Don’t Fall for the Myth of Integrated ERP Procurement

The diminishing role in business is going forward of ERP. Aivars Lode avantce

Don’t Fall for the Myth of Integrated ERP Procurement

PIERRE MITCHELL - April 15, 2014 2:34 AM

I can’t tell you how many times I’ve been on calls with procurement organizations who are frustrated with their IT departments that mandate the selection and use of an ERP vendor.

Actually, I can. Literally hundreds.

Back in 1999, when I started doing inquiry calls with procurement and IT departments while at AMR Research (now Gartner), these discussions were fairly straightforward. They centered on trading off the value of integration and stability of an ERP vendor (and its product) and the functionality/agility of a best-of-breed vendor.

At that time, I made a distinction between the ERP vendor and the ERP product to help parse out the two issues of vendor stability and product integration, respectively. I did this to “unpack” those issues so as to help these groups assess and hedge the respective risks. Still, in procurement at least (as CRM was a different matter), the benefit of selecting an ERP vendor was synonymous with selecting an integrated application suite.

A Brief History Lesson

I’ll ignore the SAP / Commerce One saga in this story. That was driven by SAP hedging its bets to buy its way into the eMarketplace craze, and not by buying BuySite for its massive functional depth. Interestingly, just over a decade later, a more sophisticated incarnation of MarketSite might have been more interesting as a form of a procurement PaaS (Platform as a Service) that could be used to build a public cloud business network like the Ariba Network or a private/hybrid cloud private network. We wrote about this in our piece here.

Anyway, let’s get back to the story. As cloud-based applications began taking off and SAP and Oracle (the Big 2 ERP providers) had to respond not just to best-of-breed vendors (which was fairly easy to do with a playbook of learn, freeze, promise, delay, etc.), but also new cloud ERP vendors (such as NetSuite and Workday) that were entering at the mid-market and working their way upward. SAP went for the home run going down market with SAP Business ByDesign, but struck out. Interestingly, I once heard a rumor that the maker of ByDesign was also involved in SRM – wouldn’t that be ironic.

In contrast, Oracle has been trying to hit singles with Oracle Fusion, but the game is still all-too-early for them.

More important, the quest for growth to feed the beast of Wall Street led to the land grab of acquisitions over the last five to 10 years. Acquisitions in infrastructure that could be loosely coupled and introduced incrementally were generally fine (e.g., Business Objects by SAP, Endeca by Oracle, etc.). But when you make your way into the cloud by acquiring big best-of-breed applications, then things change. The promise of integration can no longer be bestowed on the vendor, but only on the product suite.

Back to Waldorf

The story must therefore turn to SAP. In procurement, Oracle can (for now) stay with its ERP roots and try to slowly transition its on-premise oriented ERP suite to a cloud-based suite. Of course, if it bought a supply chain information network provider like E2open or others, then it’d be a very different story (something to return to in future posts).

For SAP, what is ironic is that it was best known for slowly expanding “The Borg” of its integrated application suite that was German-engineered to work together. But, that changed when it bought Success Factors and Ariba (and one can argue Frictionless Commerce too). For SAP, as the Ariba “application suite” (let’s ignore the Ariba Network for now – and ignore what’s under the hood within the Ariba product) becomes another set of products on the price sheet, IT groups can still be hopeful that the promise of integration can be fulfilled within Ariba (in the cloud) and SAP on-premise (to a lesser extent).

This is why I used to call the Ariba suite the “mini-ERP” of spend management. They obviously didn’t like that term, but used the ERP integration story to sell against narrower niche competitors. This is why you see more best-of-breed suites out there again like Coupa, Zycus, Ivalua, b-pack, and many others.

Of course, for those who want Ariba on-premise, you are dead to SAP. And if you want SAP legacy applications (SRM, SNC, etc.), then you best contact your friendly neighborhood mega-BPO firm to help you out. We discussed this almost entirely forced march of your application suite based on your preference for technical deployment here.

The bottom line of this post is that practitioners, in my opinion, can no longer reasonably honor the promise of cross-product integration that “runs on the PowerPoint platform” to get manifested into actual product at a cadence near what procurement executives should expect (especially given the poor track record of delivering products even close to original promise dates).

The days of “pick IBM because it’s safe and all works together” are over. IBM is a different story though in terms of scope (i.e., much broader than just software), but it’s also the same fundamental story. In fact, just within SAP’s existing procurement line of business applications, there is a shocking level of fragmentation under the hood not only in terms of fragile process integration, but also master data fragmentation (e.g., having to transfer data from different lookup tables between different supplier master files).

Now, add in the complexity of the Ariba Network (which is slowly morphing to become the true Borg in terms of adding business trading partner business logic and external content driven logic) and the announced acquisition of Fieldglass (analysis here), and perhaps even a supply chain acquisition down the road, and suddenly, things are looking a little dicey. The great battleship starts looking like a flotilla of ships trying to avoid crashing into each other.

History Repeats Itself

I remember back to when Oracle embarked on integrating its Oracle CPG product to Manugistics and the admission that there were nearly 1,000 separate points of integration. Now, add in the fact that there is completely new infrastructure coming onto the scene with SAP HANA (not just the HANA database, but also a “cloudy” application development and integration infrastructure) that will be making its way into the Ariba Network and future application products, and let’s just say that some non-trivial orchestration will need to occur.

So, it’s complex, but you might ask: what’s the big deal?

The big deal is that the ones who will end up footing the bill for tying this stuff together will not be SAP. They’re doing quite well in procurement, thank you very much (and tech providers are very good at having customers pay to fund their functionality specifically). It’s not a bad short-term strategy, and frankly, it’s the only strategy that can be made if they want to keep growing the top line in the short term as a public company.

Ariba within SAP is doing great financially, although organizationally there are some kinks to work out. As one of my clients told me based on their experiences from Ariba Live, “It’s like two arrogant people getting married – you wonder how well it’s really going to work out.”

Hey, don’t shoot the messenger, I didn’t say it!

With the vendor viability issue off the table (and it has never been an issue with me personally), Ariba now has an SAP channel to sell its stuff. And let’s just say that the SAP sales force is highly self-motivated to sell cloud-based procurement solutions versus on-premise solutions.

And it won’t be the big consulting firms footing the bill to tie all this stuff together either. Au contraire, they are loving all of these acquisitions that need to be implemented and integrated (note to self: invest in a consulting firm index fund if one exists).

Making the Procurement Organization Pay

Ultimately, it will be the buyers (and sellers of course if it’s going through the network – which it basically is designed to do) who will need to pay for the acquire-and-integrate approach. Eventually, such large-scale acquisitions start to catch up with a vendor in terms of the ability to deliver new functionality (which wasn’t exactly speedy to start with).

You’ll end up getting cast as a vendor in The ERP Graveyard, which is a hilarious site from an open source ERP vendor named xTuple. I need to do a version of this for the procurement vendors. As my old professor Dick Greene (by far the smartest and craziest human I’ve ever met) once said “Use the things that are dead in your life as fertilizer for something good.”

Just as a procurement organization can’t save its way to zero, a procurement technology provider can’t acquire its way to integrated solution excellence. You can become a great “mutual fund” (i.e., holding company), but technology buyers don’t want a mutual fund; they want an integrated product company. And if they placidly accept the answer of “trust me – I’m an integrated ERP vendor and running in the cloud,” then they deserve what they get. The sunk cost fallacy has no room in IT and “Winner Take All” has no room in procurement. Rather, they need to practice good demand management and supplier engagement for their own technology needs.

Any procurement person knows that when you have a supplier with high supplier power, you need to improve your “availability of substitutes” and lower your switching costs. Unfortunately, in the case of SAP, its entire cloud strategy is designed to do the exact opposite.

It’s designed to make the cloud-based, subscription-based commercial relationship “sticky.” When the “application becomes the network” (i.e., when the handset becomes inextricably linked to the network) or vice versa, then you are pretty much giving up your procurement rights to mix and match from the incredible innovations coming out of the broader procurement solutions market.

An Internal Wish List

What do you need to make this work and take back control? Start with a “Procurement Information Architecture.” 

Beyond architecture alone, IT and procurement need to work together.

You also need a “Procurement PaaS” strategy. And you’ll need to take stock of your application portfolio and capability portfolio and assess whether you have the integrated information/knowledge assets (and underlying IT assets) to allow you to be a “solutions assembler” and an internal supply management services provider, which will give you competitive advantage. If I had to guess, your portfolio likely looks like the table of stuff in the scene in the movie “Apollo 13.”

You need to fix this problem. Your success is too important to be tied down by legacy assets.

SAP and Ariba: What Next?

Keep in mind that we’re not saying to abandon SAP/Ariba at all. How could we? They represent the largest ERP vendor and previously the largest best-of-breed vendor, and they are very smart and savvy. In addition, the Ariba Network is going to be much more than just a horizontal marketplace owned by an ERP vendor used to discover and connect with suppliers. If the network will become the application to some extent in terms of continually adding functionality, multi-firm business logic, and value-added services that actually start to build up application-like services atomically—the network becomes the new Borg, not SAP ECC.

However, customers do need to be smart and realistic in how to work with this critical supplier. There are three or four major strategies that you can pursue, and we’ll be writing about them in future PRO posts. We’ll also be diving more deeply into SAP/Ariba plans (and what you should “read through the tea leaves” and how to make the best trade-offs), so stay tuned for that.

This whole topic becomes even more complex in the direct procurement / SCM space, where there are some big holes in the SAP flotilla. If you can’t wait for this content, then contact us to sign up for a PRO advisory membership and we’ll work through it together. If you are a provider and know a client who is struggling with these issues but their IT groups are not really digging into the dirty details, then please forward them to us. They will need to deal with these issues eventually!

Finally, if you are thinking “What the heck did someone drop into Pierre’s corn flakes this morning?” and wondering why I am the only one in the market spouting off here, the frank answer is the lack of time, effort, and courage in the analyst and pseudo-analyst community. There will be more on this very soon, but to honor our promise to you, we will continue to say the things that must be said in a noisy world where it’s hard to know whom to trust. It’s a personal promise I make not only to you, but also to myself.

Stay tuned. And in the meantime, don’t fall for the myth of integrated ERP procurement.

IT under pressure: McKinsey Global Survey results

As change to open systems and cloud has arrived organizations have new pressures. Mckinsey has surveyed the effectiveness of technology to solve current day problems. Aivars Lode avantce

IT under pressure: McKinsey Global Survey results

Recognition of IT’s strategic importance is growing, but so is dissatisfaction with its effectiveness, according to our eighth annual survey on business and technology strategy.

March 2014 | byNaufal Khan and Johnson Sikes

Evolving priorities

Exhibit 1

Exhibit 2Growing dissatisfaction
Exhibit 3Exhibit 4Exhibit 5Struggling with talent
Exhibit 6Exhibit 7Looking ahead

• Address talent from the top. As IT continues to evolve as an important strategic tool, the required skills and staff are becoming harder to find and retain, especially in areas such as analytics and next-generation infrastructure. The results suggest that companies could better meet these needs with a more attractive talent value proposition that spans culture and morale, compensation, and career development—issues requiring focused attention from IT leadership. CIOs must be more involved in developing a talent-friendly culture within their organizations to tackle current and future talent issues.

• Increase business-side involvement. All executives must work to address critical gaps in IT by elevating knowledge in areas that span both the business and IT functions. According to the survey, there are three important areas for improvement: data and analytics, business-IT interactions, and approaches to development work. Given the current state of CIO influence, the task of bridging cross-functional gaps may fall disproportionately on non-IT leaders.

• Balance competing demands. Steadily rising expectations for IT underscore how fraught the landscape is for CIOs. These leaders must find a way to fulfill roles that may be at odds with each other—managing the IT function while also leading technology-driven changes. To that end, increased use of approaches (such as iterative development processes) that can help CIOs meet both mandates and manage two-speed IT organizations will become evermore important.

More and more executives are acknowledging the strategic value of IT to their businesses beyond merely cutting costs. But as they focus on and invest in the function’s ability to enable productivity, business efficiency, and product and service innovation, respondents are also homing in on the shortcomings many IT organizations suffer. Among the most substantial challenges are demonstrating effective leadership and finding, developing, and retaining IT talent.

These are among the key findings from our most recent survey on business technology, which asked executives from all functions about their companies’ priorities for, spending on, and satisfaction with IT.¹ Overall, respondents are more negative about IT performance than they were in 2012 and, notably, IT executives judge their own effectiveness more harshly than their business counterparts do. Compared with executives from the business side, they are more than twice as likely to suggest replacing IT management as the best remedy.

Comparing the 2013 responses with the previous two surveys, the data indicate notable changes in organizations’ current priorities for IT. Concerns about managing costs are down, while larger shares of executives now say their organizations are using IT to improve business effectiveness and information availability (Exhibit 1). Respondents cite these same objectives most often as ideal priorities, suggesting that companies are getting better at aligning their actual priorities with what’s ideal—and that more executives see IT as core and relevant to day-to-day business, not merely a cost center.

Organizations are using IT to improve business effectiveness and efficiency, not just manage costs.

To support these priorities, many companies are spending accordingly: 64 percent of executives say their budgets for new investments will increase next year, up from 55 percent who said so in 2012, though they are evenly split on whether operational spending will increase or decrease. When asked how their IT budgets break down, respondents say the largest share is spent on infrastructure—as they have said since 2010—followed by core transactional applications. Looking ahead three years, executives expect less of their budgets to go to infrastructure (Exhibit 2), perhaps because infrastructure is the area within IT where the head count is most likely to have decreased due to companies’ use of cloud-computing technology.²

In coming years, executives expect their IT organizations to spend less on infrastructure and more on analytics and innovation.

Despite the promise of increasing investments and aligned priorities, overall satisfaction with IT performance—particularly within the IT organization—is down. Smaller shares of respondents than in previous years say IT facilitates a range of business activities, especially the creation of new products and entry into new markets (Exhibit 3).

IT has become less effective at enabling business goals.

On specific functional tasks, executives from the business side are less likely than they were in 2012 to say IT performs effectively. The IT executives are even more negative. Just 13 percent of them say their IT organizations are completely or very effective at introducing new technologies faster or more effectively than competitors, down from 22 percent in 2012 (Exhibit 4). These results likely reflect the overall rising expectations for corporate IT—that it can, for example, provide service comparable to the consumer-grade cloud and mobile applications that are readily available outside the business.

Even IT executives report declining performance from their own function.

When asked how to fix the shortcomings in IT, the largest shares of all respondents say improving business accountability, reallocating funding to priority projects, and improving the level of IT talent would do most to improve performance (Exhibit 5). These sentiments are fairly consistent with prior results. However, one-fifth of executives also identify replacing IT management as a fix, up from 13 percent when we asked in 2011. We offered this option only to non-IT respondents in 2011, but in the 2013 survey, the IT executives had the option as well. Remarkably, 28 percent say new management would boost effectiveness, more than twice the share of business executives who say the same.

Surprisingly, more IT executives than business leaders see changing IT leadership as a priority to improve IT performance.

Amid the increasing pressure and dissatisfaction, the enthusiasm to replace management highlights the concerns of some IT organizations that their leaders cannot manage change in rapidly evolving circumstances. Just 55 percent of all executives say their CIOs have a significant impact on their organizations’ business issues, and a nearly equal share says their CIOs are part of the most senior executive team. Across regions, those working in Europe are the least likely to say their CIOs are on the senior team.

What’s more, CIOs spend an average of only 8 percent of their time developing talent, an area where IT organizations have a clear need to improve. Fully two-thirds agree that it’s a significant challenge for their organizations to find, develop, and retain talent, with IT executives even more concerned about this than their business peers. This problem is a long-standing one for many IT organizations. But it is even more critical now as they look to roles that require more business experience and are in higher demand (such as analytics specialists and data scientists). The challenge is exacerbated by the lack of formal processes to govern IT talent and skills management. Just 23 percent of executives report the consistent use of such processes to manage talent, the lowest share across all of the governance processes we asked about.³

In the next 12 months, the most acute needs for IT talent are in analytics, joint business and IT expertise, and mobile and online skills, though there is considerable variation across sectors (Exhibit 6). Financial-services executives, for example, are less focused than others on analytics (only 22 percent cite this, compared with 40 percent of all respondents) but are much more concerned with enterprise architecture than respondents overall. There is also an interesting split between B2B and B2C executives on analytics: 58 percent of those at B2C companies cite analytics talent as a need, while only 40 percent at B2B companies do. This result suggests that B2B companies may not have been focusing as much on their analytics capabilities as their B2C counterparts—and that B2B companies will be feeling this shortage more acutely in the near future as analytics becomes even more critical to business.

The overall IT talent shortage is most pressing for analytics, but needs vary by sector.

Solving the talent issues will require multiple remedies, and respondents identify two in particular: improving culture within IT and improving compensation (Exhibit 7). Compensation can be resolved more tactically or operationally. In contrast, transforming the culture is a long and complex game that requires a comprehensive assessment of overall organizational health and a serious commitment from business leaders.

To address talent challenges, companies should focus on culture and compensation.

Beyond these IT-specific challenges, executives identify some other areas for improvement on the business side. When asked how their companies carry out application development and maintenance projects, IT executives say their organizations tend to follow a traditional “waterfall” approach to their work on legacy systems and a more interactive, iterative approach for new development work. Further, these respondents indicate a desire to increase the share of work they do using iterative approaches but identify barriers to this change. The top barrier cited is a lack of business ownership, followed closely by managers lacking an understanding of when to use an iterative approach.

A New Weapon in Corporate Patent Wars

It's about time there is somewhere where companies can take on the patent trolls. Aivars Lode avantce

A New Weapon in Corporate Patent Wars

Patent Trial and Appeal Board Can Upend PTO Decisions, but Some Say It Goes Too Far

By Ashby Jones March 10, 2014 7:25 p.m. ET

Companies have found a controversial new weapon in their battle against intellectual property lawsuits.

Liberty Mutual recently turned to the Patent Trial and Appeal Board to invalidate patents held by Progressive Casualty, some of which Progressive says relate to the idea behind its Snapshot product. Progressive

The Patent Trial and Appeal Board is a little known but powerful authority that often allows a company embroiled in a lawsuit to skip the question of whether it infringed a patent—and challenge whether the patent should have been issued in the first place.

The board was launched in September 2012 as part of the massive patent overhaul passed by Congress the previous year and is currently staffed by 181 judges, many of whom have deep experience in intellectual property or technical fields like chemical and electrical engineering. Through last Thursday it had received 1,056 requests to challenge patents, far more than were received by any federal court over the same time period.

The board is part of the Patent and Trademark Office. But so far, it hasn't shied away from upending the office's decisions to issue certain patents. As of last week, the board had issued 25 written decisions concerning patent challenges, and upheld parts of challenged patents in only a few of them.

"It's fast and has a whole fleet of expert judges that understand the science and know the technology," said Andrew Etkind, the general counsel of Garmin Ltd., a maker of GPS devices. Units of the company won a ruling from the board last year invalidating key parts of a patent held by an inventor who had sued Garmin in a New Jersey federal court.

Congress created the board in 2011 after hearing concerns from corporations, especially in the technology sector, that they were getting besieged with infringement lawsuits filed by patent-holding firms, ventures that profit from innovations they themselves had no hand in creating.

Companies complained that the patents at the heart of the lawsuits too often described innovations that were vague or obvious or flawed for some other reason, and should never have been issued. Lawsuits based on these patents, they alleged, were little more than attempts by patent-holding firms to extract quick settlements from corporate pockets.

The 2011 law allows the Patent Trial and Appeal Board to hear challenges to certain types of patents. Most typically, the challenges are requested by defendants fighting infringement claims in federal court.

Liberty Mutual Insurance Co. recently turned to the board to invalidate patents held by Progressive Casualty Insurance Co. Progressive argues its Snapshot product, which plugs into a car's dashboard and tracks driving behavior for use in calculating auto insurance premiums, is covered by the patent applications.

James Myers, a patent lawyer at Ropes & Gray LLP in Washington and counsel for Liberty Mutual, said that appearing before the board's judges was like "getting CAT-scanned, MRI-ed, and X-rayed, all within a three-hour period."

A spokesman for Progressive said the company was disappointed by the rulings, but said they weren't entirely unexpected given the board's track record.

Patent holders are concerned the board is eviscerating their rights. Many claim the movement to clean up the patent system has swung too far. Peter McAndrews, a lawyer in Chicago who represents patent holders, said the process is "one slanted toward destroying patents" already issued by the Patent and Trademark Office.

Mr. McAndrews said that for many of his clients, especially his smaller inventors, the board is making it too expensive to hang on to patents that they struggled to afford to get approved in the first place.

For patent-holders, help could be on the horizon. A provision in the current bill moving through Congress would change the way the board reviews each patent, potentially making challenges harder to win. Patent holders can also appeal the board's decisions to the U.S. Court of Appeals for the Federal Circuit, a specialized court that handles most of the nation's appeals in patent cases.

In recent months, Randall Rader, the chief judge of the Federal Circuit, has been one of the board's most outspoken critics. At a conference of intellectual-property lawyers last fall, the judge called the board's panels "death squads…killing property rights."

In an interview with The Wall Street Journal, Mr. Rader said the board is too quick to toss out patents that demonstrate only modest innovation. "The board needs to incentivize human progress—and understand that it often happens one small step at a time," he said.

But many company lawyers think the board is doing exactly as it should—taking a skeptical look at patents that have added little to the world. Many also feel that while the board is helping curtail unnecessary patent lawsuits, Congress still needs to do more.

Garmin's Mr. Etkind, for example, referred specifically to a provision that would make the loser of an infringement case pay the other side's fees in some instances. "But for now, the PTAB is a great move in the right direction," he said.

To Build Cloud-Services, Some Companies Adopt OpenStack

The changes in computing are coming from open source, much the same way as there was the move from mainframe to client server. Aivars Lode avantce

To Build Cloud-Services, Some Companies Adopt OpenStackProgram Becomes a Key Factor as Firms Weigh Whether to Keep Computing Operations In-House
April 15, 2014 7:23 p.m. ET By Spencer Ante and Michael Hickins

PayPal chief technology officer James Barrese has seen the future of the company's computing infrastructure and at its heart is a new kind of software.

OpenStack, a sort of operating system for computer rooms, helps eBay Inc. 's PayPal unit to manage about 20% of its computing operations now, including main applications such as its payment and merchant technology. Though Mr. Barrese says the software still needs further refinement, he predicts it will ultimately handle 80% of PayPal's computing functions.

"We are jumping into the deep end," he said.

OpenStack, an open-source program, has become a key factor as companies consider whether to keep computing operations in-house or turn them over to external services known as public clouds run by Amazon.com Inc. and others. Supporters of the software say it can bring the ease of use and agility offered by cloud-service vendors, while using a company's own server systems.

If OpenStack continues to catch on, it could pose a threat to programs that companies now use to run their data centers from vendors like VMware Inc., Microsoft Corp.  and Citrix Systems Inc.  Tech research firm IDC estimates software from such providers used to build cloud services for internal consumption will generate $5.8 billion in revenue this year.

OpenStack is the latest example of big changes brought on by open-source software, the development model behind Linux, the popular operating system used on servers that run most big Web services.

Such programs, whose computer code can be viewed and modified by users, typically come in both commercial and free versions. The latter are a benefit for companies with many servers, which would otherwise pay a software licensing fee for each machine. Such programs also typically have multiple distributors, easing customer fears of being locked into using one vendor.

WSJD is the Journal's home for tech news, analysis and product reviews.

OpenStack was introduced jointly by the National Aeronautics and Space Administration and Web-hosting providerRackspace Hosting Inc. three years ago. The software provides a kind of dashboard to manage large numbers of servers, storage and networking devices as if they were a single resource. OpenStack can help set up computing resources for users at a company in minutes; such processes can take days or weeks if done manually.

Cloud vendors like Amazon, Microsoft Corp. and Google Inc.  have developed similar software to run their own services. But other companies have rallied around OpenStack in an attempt to create an open standard for cloud computing; a group called the OpenStack Foundation has attracted vendors that includeInternational Business Machines Corp.  , Hewlett-Packard Co. , Intel Corp.  , Cisco Systems and Dell Inc.

On Thursday, the foundation plans to release a new version of OpenStack, dubbed Icehouse.

Companies distributing commercial versions of OpenStack include Red Hat Inc. and startups Mirantis Inc., Piston Cloud Computing Inc., Cloudscaling and Nebula Inc.

Ericsson  plans to use OpenStack as the software foundation for its internal operations and to manage cloud services it intends to offer its customers. The telecom giant recently committed to buying a commercial version of OpenStack software from Mirantis. The five-year deal is valued at $30 million, said a person familiar with the deal terms, and is believed to be the largest to date for OpenStack.

Companies such as AT&T Inc.,  Gap Inc.  and PayPal are using OpenStack for what the industry calls "private clouds"—internal computer operations that share many attributes of public cloud services, such as the ability to rapidly add or subtract computing resources.

Rivals offering public clouds and some customers say OpenStack needs more development. Andrew Jassy, senior vice president of Web Services at Amazon, said at a recent conference that there is broad difference in functionality now between OpenStack and top public cloud players like Amazon. "It remains to be seen how much impact it's going to have," he said.

VMware, the Silicon Valley software company majority-owned by EMC Corp., is a key incumbent in software for managing computing resources. When OpenStack was adopted at Ericsson, "most of what it replaced was VMware," said Jason Hoffman, the Swedish company's head of cloud system and platforms.

But John Gilmartin, a VMware vice president, said OpenStack has created opportunities for VMware to help its customers to build hybrid clouds.

Some OpenStack supporters like PayPal's Mr. Barrese say for large companies, a hybrid cloud that uses OpenStack can be around 30% cheaper than using a pure public cloud, while allowing companies to better protect their own data. While initially more expensive, engineers say a private cloud can be cheaper over time because companies can build more efficient systems that are optimized for their needs and use commodity hardware and open-source software.

A Price War Erupts in Cloud Services

Where in enterprise computing does this occur? Price War erupts in Cloud Services Enterprises and will be forced to look at this new model. Aivars Lode avantce

A Price War Erupts in Cloud Services
As Amazon, Microsoft and Google Battle, Users Reap Benefits


By Shira Ovide April 15, 2014 7:43 p.m. ET

Amazon.com Inc., AMZN +0.11% Microsoft Corp. MSFT +1.60% and Google Inc.GOOGL +0.15% are warring over the future of corporate computing, and executives like Michael Simonsen are reaping the benefits.

Mr. Simonsen, chief executive of real-estate startup Altos Research, rents computing horsepower and data storage from Amazon to crunch data on about 100 million U.S. home listings. Three weeks ago, Amazon cut Altos's bill nearly in half. That enabled Mr. Simonsen to add two programmers to develop new services.

"Nobody ever gives you a 40% price break overnight," Mr. Simonsen says. "Our direct benefit is the opportunity to create more products, faster."

Amazon's eight-year-old business, called Amazon Web Services, pioneered the notion of leasing computing power, sparing companies the costs of building their own computing backbone. So far, it has primarily appealed to small firms like Altos.

Microsoft and Google recently bolstered their own offerings, sparking a three-way price war. Within days last month, each company cut prices on various servicesby up to 85%.

That is changing the math for corporate executives who spend roughly $140 billion a year to buy computers, Internet cables, software and other gear for corporate-technology nerve centers.

The tussle will determine how companies orchestrate the computing that runs their businesses, and it threatens the makers of traditional computing-center equipmentsuch as International Business Machines Corp.  , Hewlett-Packard Co. and EMC Corp. A spokesman said IBM offers both outsourced computing services and "higher-margin software." H-P executive Bill Hilf said it is focused on helping organizations modernize their computing backbones to own, rent or a mix. EMC president Jeremy Burton said its sales are growing quickly to providers of Web-friendly computing.

The price war is already delaying the day of reckoning for companies that thought they would one day own their own computing centers.

Marketing-technology firm Krux Inc. has used Amazon's computers to personalize information or ads on customers' websites since it started four years ago. These days CEO Tom Chavez says the company sifts through 160,000 pieces of data a second. He figured Krux would need its own corporate-computing hubs once 750 million Web surfers encountered its technology each month. But it's now at more than double that level, and Mr. Chavez says he isn't planning a move anytime soon.

"These latest price wars among the big guys are sure to postpone it even further, which is terrific for my business," Mr. Chavez says. He is also looking at Microsoft's computing-rental offering, called Azure. Mr. Chavez estimates Krux would spend five or six times as much on people and equipment to operate its own computing infrastructure.

In all, researcher Gartner Inc. estimates companies will spend $13.3 billion this year on pay-as-you-go computing horsepower from Amazon and others, up 45% from a year ago. That's still less than 10% of the total spending on corporate computing centers.

Amazon is by far the biggest player, with revenue last year of more than $3 billion, up 85% from a year earlier, according to Bernstein Research, which calculates its figures differently than Gartner. Bernstein estimates that Microsoft and Google each pulled in several hundred million dollars from their offerings. None of the companies discloses the actual figure.

Behind the growth are big savings. A medium-sized website with about 50 million page views a month might spend about $1,200 a month to buy two computer servers, hardware to push data to the Web and other gear, according to calculations by Simon Margolis at technology-consulting firm SADA Systems. The same company might pay roughly $270 to $530 to rent equivalent computing power from Amazon, Microsoft or Google, he says.

Consultants say such savings are tempting some bigger companies to rent, rather than own, more of their computing power. Already, about 87% of technology executives say they use an outsourced computing provider for at least one task, according to a recent survey by consultant RightScale Inc. But it's rare for a large company—Netflix Inc. is the most cited example—to operate primarily this way.

Matt Gerber, an executive vice president of 2nd Watch Inc., which helps big companies use Amazon's rental offering, says a large consumer-products firm that has been renting Amazon computing power for minor needs, such as marketing websites, is preparing to move more core-computing functions to Amazon from its own network. He declines to name the company.

"The cost models [clients have] done have all gone out the window" because of the price cuts, says Sebastian Stadil, founder of Scalr Inc., which helps companies manage their computing backbone. Mr. Stadil says an Internet firm that his company works with is considering moving some workloads to Google's Compute Engine because of the recent price cuts and a new policy that applies discounts without requiring a service contract.

There are obstacles to the rental model that may limit growth. It's often cheaper and more reliable for large companies, especially those with predictable computing needs, to own or control their own computing backbone. Companies also often have to rework many of their older software programs to run on another company's computers.

In highly regulated industries such as health care, companies often want to keep sensitive digital information on their own computers. Recent revelations about U.S. government surveillance programs have also made customers of outsourced computing providers ask tougher questions about the data's security, according to technology vendors and customers.

Some companies, including Comcast Corp., try to blend the approaches, applying Amazon's techniques on their own computing centers. Forrester Research says that about a third of the big companies it surveyed last year had created an Amazon style of pay-per-use technology on computing hubs they owned.

In the rental business, the heightened competition is prompting some customers to switch vendors. CliQr Technologies, which helps companies calculate the costs of their computing needs, says more customers in the last year have jumped from one outsourcing provider to another, particularly after Google revamped its offerings.

Thermopylae Sciences & Technology, an Arlington, Va., digital-mapping company, has been renting computing power from Amazon and was eager to try Google, but the service wasn't quite ready, says Michael Cachine Sr., chief information officer.

Since Google changed its offerings, however, Thermopylae has used Google's service to build software that handles employee-performance reviews and lets workers enter their personal information for colleagues to see. "As soon as the gate opened, we started building," Mr. Cachine says.

Which Channels Do Marketers Find Best for Generating and Converting Leads?

Which channels do marketers find best for generating and converting leads? Aivars Lode avantce

Which Channels Do Marketers Find Best for Generating and Converting Leads?

May 20, 2014 by MarketingCharts staff

Which marketing channels have the highest potential to convert leads into sales? Offline methods still do the trick, according to Ifbyphone’s “2014 Marketing Measurement Survey Report” [download page]. Asked to choose which of 9 channels presents the best bet for sales revenue conversion, a plurality 35% of marketers cited in-person visits, with inbound phone calls (20%) next. Those two channels also garnered the highest overall ratings for their ability to generate high-value revenue.
While the share of marketers indicating in-person visits to be their most valuable declined from last year, the overall ratings ascribed to this method for its potential to bring in high-value revenue actually increased. This year, in-person visits received an average rating of 7 (on a 9-point scale) for its propensity to garner high-value leads, up from 6.5 last year.

Beyond offline methods, PPC clicks/website visits and email inquiries were tied, with 11% of marketers tabbing each as their most valuable channel for lead conversion. But email inquiries scored a higher average rating (6.3) than PPC clicks/website visits (5.4) for their ability to generate high-value revenue.

Compared to last year’s survey, marketers this year seemed less enthused by webinar attendance and instant messaging. Those channels were at the bottom of the list in terms of lead conversion ability and ability to generate high-value revenue – and both were down from last year on each measure.

Interestingly, while offline methods are seen best for converting leads into sales, respondents to the study find online channels to be tops for sourcing high-value leads. Email led all channels for sourcing leads (57% preferring), followed by SEO and PPC (55%) and social media (44%). Each of those channels saw an increase in share of respondents from last year.

By contrast, the next-most preferred lead generation channels, conferences, tradeshows and events (39%) and direct mail (26%) were relatively flat from last year. Fewer respondents this year (23%) see PR as a preferred channel for generating high-value leads. And while slightly more recognized print ads (16%) and TV (9%) as valuable, those channels are still solidly in the minority. (It’s also worth noting that these results may correlate with actual usage, as marketers are likely much more apt to be using email marketing and social media than to be buying print or TV ads.)

In other results from the survey, three-quarters of respondents indicated that their CEO is either totally (38%) or significantly (37%) committed to marketing, up from 67% responding that way last year. Respondents are also providing marketing measurements to their CEOs and leadership more frequently this year: 6 in 10 do so daily (8%), weekly (25%) or monthly (27%), up from 55% doing so at that frequency last year. Across 12 metrics, 10 are being used by a greater share of respondents this year, with the top metrics – increase in sales/revenue – seeing a big uptick in use from 49% last year to 69% this year.

Despite an increase from last year, only a minority 45% are measuring marketing ROI. Respondents indicated that they need more attention to the measurement process (42%) and more budget (39%) in order to be more successful in measuring marketing ROI this year.

About the Data: The survey garnered 551 respondents. More than 1 in 5 are president/owner of their organization, and another 35% hold a marketing management position. A majority 57% of respondents come from organizations with less than $5 million in revenue. Agencies, technology firms and consulting organizations represent just over half the respondent community, with healthcare and financial groups making the top five sectors.