access to the rapidly growing Heroku developer community.

Heroku is considered by many to be the top Ruby platform in the Cloud market. The company has experienced 50% growth in application development activity in the past few weeks alone according to its Founder/CEO during his keynote presentation. Heroku will maintain its brand and become Salesforce.com’s seventh Cloud offering.

The Heroku acquisition and Database.com are geared to the new world of social, mobile apps. They are also intended to offset Microsoft’s aggressive efforts to gain customer and partner acceptance of its Azure PaaS, and undercut Oracle’s ‘false cloud’ offerings which it calls “Cloud-in-a-Box”. The Heroku acquisition is also a dramatic contrast to SAP’s purchase of Sybase, with Heroku representing the rapidly growing world of Cloud-based applications and Sybase viewed as an old-world development vendor attempting to recreate itself around mobile apps.

As Salesforce.com’s executives strongly stated during an industry analyst/press briefing, the message which the company is trying to convey to the market with this acquisition is that Force.com will be open and that Salesforce.com is going to be a platform company. A number of enterprise customers confirmed the importance of Salesforce.com’s PaaS efforts in their decisions to select the company as a strategic vendor.

SaaSifying IT Management

Salesforce.com’s announcement of RemedyForce in conjunction with BMC is significant for a number of reasons.

It is the company’s first attempt to provide a solution aimed specifically at the IT organization which is increasingly embracing SaaS-based alternatives to traditional IT management software. I’ve been telling clients and others about that the SaaSification of IT management and why this trend in the Cloud Computing market eliminates another barrier to greater customer adoption.

It is also the first time Salesforce.com has teamed with another company to launch one of its product-lines, or “Clouds”. This represents an important endorsement for BMC, as well as a risk for Salesforce.com. Teaming with an established ISV is an interesting choice for Salesforce.com. Like every established ISV which has attempted to add a SaaS component to its portfolio, it hasn’t been an easy road for BMC. But, the company has a highly committed CEO and has built a SaaS solution on Force.com which is gaining customer acceptance in the market.

This alliance puts Salesforce.com in the peculiar position of depending on a partner for the success of one of its product-lines. It also renews questions and concerns among its other partners about who gets preferential treatment within Salesforce.com’s ecosystem and why.

Closing Thoughts

One of the lingering complaints about Salesforce.com’s solutions is their premium price. Marc Benioff even joked about this point in his opening remarks at Dreamforce and got a hearty laugh from the audience. In an attempt to capitalize on this issue, Microsoft has launced a marketing campaign offering $200/user rebates  to Salesforce.com customers who jump ship in favor of Microsoft’s Dynamics CRM Online.  Benioff made light of Microsoft’s PR ploy by bringing the actor/model who is pictured in the Microsoft ads on stage during the Day Two morning keynote session and successfully convincing him to come back to Salesforce.com.

All joking aside, Salesforce.com’s premium prices hasn’t slowed its tremendous growth and hurt customer satisfaction/retention rates, or diminished the enthusiasm of the customers and partners attending Dreamforce this year.

The buzz and activity at Dreamforce 2010 is not only a clear indication of the Salesforce.com’s growing success, but also an impressive illustration of the widening movement to the Cloud.

[Disclosure: Salesforce.com paid for my hotel accommodations during my attendance at Dreamforce.]

Few technology trends have captured as much popular attention as Cloud Computing. The level of hype associated with the ‘Cloud’ hasn’t been seen since the hoopla created during the Dot.com era. As a result, there has been plenty of debate about whether the Cloud Computing phenomenon is headed to a similar demise.

Of course, I can point to plenty of proof-points which clearly demonstrate the differences between the false promises of the Dot.com era and the tangible benefits of today’s Cloud Computing solutions. However, the recent Comcast outage raises an even more serious concern — are businesses moving to a far less reliable operating platform when they turn to Cloud services to support their corporate operations?

I was confronted with a similar question after giving a keynote presentation at the Connecticut Venture Group’s Software Industry 2010 meeting. A member of the audience suggested that the rapid adoption of Cloud services reminded him of the broad-based acceptance of subprime mortgages before the bubble burst in 2007. He viewed the subprime mortgage business and Cloud Computing as similar in the following ways,

• Each has emerged and grown on a virtuous premise — making mortgages and computing power available to a broad, previously disenfranchised segment of the market.
• Each has relied on a new operating model which enables providers and customers to take advantage of a new set of pooled resources.
• Each experienced rapid growth based on an assumption of infinite scalability under a set of loosely governed rules and regulations.

Kind of makes your stomach turn when you think about the parallels between the subprime mortgage mess and the Cloud Computing phenomenon.

In simple terms, the subprime mortgage industry depended on the continous rise in housing values to safeguard against suspect loans. We all know what happened when housing values dipped and the subprime ‘house of cards’ collapsed.

What would happen if the fundamental premise of the Cloud Computing’s infinite scalability, reliability and security was derailed by a major service disruption or broad-reaching security incursion?

We got a glimpse of the potential ramifications when Comcast’s DNS servers failed just before Cyber-Monday kicked into full gear.

When confronted by this question at the CVG event, my immediate (knee-jerk?) response was to suggest that the Cloud Computing industry depends on a different combination of factors to ensure its long-term stability and success:

• Better educated consumers, both IT and business decision-makers.
• More incremental procurements which mitigate the risks of wholesale adoption.
• Spot and subscription pricing/packaging which requires Cloud providers to continuously improve the quality and reliabilty of their services to ensure customer satisfaction, renewals and add-on sales.
• Greater transparency as a result of a growing number of online dashboards, user groups, social networks, etc.

Salesforce.com’s latest quarterly financial results and the estimated revenues being generated by Amazon Web Services (AWS) are a clear indication of growing user interest in SaaS/Cloud alternatives. And, unlike the questionable value of the services offered during the Dot.com era, THINKstrategies’ Best of SaaS Showplace (BoSS) Award and Cloud Computing Business Value (CCBV) Award programs are continuously illustrating the measurable business benefits being delivered by today’s SaaS/Cloud providers.

But, skeptics can still argue that these benefits don’t prevent potential disaster in the Cloud. Until housing values declined, few complained about the growing availability of subprime mortgages. First-time homeowners, existing homeowners watching their home values rise, mortgage brokers, investment bankers, and 401k account holders were all happy with the rapid rise in their respective purchasing power and investment portfolios.

Some could suggest that the subprime mortgage illustrates the shortcoming of ‘crowdsourcing’. The question is whether cloudsourcing can safeguard against a similar collapse.

John Taschek of Salesforce.com suggests in a recent blogpost that this kind of combination of forces are at work to offset the potential disaster of a Cloud implosion.

While I generally agree with John’s views, the Cloud Computing industry must do more to prove to IT and business decision-makers, as well as evangelists like myself, that the service delivery infrastructure and financial framework underlying SaaS/Cloud Computing solutions are truly scalable and reliable to support the rapid growth of this market today and over the longhaul.

NetSuite has unveiled a great video to promote its new Hairball Institute for Business and associated Award program aimed at curing “Software Hairball Syndrome” (SHS).

The video is a fun and effective way to bring attention to the fundamental flaws of pulling together an enterprise resource planning (ERP) system, including the endless integration, customization and support issues.

However, NetSuite’s video and award program takes aim primarily at applications focused on the individual piece-parts of an ERP system in the small- and mid-size business (SMB) segment of the market, specifically inventory and project management represented by Microsoft Great Plains and Project, financials illustrated by Intuit QuickBooks, and eCommerce exemplified by Websphere. It also can’t help itself and includes its sibling rival, Salesforce.com, as a ’standalone’ CRM solution vendor.

Yet, the real culprits of this syndrome are the bigger players–SAP and Oracle–along with a myriad of like-minded legacy software vendors. Unless NetSuite has another video and award program up its sleeve, it has missed an opportunity to squarely attack the source of SHS.

This is unfortunate because NetSuite has attributed much its recent success to the inroads it has made penetrating the regional offices and other business units within large-scale organizations who were either fed up with their legacy enterprise applications or unwilling to go down the on-premise app path.

Unlike Salesforce.com which has always been very clear through simple and straightforward messaging about the on-premise vendors who it is seeking to displace, NetSuite too often obsures its message about its primary competitors while trying to set itself apart from other SaaS vendors, and undercuts its effectiveness.

But, this is a nuance which does not seriously diminish the terrific job NetSuite has done with its latest marketing program. Instead, the video and award program should strengthen its position in the market, and help the rest of the SaaS/Cloud Computing community articulate the shortcomings of traditional software.

One of the hottest topics of discussion in the Software-as-a-Service (SaaS) market and broader Cloud Computing arena is the role of the channel in selling and delivering these web-based services and solutions. What few people have discussed is the opportunity for SaaS companies, as well as Cloud vendors, to become important channels to market themselves.

The most intriguing scenario in this SaaS-as-a-Channel (SaaC) possibility revolves around the Data-as-a-Service (DaaS) idea. The most recent illustration of this scenario is today’s announcement by Host Analytics of a new Decision Hub service which pulls industry data from a variety of third-party information service providers, such as Edgar Online and Data.Gov, into Host Analytics’ SaaS-based corporate performance management (CPM) solution.

The Decision Hub enables corporate decision-makers to examine their company performance in relation to a broader set of industry benchmark data or key performance indicators (KPIs).

This isn’t a new idea, but today’s leading SaaS vendors have the opportunity to aggregate this information from a variety of data sources more quickly and economically because of an assortment of application program interfaces (APIs) and generally accepted web services.

Another case in point is Salesforce.com which has had a longstanding relationship with Reuters and acquired Jigsaw earlier this year to pump valuable data through its customer relationship management (CRM) and salesforce automation (SFA) solutions to help its users achieve their business objectives.

So, as these data aggregation capabilities become more prevalent, it changes the nature of the SaaS company. Rather than simply being an application provider, it is now providing a higher level business service powered by a mixture of third-party data sources.

In essence, SaaS companies are now becoming information distributors in addition to application providers. In other words, they are now becoming an increasingly important channel to market for information service providers.

It will be interesting to watch other types of vendors attempt to employ SaaS companies and Cloud service providers as new channel partners as well. Of course, as they do, they will encounter a new set of challenges regarding how to properly package, price and promote these new relationships.

There have been a series of acquisitions over the past few weeks which clearly illustrate how the competitive landscape in the tech industry and beyond is being fundamentally changed by the rapidly evolving cloud computing phenomenon.

The two most recent examples came this week. The first was CA Technologies’ acquisition of 4Base Technology, a virtualization and cloud infrastructure consulting firm, which CA plans to use as a cornerstone of its expanded cloud computing professional services capabilities. This is the latest in a series of acquisitions which CA has made to transform the company from a software-only to a multi-dimensional corporate portfolio which personifies its new CA Technologies company name. CA’s transformation echos the moves of other players seeking to become one-stop shops for hardware, software and services. The most significant of these was Oracle’s acquisition of Sun Microsystems.

Intel made an even more dramatic acquisition this week with its announced plans to purchase McAfee. This acquisition moves Intel into the Softwae-as-a-Service (SaaS) based security solutions market by embedding security software functionality into a chip. Paul Otellini, Intel’s President and CEO, put the acquisition into perspective by stating in the company’s announcement, 

“In the past, energy-efficient performance and connectivity have defined computing requirements. Looking forward, security will join those as a third pillar of what people demand from all computing experiences.”

These moves come on the heels of a series of other acquisitions over the past few months aimed at repositioning various technology and business services vendors seeking to capitalize on the burgeoning cloud computing market.

Less newsworthy, but equally intriguing have been the following acquisitions:

• ADP’s acquisition of Cobalt, a digital marketing services vendor, in July. This acquisition was the latest example of ADP’s efforts to offer a widening array of business and information services to make itself a more strategic, single-source of a full lifecycle of business services, such as marketing solutions.
• IBM followed ADP’s example by acquiring Unica,a marketing software solutions vendor, early this month augmenting its middleware and infrastructure enablement capabilities. IBM clearly stated its goals regarding the Unica acquisition in its announcement,

“Assembling transformational capabilities to help clients create…relevant cross-channel brand experience to promote customer loyalty and satisfaction…This acquisition along with IBM’s recent acquisitions of Sterling Commerce and Coremetrics will enhance IBM’s ability to support customers increasing demands in this growing market.”

• Salesforce.com’s acquisition of Jigsaw earlier this year was also aimed at redefining the company’s capabilities and helping to reposition it in the market.  Jigsaw’s online lead generation database will feed essential data into Salesforce.com’s SaaS-based customer relationship management (CRM) solution, making it easier for the company’s users to satisfy their needs. Jigsaw also provides analytics regarding the productivity of users’ sales efforts. As a result, Salesforce.com is able to now transform itself from a SaaS company to a business or information service provider offering Data-as-a-Service (DaaS).

The commonality of all of these acquisitions is not only that they extend the scope of the companies’ corporate portfolios, but that they do it by adding SaaS capabilities to their delivery methodologies.

These are just some of the ways various technology and software companies are transforming their businesses through acquisitions to capitalize on and  better target today’s quickly growing cloud computing opportunities. They also open a Pandora’s Box of ancillary organizational and go-to-market challenges for the acquiring companies.

Mark Hurd’s sudden resignation as HP’s CEO has opened a floodgate of speculation regarding who the company will select to succeed him.

Because his departure wasn’t anticipated, there are no clear-cut internal candidates. And, because Hurd himself was a surprise selection for the post in 2006, it is possible that another little-known industry executive may be tapped again for the position this time around.

So, this creates a wonderful opportunity for anyone with a passing interest in HP’s future, and the future of the technology industry as a whole, to throw a few names in the hat.

The HP CEO position is particularly intriguing in part because it has grown to become the largest IT vendor in the industry through a series of acquisitions of Compaq, EDS and others. More importantly, HP like the rest of the IT industry is at a pivotal crossroads brought on by the disruptive forces surrounding cloud computing, globalization, the consumerization of IT, mobility and the economy.

As a consequence, HP and every other established technology (and software) company has to re-think their corporate strategies, redesign their products and services, and restructure their go-to-market tactics.

For HP, this means realigning its hardware, software and service capabilities to more effectively leverage the ‘cloud’ so it can more effectively responding to customers’ rapidly changing requirements and expectations, and compete in an increasingly competitive marketplace.

I was first prompted to think about potential HP CEO candidates immediately after Hurd’s resignation when I was asked by a top-flight headhunter for my quick suggestions and came up with the following names off the top of my head:

• Joe Tucci, EMC’s CEO who has transformed the company from a hardware-centric to a software-driven business model and pulled off a similar feat at Wang Computer where he moved the company from hardware to services. EMC and HP’s corporate capabilities and challenges have many similarities.
• John Chambers, Cisco Systems’ CEO who has successfully transformed the company from a corporate network infrastructure vendor into a multidimensional technology supplier to everyone from major service providers to small office/home office (SOHO) workers. Under Chambers’ leadership, Cisco has withstood every economic and competitive challenge, and is now moving into the data center where HP has made much of its living.
• Marc Benioff, Salesforce.com’s CEO who has transformed the software industry by leading the Software-as-a-Service (SaaS) charge and evangelizing about the added business benefits of moving to a broader array of cloud computing alternatives. If Salesforce.com isn’t going to be acquired by Oracle and Benioff made CEO under Larry Ellison, he would be a great candidate to push HP’s legacy software business into the new world of SaaS and its hardware business into the cloud.
• Steve Mills, IBM’s Software Czar, who has used an aggressive acquisition strategy to recast the company into a powerful middleware vendor within a similar set of hardware, software and service businesses which HP possesses. As a result of his success with the software division, Mills was recently given responsibility for managing IBM’s IBM hardware, storage, and operating systems businesses. But, Mills is also facing a mandatory retirement barrier to further advancement and could put his experience to good use at HP.

My friends, Chris Hoffmann and Scott Donahue at TripleTree, where I am a senior advisor, suggested that we put our heads together to broaden the candidate list. Here’s what we came up with:

• Michael Capellas- He has successfully stepped into even tougher situations at Compaq (now part of HP) and MCI/Worldcom, and is well respected in the tech industry and beyond.
• Bill Campbell - Current Intuit Chairman and former CEO, but more importantly he has been a key advisor at Google and Apple, and is also very well respected in the tech industry.
• Kevin Johnson- Former rising star at Microsoft now running Juniper Networks who understands HP’s products and channels.
• Anne Livermore- Runs HP’s Enterprise unit which brings together its hardware, software and services businesses. He’s been passed over many times but might be the safest best as an inside pick.
• John Thompson- Former CEO, and current Chairman of Symantec, recognized the importance of moving to SaaS but couldn’t overcome channel resistance.
• Meg Whitman - If the Governor thing fizzles…she’s a proven, capable leader who will be looking to prove herself again.
• Ray Lane- Ran Oracle as President, then became an early proponent of the virtues of SaaS as a top-tier VC.
• Charles Philips- Has been driving Oracle’s acquisition strategy and runnng a major portion of its operations. He’s just beginning to learn about the hardware business as a result of the Sun acquisition, but he’s a quick study and forward-minded.
• Jon Rubinstein - Ex-Palm, Ex-Apple…might be too much of an engineer but interesting match for HP. Understand mobility which is where the world is heading, and can help HP fully exploit its Palm acquisition.
• Ed Whitacre- Just announced his resignation from GM where he quicklygot the behemoth back on track with no prior industry experience. Before that, he also pulled together SBC and AT&T, and could bring HP’s far-reaching assets together. He’s in his early 60’s, so it might be a stretch to see him as a long-term CEO at HP. However, he could bring stability until HP cultivates a new leader for the longhaul.   
• Diane Greene- Former CEO of VMware revolutionized IT with virtualization, a key component in HP’s future. Might be too techie, but certainly understands the opportunities and challenges.
• Shantanu Narayen - Well respected, but not well known CEO of Adobe which is a key player in the web development world which is driving cloud services.
• Vivek Paul- CEO of Wipro, known as a visionary in outsourcing, now in private equity, with the global experience which will be essential going forward.

If these industry stalwarts seem too mundane, here are a few frivolous ideas to think about for fun:

• Brett Favre – nominated by my Minneapolis-based friends at TripleTree who worship the indecisive quarterback as a brilliant turnaround artist.
• Joe Montana – my football oriented alternative because of better winning record and Bay Area roots.
• Simon Cowell – he is a tough-minded task-master with time on his hands since he left American Idol.
• Oprah Winfrey – knows how to build businesses and a worldwide following, and might be willing to put aside her upcoming year of long goodbyes as she departs her syndicated talk show.
• Tony Blair- the consummate negotiator who would be a perfect candidate to address the myriad of channel issues which will arise if HP adopts an aggressive SaaS/cloud computing strategy.

As you can see, Mark Hurd’s resignation has given us a great way to while away the dog-days of August with various ideas. I hope this gives you plenty of food for thought for the weekend and welcome your suggestions as well.

Although announcements regarding new rounds of funding are relatively commonplace in the tech industry, whenever a Software-as-a-Service (SaaS) company is able to boast about their latest vote of confidence among investors it is worth noting in these tough economic times.

But, Xactly’s announcement this morning that it had garnered a new round of $12 million in funding was especially newsworthy because it also included a “strategic new investment” by Salesforce.com.

Speculating about who Salesforce.com is going to acquire next has become a popular parlor game in the SaaS industry over the past few years. The company has done an admirable job acquiring a variety of companies which have helped to extend its service delivery capabilities, as well as expand its application functionalities.

Some of its acquisitions, like Jigsaw, have been announced publicly. Others, like GroupSwim, have been done quietly.

While there has been speculation that Salesforce.com will move into a variety of new areas, there have been few instances when it has made strategic investments to stake a claim in a new market segment. The most notable example was its investment in FinancialForce.com last year.

Today’s announcement may be an indication that Salesforce.com is inching into the sales performance management (SPM) business. If this is the case, Xactly is a good candidate because it has seen significant growth over the past year, recently picking up Haliburton and Xerox, among others.  Steve Cakebread, a former senior executive at Salesforce.com, is also a senior business advisor at Xactly.

Whenever Salesforce.com makes an acquisition or strategic investment it runs the risk of stepping on the toes of other AppExchange partners. This investment in Xactly is no exception as it is sure to raise concerns among other Salesforce.com partners in the SPM business, most notably Callidus Software.

(Disclosure: Xactly, Salesforce.com and Callidus Software have been but are not currently THINKstrategies clients.)

Intuit’s major outage last week served as a harsh, yet valuable reminder for all of us about the serious risks which underlie our growing dependence on third-party, ‘cloud’-based services.

The irony about the timing of Intuit’s service failure is that the company has been escalating its marketing efforts to position it as a leading provider of cloud services. For instance, Intuit’s SVP/CTO, Tayloe Stansbury, was a keynote presenter at last month’s SIIA All About the Cloud Conference in San Francisco where he boasted about Intuit surpassing $1 billion in cloud-based service revenues.

The company’s CEO, Brad Smith, did a good job quickly apologizing to Intuit’s over 300,000 customers who were affected by the outage. His blogpost also explained the cause of the disruption and made a public commitment to put new policies and procedures in place to prevent the problem from occurring again.

Smith’s response was certainly better than that of BP’s CEO, who has succeeded in alienating public officials as well as the public at large with his arrogant actions and unconvincing statements.

In order to counteract any potential backlash as a result of this incident that could derail the rapid growth of the market, the cloud computing industry needs to take a number of immediate steps to reduce the likelihood of similar events and alleviate the impact on customers.

As a strategy and marketing guy, I’m not qualified to recommend specific technical steps which Intuit and other cloud vendors should take to mitigate the risks of software or system failures and safeguard against manual process mistakes.

Instead, I will suggest some simple measures which vendors must take to reduce the occurrence and repercussions of these incidents:

• Invest in redundant systems even if it adds operating costs. Smart customers are willing to pay more if they are convinced they will be safer.
• Train and certify employees as meeting industry standards. Smart customers will select vendors who boast skilled employees and have the certifications to show for it.
• Act fast to notify customers when something goes wrong and keep them informed of your efforts to resolve the problem. Customers understand that ’stuff’ happens and appreciate vendors who are proactive in responding to an issue and communicate about the status.
• Ask for customer feedback and suggestions. Customers are loyal to vendors who seek and respond to their input.
• Create public notification systems and performance scorecards.Salesforce.com has pioneered this idea with its trust.salesforce.com website which provides real-time reporting of its service availability. Customers love transparency.
• Develop Service Level Agreements (SLAs) with teeth. Customers want contractual agreements which clearly state the provider obligations, outline their escalation policies to remedy issues, offer meaningful penalties, and prescribe grounds for termination.

Although a strong argument can still be made that this type of outage is rare and most cloud computing providers are far more reliable (and secure) than the majority of enterprises, this latest incident makes it imperative that the cloud computing industry quickly develop off-line solutions which augment their online services to enable their customers to continue to operate even during a service outage.

I’ve been advocating for more than a year about a new definition of location independence which permits customers to take advantage of off-line, on-premise SaaS alternatives such as appliances and applets. 

These on-premise platforms and tools are becoming increasingly feasible from a functional and economic standpoint as the technology, service delivery methodology and business models mature. They also are in keeping with the growing interest among corporate decision-makers in private or internal cloud options.

While the idea of private or internal clouds undercuts some of the potential economic and operational benefits of the cloud computing ideal, it is still a step in the right direction and can alleviate the angst many business executives and IT folks  have about the current state of the cloud, especially in light of Intuit’s latest problems.

Seven weeks of traveling came to an end in Florida today after attending SAP’s Sapphire user conference and speaking to Tech Data’s TechSelect executives about the channel implications of the rapidly evolving Software-as-a-Service (SaaS) and Cloud Computing market.

Prior to this week’s events, I traversed the country from Boston to the Bay Area six times to speak, host and moderate sessions at SaaScon, Under the Radar, AlwaysOn OnDemand, Pervasive’s Metamorphosis and the SIIA/OpSource All About the Cloud conferences, and conduct strategy sessions with a wide range of clients in between.

The common theme of all these events and client meetings is that SaaS has become a viable alternative to legacy on-premise software across nearly every application segment, and a newer wave of Infrastructure-as-a-Service (IaaS) cloud computing services is quickly disrupting traditional data center models across nearly every industry.

Concerns about hyperbole outdistancing today’s realities are being pushed aside by a growing number of customer success stories which clearly illustrate the tangible and measurable benefits of these ‘cloud’-based services.

SaaS, IaaS and Platforms-as-a-Service (PaaS) are changing the way software and systems are designed, developed, packaged, priced, promoted, acquired, delivered, consumed and supported. 

At nearly every step of this process, the burden of success shifts from the customer to the vendor, with the potential of greater customer satisfaction, loyalty and profitability promising to offset the tremendously painful migration but necessary process for vendors, i.e. the classic ‘innovator’s dilemma’.

In response, a parade of incumbent software vendors (ISVs) are surrendering their efforts to fight off the ‘on-demand’ movement with FUD (fear, uncertainty and doubt) marketing campaigns, and replacing them with their own SaaS initiatives and cloud computing strategies.

CA and BMC have unveiled SaaS IT management solutions built on Salesforce.com’s Force.com PaaS. Software AG is offering a hosted version of its CRM solution, rebranded as update software AG.  (6/15: A spokesperson for update software AG has informed me that it is an independent company which is not associated with Software AG.) And, Microsoft is giving away a free version of Office…and suing Saleforce.com for patent infringements.

Few ISVs have more at stake and face tougher challenges as a result of this transformation process than SAP.

Over the past four decades, SAP has built a portfolio of complex enterprise applications which are at the heart of the operations of the world’s largest corporations, and thousands of others. It has created an equally vast internal organization and intricate set of channel relationships to develop, deliver and support its products, and serve its customers.

SAP’s shift to SaaS has been plagued by a series of perceptual, philosophical, developmental and sales missteps. The company underestimated the level of customer discontent with traditional software and their willingness to adopt ‘on-demand’ alternatives. It also discounted the architectural and operational requirements of developing and delivering competitive SaaS solutions.

After two false starts with its Business ByDesign (ByD) flagship SaaS offering, the company’s leaders are now more determined than ever to get it right. This week’s Sapphire conference was a coming out party to convince SAP’s customers and partners, as well as press and analysts, that ByD is now on the right path.

SAP has rebuilt the application with a new multi-tenant architecture to make it more scalable and economical. Even more importantly, ByD is being positioned as a part of a broader, corporate-wide portfolio of cloud solutions which the company’s leadership is hoping will be ”game-changing”.

As a guest of the company (SAP is a client, and paid my way to the conference) I had the privilege of meeting one-on-one with key corporate executives for a series of candid conversations about their new strategies. 

They intend to differentiate ByD, and the broader cloud portfolio, by embedding greater analytics into the solutions and offering an integrated suite of modules spanning nearly every corporate functional area across on-premise and on-demand environments, as well as various mobile devices.

Although ByD sits within the SAP’s Small- and Mid-Size Enterprise (SME) division, key executives are now willing to offer ByD to large enterprise (LE) divisions and regional offices as well.

While SAP has put a lot of investment into rebuilding the ByD architecture, it still has a long way to go to match today’s market leading solutions from a user experience perspective. ByD’s straightforward functional capabilities lack the type of dynamic, user-friendly interface common in most SaaS applications. As a result, it has limited user configurability and can be inflexible at times according to one customer I spoke with. Despite these limitations, ByD is winning more customers who are pleased with its operational and financial benefits.

I also got demos of the latest versions of SAP’s StreamWork collaborative decision-making tool and its Carbon Impact and Sustainability service. Both demonstrate SAP’s growing understanding of the type of dynamic user experience expect in today’s market, which will hopefully find its way into ByD soon.

Underlying SAP’s growing portfolio of SaaS and cloud computing solutions is the analytic expertise and skills of SAP’s Business Objects unit. Company executives are hoping they can also leverage the Sybase acquisition to fortify its in-memory capabilities to support its SaaS solutions and extend its mobility capabilities.

There is no question that SAP is determined to succeed in the SaaS and cloud computing arena. Ironically, the company’s biggest challenge will be the tendency of company executives and its army of developers to over-engineer SAP’s solutions.

In the past, SAP succeeded by focusing its vast resources on the enormous complexities of enterprise environments. Today, a growing number of SAP’s customers are seeking to streamline and simplify their operations, so they can become more agile and responsive to rapidly changing market requirements. In many cases, the customers are willing to accept less functionality if it improves their productivity, effectiveness and profitability.

SAP must recalibrate its efforts and solutions to match these changing requirements and expectations. If SAP’s leaders and staff can learn this lesson from the SaaS movement, they can become an important player in the maturation of the broader cloud computing industry.

My past fews weeks have been consumed with weekly visits to the Bay Area to speak at SaaScon, moderate tracks at Under the Radar and co-host the AlwaysOn OnDemand conference, as well as numerous on-site client meetings. In between, I also had the privilege of presenting a kickoff keynote presentation at a VIP dinner for the State of the Cloud conference in Boston.

My hectic travel schedule has given me little time to comment on a variety of industry announcements which have occurred during this period. So, here’s my ‘lightening round’ assessment of some of the more significant events worth noting,

• Cloud Conference Observations
  • SaaScon: When was the last time you heard CIOs talk about being heroes in their organizations? Well, the CIOs who spoke at SaaScon repeatedly described how the SaaS solutions which they’re implementing in their organizations are generating an overwhelmingly positive response from their end-users and corporate executives. And, they admitted that this has made their jobs gratifying again.
  • Under the Radar:  This was a terrific day of company presentations and American Idol-style judging sessions aimed at uncovering the next hot Cloud companies. Most of the presenters won’t become major players, but many may be acquired by bigger companies. While the remainder will die on the vine because of poorly conceived solutions or go-to-market strategies.
  • AlwaysOn OnDemand: It was a privilege to work with Tony Perkins and his staff to organize and co-host this first-time event. Tony is a living legend in the tech industry because of his association with the Red Herring publication and his very influential conference business. The AlwaysOn events have become important meetingplaces for industry leaders, investors and aspiring companies. The content of the OnDemand conference was also first-rate as you can see in the online videos.
  • State of the Cloud: What happens when a major financial institution decides that it wants to better understand the rapidly evolving cloud computing marketplace? Well, in the case of Fidelity Investments, they decided to put together a first-class conference aimed at top-level enterprise decision-makers. And, because of Fidelity’s tremendous influence, they were able to bring together a very impressive list of speakers and sponsors to examine various aspects of the cloud computing environment.
• VMforce: Salesforce.com’s new alliance with VMware might seem like a minor event for the casual observer who has yet to fully grasp the strategic importance of the company’s Force.com platform. However, Salesforce.com’s long-term success is predicated on building a large and loyal cadre of software developers on its Platform-as-a-Service (PaaS). While it has had some initial success, its growth as been stymied in part because of the proprietary nature of its development language. VMforce opens Force.com up to a vast community of Java developers and alleviates much of the concern about vendor lock-in. I expect Salesforce.com to reach out to other important development communities to encourage even broader acceptance of its PaaS capabilities, especially as it begins to feel competitive  pressure from Microsoft Azure.
• IT Service Management Wars: One of the key battlefields in 2010 which I identified at the beginning of the year is SaaS-based IT service management (ITSM). The latest entrant into this space is BMC which unveiled a new version of its Remedy solution built on Salesforce.com’s Force.com platform. BMC’s new offering follows Nimsoft’s release of an on-demand version of its solution shortly after its acquisition by CA was announced. You can expect plenty of additional acquisitions in this market segment as IT organizations become increasingly receptive to SaaS alternatives to traditional, on-premise management systems.
• Cloud-Oriented Application Monitoring and Management: Now that SaaS solutions are becoming mainstream and more enterprises and ISVs are leveraging PaaS and Infrastructure-as-a-Service (IaaS) to develop and deliver applications, the new battlefield is Application Monitoring and Management. I’ve not only be deluged by a continuous stream of briefings from start-ups in this segments, but also had the pleasure of moderating the Application Management track of  the Under the Radar conference where some of the hottest new players in this segment showed their wares. While the fundamental value proposition of these companies is compelling, I expect many of them to struggle to convince corporate decision-makers, as well as  service providers, that their solutions are necessary to optimize the performance of their cloud-based applications and operations as opposed to ‘nice to have’. So, you can expect a flurry of quick acquisitions and then a prolonged series of company failures.
• Interesting reading,
  • Banks to build their own cloud-based global banking infrastructure and network - Is this a new cloud or the realization of the old ‘extranet’ idea?
  • SaaS-querade: When On-Premise Vendors Try to Pass as SaaS Vendors - This column echos the talks I give about why SaaS is different than hosting and the old ASP model.
  • The Next Crisis For Customer Satisfaction - This column challenges CIOs and business decision-makers to understand how enterprise applications must change to better serve end-users and achieve their corporate objectives. Salesforce.com Chatter is an example of where the world must go.

Finally, check out my new online presentation entitled, “Will SaaS and Cloud Computing Dis-Intermediate the Channel?”