A ‘first looks’ piece about the UK edition of QuickBooks 2008 on the UKs AccountingWeb site has drawn a succession of criticisms and a huge raspberry from professional advisors who are key influencers in the UKs SMB accounting market. Upgrades are seen as potentially tortuous and pricing comes in for criticism, one commenter said:

As a user of QuickBooks for the last 14 years and as a QuickBooks Professional Advisor, I have recently received my copy of QuickBooks Accountant 2008 from Intuit. What an utter disaster!

The problems of installation and upgrading data files from the previous version (QB2006) are immense and any existing users of earlier versions should seriously consider whether they should upgrade. I have spent about eight hours trying to install the program and upgrade just one company data file and with very limited success. It takes approximately 6 minutes to just open the program from the desktop, and that is on a fairly high spec machine.

Upgrading the data file from QB2006 to QB2008 took several attempts and a couple of hours. Over many years, I have been installing and setting up QBs for clients and training them in the use of the program. I can install and set up QB2006 within an hour. I cannot even satisfactorily install and set up QB2008 on my own computer in eight hours.

One problem I did encounter straight away, when I eventually managed to get into the program, is that templates for invoices, etc. will not transfer across into the new program. Having spent many hours designing and formatting invoices and credit notes in QB2006, I would have to start all over again in QB2008.

What other problems are lurking in there? In my opinion, this program is presently unusable. Beware.

On pricing, another said:

The overwhelming opinion was that £300 was too much for them at this stage, so they would stick to 2006 Regular. Off they all went to get their orders in to Amazon, while there’s still some stock left.But what happens when all the 2006 versions in the warehouses are mopped up? Effectively, from now on I don’t have a competitive QuickBooks product to recommend to new businesses.

But the main gripe was reserved for the lack of multi-currency handling. With much of the UK and Ireland trading around the world, this is a serious mis-step on Intuit’s part. Regular Accounting Web reviewer David Carter summed up the views of many when he said:

Intuit seem to be shooting themselves in the foot on this multicurrency issue.

Intuit’s attempts at providing software for non-US markets have been something of a see-saw affair with the company at one moment expressing serious interest in non-US markets but then backing off. At its last earnings call, the company seemed to be de-emphasizing international expansion. This level of critique will leave many UK professionals rethinking their client advice.

As the excitement around Business ByDesign dies down, the questions start flowing. While at the event, Brian Sommer and Charlie Wood asked Leo Apotheker two of the most intriguing questions centering on the partnering opportunity.

Brian has decades experience as a SAP partner during his Accenture days and has undertaken extensive research into this aspect of the IT industry. He questioned SAPs ability to realistically build a volume model for the mid market:

The mid-market channel struggles to hire the best graduates so I’m wondering how SAP will build a market that can be truly effective?

Apotheker’s response provided a revealing insight into how SAP plans to build out the BBD market (paraphrased and rearranged for context):

When you study the economics of the mid-market channel, you find they are not really making any margin because the cost of sale is huge. At best they’re eeking out a living based on the small number of customers they have. We are building a market from scratch. We will run a campaign to hire partners and we will help partners to understand that this is a different business model that is more sales oriented than consulting led. We will provide training and hire graduates directly. That should mean partners will be attracted by a model that delivers more value for them. But…I wouldn’t be surprised if we need to change the model as events unfold.

Brian then asked about financing. Setting up a new business model is hard enough but without adequate financings, the channel will struggle. Apotheker said that SAP will provide financing. That’s generous.

My follow up was to question how this would work. If SAP is doing the hiring, why wouldn’t these people be working with mid-market channel players in the first place so they can maximize the opportunity from the get go? Leo said that some of them may well want to go on to become indpendent partners in their own right. In other words, this is a backstop measure to ensure SAP can control the early market model to see how it works and adapt if necessary.

It may be that SAP has anticipated Phil Wainewright who warns that SAP need take care it doesn’t under-estimate the challenges:

Finding suitable partners and building good relations with them is a journey of adventure that SAP has only just begun. Other more experienced SaaS players know how difficult this can be — and how easy it is to overestimate the capabilities of seemingly well-qualified candidates.

Apotheker’s response prompted Charlie to ask about the opportunity for independent developers to run apps on top of BBD.

BBD provides code level access to services. This should mean developing services that complement and flesh out what is currently a very broad offering will be relatively easy. Apotheker thinks SAP’s gravitational pull should entice developers to partner in order to gain access to the ecosystem. However, SAP won’t stop those same developers from plowing their own furrow. Crucially, there was no talk about an approvals process for developers who choose this route but SAP is bringing in partners via its PartnerEdge program.

I see an alternative scenario. As Charlie noted on his own blog in regard to eWeek’s quoting of Adam Gross, VP developer marketing at Salesforce.com:

I’m more interested in the new APIs than I am in the new tools. When you get the new APIs, that’s like Christmas morning. … This is where the next generation of new software companies is going to come from. Now it’s about what APIs are available out there on the network.

It’s because of this attitude that salesforce.com is the canonical mashup example in the enterprise world, much like Facebook is in the consumer world.

If SAP emulates SFdC’s ecosystem approach rather than hogging resources to itself, then it will build a lot of goodwill very quickly. It already plans to mine the SDN/BPX networks and given the right approach, this could give it a very fast on-ramp to industry customizations.

Once again, SAP gives us all pause for thought about a story that will run and run.

After a long day and intense series of discussions with SAP executives, the Enterprise Irregulars parsed immediate impressions of Business ByDesign. The general mood was one of quiet approval for a product set that is, as the company claims, a complete on-demand offering. Our generally positive view was however tempered with criticism. As a reminder, Jason Wood sets out the top level modules:

• Compliance Management
• Executive Management Support
• Financial Management
• Customer Relationship Management
• Supplier Relationship Management
• Project Management
• Supply Chain Management
• HR Management

Hidden from the end user view is a wealth of configurable options. On the day, SAP chose to show us a few of the CRM and HR related functions. They also showed the underlying process maps. Impressively complex was the first thought in my mind. I sat with James Governor and when the help screens came up we both mouthed: “What no Ajax?” On his blog James said (and I agree):

The UI represents a missed opportunity, in my opinion and shows how SAP’s Not Invented Here approach can cause problems for the firm. I kept wondering where is the real AJAXy goodness? Hitting F5 repeatedly is hardly the key to few clicks.

And what happens when you make a process change but forget to hit the refresh button? Doh. Afterwards I had a quick word with Bruce Richardson, AMR research analyst who has had the privilege of watching BBD development. He reckons the UI is in something like its sixth iteration. I think it has a few iterations to go.

The UI (and product name) has founder Hasso Plattner’s stamp all over it. Clean, simple and easy to follow all get good marks. But crushingly boring. No Web 2.0 pastel shades and large fonts here. That shouldn’t be a surprise as Plattner said to a group of us earlier in the year that simplicity is necessary for this type of application.

Charlie Wood, who knows Salesforce.com well thinks BBD will have a profound impact on other players in the on-demand market:

This could kick Salesforce.com where it really hurts. They’re going to look at this and realize they can’t compete on the depth of functionality SAP is showing us today. I’m glad SAP is giving the small developer an opportunity to build widgets and small pieces of functionality on top without necessarily being sucked into the SAP ecosystem. It gives people like me access to a huge potential audience.

Charlie also noted the stark difference in market styles. While SAP quietly detailed the different parts of it BBD strategy and rolled out customers to talk about their experience, Charlie reckons:

If Benioff [SFdC CEO] had something like this you can be assured it would be announced in tones that give the clear impression we’d be witnessing the Second Coming.

Jason Wood was heartened by SAP CEO Henning Kagermann’s view that in its current form, BBD is where R/3 was three years after initial launch:

The price point is compelling, it’s the most complete solution they’ve ever delivered but I’m just not sure how they’re going to preserve margin. The downside is that at these starting prices, if I’m thinking about All-in-One, I’ll have to consider whether BBD meets my needs. If enough customers do that then SAP runs the risk of cannibalizing a part of its business.

All of us are concerned about performance. Prashanth Rai summed it up when he said:

100 users on a single blade? That’s not exactly good use of resources and it was obvious during the demo. They really need to ramp up performance or otherwise they run the risk of not being able to optimize cost for the customer.

Earlier Zoli Erdos predicted that SAP would show us a game changer and nothing he saw changes his mind:

This morning my fellow Enterprise Irregulars jokingly asked: “Has the world of Enterprise Software really changed?’ We did not know the answer than, but now we do: Yes. SAP Business ByDesign is really a game changer. Key reasons:

• Breadth of functionality
• Fixed, Trasnparent pricing (which, I might add will put the squeeze on Salesforce.com and NetSuite)
• All this coming from SAP, the recognized leaders in automating business processes.

Brian Sommer and I are both skeptical about SAPs ability to create the right kind of channel for BBD. I’m saving that for a following post because the ramifications are deep and wide.

And with that, the Irregulars who were in attendance settled down to watch some soccer and parse the beer on tap at a Manhattan sports bar before heading to our respective homes.

During the launch of Business ByDesign, SAP said that it expects to achieve a run rate of adding 10,000 BBD customers a year by 2010. This raised questions about whether SAP will reach its previously stated target of 100,000 customers by 2010. I was concerned because it was always my understanding that BBD would be the engine for absolute unit number growth, even if that target seemed ambitious. With that in mind, I asked Leo Apotheker, SAP board member and head of sales to help clear up what I see as a confusing set of messages.

Apotheker claims that BusinessOne, it’s small business offering could achieve 15,000 customer deals a year and that it would be a mistake to assume that most growth would come from BBD. That’s a surprise because after several years in the market, SAP only has 15,000 B1 customers. If my reading of B1’s progress is vaguely accurate, it has stalled. Where might these sales come from? Irregular colleague Prashanth Rai believes SAP could sell B1 significant numbers in India.

India has many small but growing businesses that need something and SAP has product in the marketplace. Even though I’m not particularly impressed with BusinessOne, no-one else really has a comparable offering.

But the real shocker is that Apotheker now says the headline figure as ‘aspirational’ and ’symbolic.’ I asked fellow Irregular and fund manager Jason Wood for his take. He is confident:

These are not words you hear often in software but I’m not sure it really matters. If they reach say 65 or 70,000 by 2010 and ByDesign is achieving the run rate SAP claims the market will be happy. The big question in my mind is whether the BBD economics stack up, given this is a new model.

Despite the headline grabbing words, SAP cannot accurately predict demand two to three years out but in having offerings that span all market segments, it believes it can at least keep its investors happy. Notably, the most recent update on the company’s website states:

SAP already leads the world with IT solutions for this market. In 2005, some 30% of order entry was achieved with SMEs. The company’s aim is to grow that share to a range of 40% - 45% by 2010.

It is worth reminding ourselves from Jason’s earlier words:

SAP’s 300mm Euro bonus pool is tied to doubling the company’s market cap by 2010. Absent significant organic customer additions, this would require – GASP – an aggressive M&A policy which belies SAP’s history and stated plan of action.

If, as Apotheker implies, the company is no longer committed to an absolute number, what does it mean for the market as a whole? This is much more difficult to parse. On the one hand, Salesforce.com continues to impress, tracking at $1 billion in annual revenue and a bank of 35,300 customers accumulated over eight years. They’re within striking distance of SAP’s 43,000 customers, a number that has taken 35 years to achieve. On the other hand, no-one is sure just how successful SAP’s newly minted BBD will be. On this occasion we’re left with more questions than answers but it does mean that analysts will be keeping a close watch on whether SAP delivers.

Late yesterday, Henning Kagermann, CEO of SAP hosted Zoli Erdos, James Governor, Prashanth Rai, Charlie Wood, Jason Wood and myself for a pre-launch discussion about A1S. During the meeting, Kagermann emphasized the company’s cautious approach to the SaaS market. On the one hand, SAP is readying itself for a volume play, looking to ramp up to ‘thousands of customers.’ On on the other hand, he is not promising investors Web 2.0 style viral sales miracles.

Viewed from an investment analyst position, nothing could be worse. Wall Street will hate the company for taking a less than all out aggressive approach. In contrast to the usual fanfare and razzamatazz accompanying software launches, Kagermann takes a measured and thoughtful stance. He knows that much of SAP’s future rides on A1S. Yet with just 20 customers actively working with A1S, a total of some 45 customers in test mode and several hundred in the pipeline, A1S is a step into the unknown.

Industry pundits are looking at A1S to bring significant TCO gains. As Vinnie Mirchanani has said:

Clearly, I am interested in how this will change SAP TCO at its customers. As I have written before SaaS economics are almost 1/10th of on premise TCO. Can SAP come close?

“Volume readiness is one thing - you can be ready for the market. But business volume readiness is another thing. If we are only getting 3x TCO reduction then we have a problem with the market,”says Kagermann as he targets Vinnie’s 10x reduction as part of SAP’s long term strategy. Commenting on early customer experience, he adds: “TCO is significantly lower but it is not where I want it to be - yet.”

SAP is hoping to quickly ramp up to tens of thousands of customers but Kagermann realises that it is not a done deal. The key comes in the way SAP partners in its go to market strategy. My sense is that SAP has yet to establish a firm base of business partners that understands the company’s logic. Talking about the existing community of consulting partners, he says: “They need to understand that the consulting opportunities are very different. It won’t be a case of surviving on four or five big customers a year but a much higher volume,” says Kagermann. Consultants will in part be drawn from the existing BusinessOne group. I feel SAP will have to rapidly identify partners who are more used to selling than providing custom services.

Embedded services like inbuilt training, e-learning and automated diagnostic data collection during usage will chop out cost bringing the ongoing SAP consulting gravy train to a grinding halt. While Kagermann appears confident that he can bring consulting friends on board, I’m not convinced the company has yet fully identified the kinds of partner it needs. Coming from an SMB background, I don’t think it is that hard but during the conversation I felt Kagermann was making it intellectually harder than necessary.

One of the ways SAP plans to address complexity is by getting as close to 100% process completeness as possible. On a narrow set of (as yet not fully described) verticals, Kagermann seems determined the company will not be dragged down the bespoke road which has been the starting point for much past criticism. There are many ways it can do this over time. Kagermann said the company will mine the existing 800,000 SDN developer network and 120,000 business process experts as sources of expertise from which it can flesh out A1S vertical market solutions. This is entirely sensible.

Earlier in the year, Hasso Plattner, one of the company’s founders said the company made an early mistake by allowing customers access to the code. This lead to code proliferation and the creation of one off processes over which the company had little control but which it has had to support ever since. Expressions like ‘never again’ and ‘over my dead body’ are the ways in which SAP executives have described their forward looking approach to customization. Instead, Kagermann adds: “We’ll provide rich configurations and extensions as and when customers are ready. But not customizations.”

Another way SAP will reduce cost is through use of low cost components. Here the database is a key target and Kagermann made plain it won’t be Oracle to whom SAP forks over in excess of $1 billion a year. Similarly, in its so-called mega-tenant (as opposed to multi-tenant’) architecture, SAP will have to drive down hardware cost. In the post meeting discussion, James Governor suggested that:

For SAP to scale up the way it says, it might want to take a leaf out of Google’ s playbook. Who knows, it might end up as a major server manufacturer in its own right?

A tantalizing, if speculative prospect given SAP’s existing partnerships with players like Sun and HP.

The biggest hurdle SAP faces is in managing a changing culture. Kagermann is clear for example that the German worker’s council is four square behind the new business model. “There is no question they understand what needs to be done and are fully supportive of what we’re saying.” I hope he’s right. In the past, the council has hindered progress like the adoption of Harmony, SAP’s internal social networking style collaboration tool.

When asked about the potential for SAP to partner up with Web 2.0 wunderkinds like Google, Kagermann says: “Too many people think everyone will be bottom up Web 2.0 but we still need order from the top. No-one has really addressed service integration. We have to. Transformation is something we’ll all have to deal with but we will need to prove that we’re capable of elevating what that means in software to a higher level.”

Regardless of SAP’s past image, today’s launch is an important day in understanding the company’s future. Does that make SAP a safe bet? Zoli says:

My bet is on SAP: they may stumble a number of times, which will effect their quarterly numbers - but in the end, I believe they will succeed. They will become the dominant SaaS player in the mid-market, forcing smaller players like NetSuite down-market. In the next 2-3 years while SAP flexes their On-demand muscles, we’ll see just how pervasive SaaS proves in the large corporate market, and that will determine whether A1S remains a midmarket solution or becomes the foundation of SAP’s forey into that market - their natural home base.

Kagermann’s measured approach is exactly the right position to take and one that investors will appreciate further down the road. Who knows, in time we may look back and say that in making the slow hand play, Kagermann parallels Eric Clapton’s maturing musical path? As a progressive rock fan, I suspect this comparison will bring a wry smile to Kagermann’s face.

More to follow as we meet with other SAPpers and early customers later in the day.

Update: Photo added, courtesy of Prashanth Rai. The Irregulars with Henning Kagermann.

Sage, the UK’s largest independent software vendor has become the subject of takeover speculation. Last week, rumors were swirling that Sage was being courted by Infosys. Earlier today, Yvette Essen in the Telegraph repeated the speculation, throwing the unlikely spectre of Oracle into the mix. Nick Clark at The Independent meanwhile threw Cap Gemini’s name into the ring.

Earlier in the month, UBS issued a positive note on Sage having trawled through the Emdeon customer base:

It has surveyed customers of Sage’s Emdeon US medical software division and believes that concerns about falling demand from medical practices and possible glitches in the software are overdone. However, it said that it had uncovered evidence that the group, whose core business is accounting software for small firms, had made only mediocre efforts to market its medical software.

When Sage acquired Emdeon, I felt they’d paid a hefty premium and earlier in the year it became obvious this division really was not performing at all well. In July, Andy Corbin who ran the unit was fired and at the time I said:

It would now seem that Mr Corbin wasn’t up to snuff as far as Sage is concerned and has paid the price. It will be interesting to see what happens over the next few months.

Interesting indeed.

Sage has been the subject of takeover rumors in the past with Microsoft said to be the front runner. On this occasion, the contenders are an odd bunch. I can’t see Oracle going near this one because there’s no technology fit. This doesn’t sound like the kind of thing that Infosys would do although stranger things have happened. That just leaves Cap Gemini. Given their recent partnering with Google, it could make sense for them to morph towards a full blown development outfit.

The last rumor is that Sage might be taken private. This only makes sense if Sage was seriously thinking about the saas space and had figured that it needed to shovel a lot of money into R&D. Historically, Sage has put minimal resources into research, concentrating instead on backfilling and maintaining its 50+ code bases.

Whether this is of wishful thinking in a stock market currently in the doldrums or whether it is real remains to be seen. Sage isn’t acting like a company in acquisition talks. Only last week, Sage acquired European treasury management vendor XRT. My sources would not comment (naturally) but they also seemed surprised at such talk. In the meantime the company is working on new initiatives that will take it into the social media world. This will be its second attempt.

As Salesforce rebrands Apex and consolidates a bunch of other stuff to Force.com, SAP is gearing up for its A1S global launch here in New York tomorrow. A1S is SAPs much anticipated saas offering for ERP applications. There are a number of key questions. At present, price is exercising the minds of my Irregular colleagues.

In setting Force.com licensing cost at $25 per month, Salesforce.com is throwing down a gauntlet to other enterprise players. As Phil Wainewright says:

By making the platform available at such a low monthly price it can reach a mass market across every seat in an enterprise and achieve penetration that wouldn’t have been possible at earlier price points. Japan Post, the company’s first significant platform deal with 45,000 seats, shows the kind of potential that opens up.

In reviewing SAPs SMB play, Mike Krigsman discusses the evolution of SAPs efforts to drive down the cost of complexity:

Despite efforts to become small-friendly, SAP has been unable to shake its reputation for being big, rigid and difficult to deploy.

By implication, Mike’s observations add up to one thing: Big Ticket. Whatever SAP decides, it will have to address some difficult issues. The A1S tale to date is one of simplicity and configuration rather than complexity and customization. Vinnie Mirchandani sets up events here well when he posits:

I suspect my EI colleagues may get a glimpse on how A1S will better control TCO around core SAP modules. But there is so much more that makes up SAP TCO. And even around A1S, not really sure what SAP is ready to discuss.

But there’s a much bigger set of questions. With Salesforce having drawn CODA into the development ring, for financial applications, how long will it be before SFdC is able to position a broad range of both general and vertical market offerings at competitive prices? What impact might this have on market economics in the ‘M’ part of the SMB market? What impact will this have on SAPs other lines of business and the TCO that larger enterprises have to bear?

Over the course of the next 36 hours we may get some answers.

Right about now, Jeremy Roche, CODA’s CEO should be standing up explaining to the Dreamforce crowd why he’s betting the next stage of his company’s development on Salesforce.com’s not-quite-finished Apex platform. CODA is slated to become SFdC’s preferred partner financial engine that complements its CRM presence.

CODA has been around since 1979 and makes one of the best financial transaction processing engines on the planet. It’s unified database design means that unlike others, it has never been plagued with developmental and upgrade complexity. It scales extremely well and is capable of handling complex business structures. However, it plays in a tough part of the general ERP market, where its relative minnow size means it has struggled to get on the mega-enterprise agenda, despite counting Caterpillar and Avis Europe among its marquee customers. Given these market factors, partnering with SFdC makes a lot of sense but represents a significant risk.

This is the first time CODA has created a product from scratch since 1992 and it will be using the as yet largely untested SFdC Apex platform. Josh Greenbaum thinks Apex is less than optimal but regardless of Josh’s opinion, CODA and SFdC are no strangers as CODA has already developed an integration between the two products. Greenfield development is different but having prior experience should smooth the path.

According to Dave Turner, CODA’s group marketing director, the company is planning to roll out business processes in similar fashion to Workday, with an order-to-cash module available sometime around Q2, 2008. The next step will be to flesh out core financials followed by procure-to-pay. Direction on analytics is unclear though Turner said CODA expects to take advantage of SFdC’s existing analytics capabilities. Given the company is developing directly for SFdC style CRM integration, that’s a no brainer.

Like SAP, CODA is in the process of building out a complete business unit to address the market. Unlike SAP which has said its sweet spot is the 50-user business, CODA will address the 25 and up user segment. CODA is happy to accommodate a surround strategy for its larger customers but in the initial stages this will only be for UK/US customers. The typical CODA target customer will be one that is international, has process complexity and is in a services industry.

CODA seems confident that picking up the Apex toolset is not going to be a stretch and it is already in development mode. Time to market looks aggressive but again, the company sounds confident.

I foresee a LOT of challenges. While development is one thing, getting a new service accepted into the market is another. CODA has experience of the SMB market with its Dream product though to be frank, it’s not seen much visibility. Creating a business model that revolves around existing customers is a natural move, provided those customers don’t drive the company into early development for outlying territories.

There are a number of win-wins.

• Having SFdCs street cred behind it makes a difference for the US market in which CODA must succeed.
• It saves Marc Benioff, SFdCs CEO the embarrassment of explaining why talk about the Apex platform has been muted.
• It makes SFdC look like it’s on the road to having a credible ERP style platform even though it will be riffed as a best of breed play, while at the same time leaving the development risk in CODAs hands.

This will be disruptive for the UK mid-market which has a different demographic to that in the US. None of the UK’s established players has a recognizably declared saas strategy, unless you count Microsoft’s software-and-services play. There is a perceptible change in attitudes towards this model. A year ago nobody cared, today everyone I speak with is at least in ‘information gathering’ mode. It will certainly give Sage something to think about as it is already under attack from Microsoft on its home turf.

Despite the halo effect this move bestows on CODA, it is not alone in the UK market. Twinfield has established a UK presence. Twinfield’s Microsoft-centric approach could represent a significant challenge for those who like the idea of saas but want to play safe on the technology front. Netsuite is also there though it barely registers on my radar. By the time CODA is ready to hit the street, SAP’s A1S should be making its presence felt.

If I didn’t know better, I’d say we’re experiencing a period of deja vue with an expanded vendor presence and everything to play for.

Just as Salesforce.com girds itself for Dreamforce, the Enterprise Irregulars - or rather Jeff Nolan - posed the question: “Is Appexchange a bust?” 116 messages later including a belated showing by our resident SFdC’er John Taschek and the conclusion is…probably. Here’s how the conversation started:

I’m not being sarcastic but I can’t think of a better way to phrase this question. Appexchange came out of the gate with a lot of fanfare and enthusiasm for the possibility of a low cost sales channel for ISV’s to take advantage of, yet the capabilities have been inched forward and Salesforce.com has revealed itself to be just another enterprise software company with complex pricing for customers and partners alike.
What’s the consensus on Appexchange? Am I missing something I should be seeing as a positive development?

It’s important to understand the Irregulars is made up of people from many backgrounds and include those employed by SAP, Oracle, Salesforce.com, Satyam, Yahoo! and Atlassian, independent spend management consultants alongside ex- and current analysts from the likes of Gartner and Redmonk. Five ZDNet’ers are part of the team. It’s natural that our conversations stir up partisan opinion. Charles Zedlewski was first up with:

Relative to the overinflated expectations that Marc [Benioff, SFdC’s CEO] set for Appexchange (a “platform,” a “marketplace”), it’s a flop. You can look at the list of the top 10 selling app exchange apps and an even higher percentage than last year are Salesforce built add-ons.

Trying to parse success for Appexchange is difficult because SFdC doesn’t reveal much useful information on the topic. This has not gone un-noticed by the likes of Gareth at Where’s the Upside? In a post entitled Questioning authority, he said of the latest earnings call:

Question by: Laura Lederman - William Blair

…… Finally, can you give us a quick update on monetizing the AppExchange, in terms of new thoughts or ideas of how to do that, and how the partners are reacting?

What do you think she meant? My guess is that she thinks no-one is making real money from the AppExchange and it’s not a source of revenue for SFDC, and may never be. My views are well known on this, but it’s a public commitment bind - it’s all been announced as a money spinner, and it’s not yet.

MB:

Finally, on AppExchange, we’re very excited about the progress of AppExchange over the last several years. Of course, the technology in the last release got really significantly enhanced with the addition of Apex, which allows customers and ISVs to run code on our servers. You’re going to see us make more exciting announcements coming up at Dreamforce, so I will encourage you to come to that event.

Not really an answer - just stand by for the AppStore announcement. I doubt that will fix the issue - because there is not an issue, the issue is trying to squeeze money out of an industry that’s not yet making money!

Phil Wainewright disagreed saying:

I do see small vendors being successful (in their terms) via AppExchange - in that sense it fulfils the promise of being a low-cost sales channel. But these are mosquito bite sized. An example quoted to me was an application that took 30 man days to create and will break even after selling 1000 seats for a year. And the addressable market is Salesforce.com’s customer base - not a huge universe by any stretch of the imagination. Add to that the fact that few of these partners understand how to market to the AppExchange customer base and you can understand why it’s not showing up as a big revenue generator just yet.

Whether it will ever live up to “the overinflated expectations that Marc set for Appexchange” - well what did you expect?

A year ago, people I speak with in the SMB market considered SFdC as a potential moneypit but in recent times I’ve seen a sea change in attitude. Those same SMBs now believe they can derive value from add-in services found on Appexchange and are willing to make the investments. But that still doesn’t answer the central question. At which point we took an extended detour debating the SFdC hype machine. Josh Greenbaum growled at Benioff’s hype while others reflected upon the value SFdC has delivered compared to other enterprise application vendors. Vinnie Mirchandani for instance said:

One man being bombastic versus promises of hundreds of sales people and demonstrated poor payback of incumbents. I know where I stand. Marc has cost his customers a little over $ 1 billion in the last few years. MISO [Microsoft, IBM, SAP, Oracle] at same time has cost at least $ 200 billion and 2×3 in partner costs. I am willing to tolerate Marc

We eventually got back on track but it took some coaxing to get John Taschek meaningfully engaged in the conversation at which point Jeff Nolan challenged John:

Why not take the lead in transparency on platform metrics and put up a dashboard with stats… real stats generated by the system, not generated by marketing.
- number of appexchange apps in the network
- number of subscribers of appx services
- time spent in apps
- number of developers
Sunshine is the best disinfectant, if the issue is one of “well sfdc said this so take it with a grain of salt” then put out the raw data for everyone to see.

We’re still waiting for an answer and I for one am not holding my breath. Where does this leave us?

I checked the Appexchange and the number 3 ranked service comes from VerticalResponse. According to its website it has 1,400 SFdC users. Compare that to SFdC’s 35,300 customers, 625+ applications and how many users? It’s hard to conclude the number 3 (after two SFdC freebies) represents more than a fleabite in the overall SFdC universe. I reckon the numbers fall off rapidly after that in the long tail of apps 4>625. My guess is that SFdC is doing a poor job of managing this environment but then it is easy to be wowed by headline numbers.

Dreamforce attendees need not worry. I reckon Chris Selland, who is a CRM specialist got it right when he said:

Maybe I’m wrong - and maybe I’m cynical (probably both) but I suspect Marc will throw a really nice party and the majority of the media will lap up whatever he’s selling ‘next time’. Just not Josh

Chris - nor a number of others we both know. The next few days should be ‘interesting.’

The blogs are full of praise for soon to be minted Forrester analyst Jeremiah Owyang’s thought piece about applying social computing to product lifecycle management. While I like the generality of Jeremiah’s argument, I’m nervous about applying the ideas in a number of markets. At least for now.

Jeremiah proposes that social computing should be injected into every stage of a product’s life from introduction through to retirement as part of the overall marketing effort. On first pass he makes a strong and cogent case designed to maximize value. But let’s also be realistic. Product lifecycles frequently stretch over many years. We don’t have the experience to know whether Jeremiah’s crystal ball gazing will work. A few specifics indicate the challenges ahead:

I’m being a tad tongue in cheek and am looking at this from the design point forward. This is something about which Jeremiah seems fuzzy. A contemporary example illustrates my point. Does Jeremiah think that Steve Jobs gives a damn about crowdsourced design? Apple still manages to wow the crowd without doing many of the things that Jeremiah recommends. Would I swap Apple’s creativity for Jeremiah’s crowdsourcing? Never. What other company could induce its followers to put photos of unpacking an iPod touch over the Internet?

There are many industries where regulation will prevent the kind of dialog that Jeremiah proposes. Pharmaceuticals is the classic example where FDA rules work against his ideas. Even so, there is no reason why social media cannot be inserted into some of the testing processes as part of a drive towards improved efficiency.

Professional service industries have been engaged with what we now call social computing for years. For example Manpower’s Virtual Account Management system has been running since 1999, doing many of the things Jeremiah suggests. In that sense there is nothing new here.

While I think Jeremiah is onto something, there are crucial questions that need answering. At the very highest level, this type of activity is bound to have strategic consequences and companies will need to be comfortable with the ideas suggested. Jeremiah acknowledges this:

Deploying this strategy without grasping the foundations of social media, the cultural changes it implies or testing trial programs will likely lead to failure.

As Susan Scrupski is finding out, large enterprises are some distance from that tipping point:

As I learn more about large organizations, I feel like each CIO I meet transmogrifies into Dr. Phil and says, “Get real, dude. We run a serious company here. We’re not going to put our assets at risk by exposing them to anything beyond our complete control.

From that same CIO perspective, I want to know how these processes get baked into existing systems. To date, I’ve seen almost no attempt at integrating social computing/media projects into the systems upon which industry depends. That should not be a surprise but it cannot be ignored. I can for example make a case for loosely coupled and ad hoc processes that fit fellow Irregular Rod Boothby’s IT Flower model for adding value into processes like PLM but in the real world that has yet to be seen working.

Finally, if Jeremiah’s vision is to become reality then you can bet the sun rising tomorrow that IT will be all over this. So far, I’ve seen nothing that indicates how any of this will be successfully managed. Marketing and IT are not the best of bedfellows and all the talk of skirting around IT will not wash in large enterprises.