Google Enterprise: The Berkeley Analysis
Let me cut to the finish line. The University of California at Berkeley, one of America’s leading academic institutions, selected Gmail and Google calendar over Microsoft’s systems. The reasons behind the decision were time and money.
In a decision matrix, published at http://technology.berkeley.edu/productivity-suite/google/ matrix.html, the “Email / Calendar Solution: Assessment Matrix” provided what the university procurement team believed was the rationale for their decision. The matrix has five columns, three score rows, and more than 4,300 words to explain that lower prices work wonders in closing deals.
Google and Microsoft seem to be taking off their Captain Kangaroo masks, revealing the scowling countenances of street hardened sales professionals. The focus on time and money strips away the marketing veneer and reveals what is important to customers in today’s uncertain financial environment. Wired Magazine reported that Berkeley’s decision will be re-evaluated. Shelton Waggener, the UC Berkeley chief information office is quoted as saying, “These aren’t permanent decisions anymore.” (See Berkeley Explains Why Google Trumps Microsoft” at http:// www.wired.com/wiredenterprise/2011/12/berkeley-google-docs-microsoft/)
To the time and money factor, the client adds explicit fuzziness about the commitment to Google’s solution. When I read Waggener’s statement, I concluded that Microsoft will have an opportunity to win the account if it comes in with a better deal. Perhaps Amazon will introduce an application which will allow an organization to send a price quote to Jeff Bezos, who will personally offer a better deal and an even more aggressive discount. I know that Amazon is not “officially” an enterprise player like Google and Microsoft, but with a single acquisition of a company like NetSuite or Zoho, Amazon could further disrupt the enterprise software market in the United States and possibly elsewhere.
What is quite clear is that WalMart-style discounting has arrived. With overt price cutting and promises of quicker deployment and reduced dependence on in-house information technology staff, the era of discount enterprise solutions is likely to persist. Among the drawbacks to Microsoft’s approach, according to Electronista (http://www.electronista.com/articles/11/12/24/ uc.berkeley.says.gmail.faster.more.flexible/) are reminders that organizations—even technically sophisticated outfits like Berkeley—are looking for ways to step away from the costs associated with installing, maintaining, upgrading, and tuning on-premises solutions.
According to Electronista, Microsoft's system, by contrast, would have needed a much larger reworking of the university's infrastructure. It also wouldn't have supported multiple mail accounts, UC Berkeley said. There was also no home-friendly equivalent to Office 365, which is primarily intended for enterprise users. Microsoft's primary advantages were in calendars, where those with very deep calendars would have an edge, and in security. Even then, however, Microsoft's advantages were generally smaller than expected. Either service could sync with mobile devices, although Google's services understandably have stronger Android support in addition to iPhones and Windows Phone. Microsoft doesn’t yet support its syncing with the BlackBerry.
The litany of issues does little to shift the focus from the perceived cost savings associated with “going Google.”
At the outset of 2012, the cost of enterprise solutions is likely to become an issue with an increasing profile. According to ZDNet, the focus on cost was part of the university’s “Operation Excellence.” In “UC Berkeley’s Email System: Microsoft to Google” (http://www.zdnet.com/blog/ igeneration/uc-berkeleys-email-system-microsoft-to-google/14018) we learn that “excellence” really means cutting $75 million annually from the school’s budget. The Orwellian doublespeak does little to disguise the fact that the era of cutting prices to make sales has begun. In the run up to the holidays in the US, discounts began after Halloween and continued through Thanksgiving’s Black Friday and Black Monday to the all-out price slashing that began on December 26, 2011, (Mega Monday) and continued though the New Year’s break. Vendors of enterprise software once studied pricing at Wharton and Harvard. Now pricing guidelines will come from Big Lots, Costco, Dollar General, and similar companies.
One interesting question is, “How will traditional vendors of enterprise software be affected by Google’s use of price as a way to close deals?” Based on conversations I have had with executives at several large enterprise software vendors, my answer to the question is, “With uncertainty.”
Consider Hewlett Packard. The company has made headlines for the last year. The abrupt changes in strategy and product direction make clear that the company is drifting. The firm paid more than $10 billion for the Autonomy plc property, a vendor of enterprise search and content-related solutions. Autonomy’s products and services are the antithesis of the Google approach which focuses on low cost and quick deployment. In fact, HP may have been attracted to Autonomy because HP saw an opportunity to upsell Autonomy’s customers and expand the for-fee services offered to Autonomy licensees.
Consulting and engineering services are often considered high-margin businesses. In the pre-crash economy, a firm like Bain, McKinsey, or IBM could count on customers paying for experts who could solve thorny technical problems. HP’s EDS unit may be the springboard HP needs to vault to higher revenues. The company has to execute at the same time it rebuilds its cash reserves, satisfies stakeholders, and navigates the choppy financial waters.
Oracle’s most recent financial reports issued in December 2011 disappointed some on Wall Street. Like HP, Oracle has captured headlines. The hiring of a high profile Hewlett Packard executive was a minor kerfuffle. And Oracle has its own demons to subdue, including the open source challenge mounted by non-relational database technology. Oracle was able to purchase MySQL and, to some degree, find a way to prevent that technology from doing further damage to Oracle’s database business. However, Oracle was unable to find a solution to the Hadoop, MapReduce, and non-relational analytics technologies. Oracle’s purchases of Endeca (search and eCommerce), InQuira (natural language processing and customer support), and RightNow (cloud solutions and customer support) provide opportunities for Oracle. I expect Oracle’s sales professionals to pitch hardware to improve performance of the Endeca and InQuira systems, consulting services to these acquisitors’ existing clients, and traditional Oracle database technology to anyone who will agree to a briefing. Now, large enterprises are embracing solutions from companies ranging from Cloudera to Mongo to open source search and business analytics. Oracle’s pricing and its consulting business appear to be under margin pressure. In 2012, Oracle must find a way to generate new revenue and prevent further erosion of its core database business. Oracle may be unable to use price cutting as a broad-brush solution to competitive pressure.
SAP represents an interesting case. The company has struggled and in 2011 was able to tread water, reporting modest growth. Through the first three quarters of 2011, SAP reported growth in revenue and profit. The company rolled out its HANA technology that increased the performance of certain SAP business analytics processes. SAP is changing licensing terms for its enterprise resource planning solution and riding the wave of interest in Business Objects applications. SAP even has some Autonomy-grade text processing technology in the Business Objects’ Inxight software unit. SAP has made cooing sounds to the open source community, been a cheerleader for cloud computing, and upped the bling in its marketing and public relations. Despite these efforts, SAP is not set up to compete on price.
The bottom line is that in these three case examples, none of the firms is able to go head-to-head with Google or any other credible vendor who finesses technical issues and responds with a “too good to be true” price quote. In short, price may become the Kalashnikov AK-100 series in the enterprise procurement battles in 2012.
Let’s set aside Google for a moment. I want to consider a hypothetical action in the enterprise solutions market. Amazon has demonstrated that it can compete reasonably well with Apple and Google in the consumer market. Could Amazon enter the enterprise market and put the same type of pricing pressure on enterprise vendors that it has on book publishers, traditional retailers, and specific targets such as Apple?
Amazon is a clever company. For many years, it chugged along pushing its retail image with its other interests kept out of center stage. The company is no weak sister. In the all-important end-of-year shopping period, Amazon introduced a mobile app that allows a user to scan the bar code of a product while at a brick-and-mortar store. Once the information is received at Amazon, the shopper can order the product at the Amazon price and receive a five percent discount. The app performed its scorched earth magic for a limited period of time after traditional retailers and political honchos expressed outrage at the Amazon’s attack on brick-and-mortar retailers. Beneath that Mr. Nice Guy image, Amazon has the same instincts that motivate some private equity firms.
My view is that Amazon already is in the enterprise solutions business. The number of companies availing themselves of AWS or Amazon Web Services for storage, cloud based processing of “big data” for business analytics applications, and enterprise purchasing nominates Amazon as a player in the enterprise market. With one or two key acquisitions, Amazon could emerge as a company able to compete with Google on price and arguably offer a more secure, stable solution that Messrs. Page and Brin provide.
To explore this idea in our hypothetical case, what happens if Amazon purchases two firms which offer services roughly equivalent to those available from Zoho (word processing, presentation, email) and NetSuite (contact management, collaboration, calendar)? After an obligatory, “nothing will change” period of six months, Amazon would integrate these services into a comprehensive cloud solution. One can argue that Amazon’s technical infrastructure is not as good as Google’s or Microsoft’s, but I would not be too quick to malign the Amazon approach. Amazon has certainly demonstrated that it can deliver “good enough” solutions at highly competitive prices. Amazon has also been able to build out from its core retail business with both services and hardware. I find the Kindle Fire interesting because it delivers Amazon rich media more effectively than it does almost any other function. Amazon has a large number of side ventures, subsidiaries, stakes in promising companies, and innovation centers which are largely underreported. I was surprised that some industry experts were surprised to learn that Mr. Bezos owns a space exploration company and operates a standalone search and retrieval company, A9.
If Amazon does move aggressively into the enterprise sector, I anticipate three possible actions. First, Google will have to respond to Amazon. This would open another war fighting front for Google. The company has 55,000 brilliant people but even with that pool of intellectual capability, fighting too many opponents on different conceptual spaces is likely to weaken Google, not strengthen it.
Second, organizations already comfortable with Amazon shopping or Web services will be interested in other Amazon products and services. Amazon already has a significant brand footprint, so line extension at an attractive price is going to work just as the Kindle Fire did. The Fire may not kill the iPad, but it certainly will generate revenue, sell through, and opportunities for Amazon. Third, the traditional enterprise solutions vendors will have another price headache with which to cope. If Amazon jumps into the enterprise sector, the pressure on the Hewlett Packards, the Oracles, and the SAPs is likely to increase.
The solution? My view is that one of the giants will just buy Amazon. Failing that, Amazon, not Google, could become the central disruptive force in enterprise solutions in 2012. And if not 2012, maybe 2013 becomes the year in which the traditional enterprise applications approach implodes.
I once described Google as “Googzilla.” Now I have to come up with a way to characterize Amazon. How do Google-zon or Micro-zon sound? What about IB-amazon? A year from now one of these firms may wish it had paid more attention to the bookseller in Seattle.
Stephen E Arnold, December 29, 2011
Mr. Arnold is a consultant. More information about his practice is available at www.arnoldit.com and in his Web log at www.arnoldit.com/wordpress. His most recent monograph is The New Landscape of Search, which is available from www.pandia.com.