The Emergence of the Brand Platform

Being a longtime enterprise software guy I tend to think of technology architecture when you mention the word “platform” to me. It’s only been in the last couple of months that I started to appreciate what was going on with platforms in our business, starting with Sage and Golden Gate Technology Group, to Oracle, and most recently Bear with me as I run through some of these companies and, hopefully, tie it all together to make some sense.

Sage is a pretty well known group out of the UK that has been buying up software companies in the mid-market for quite some time. Dismissed by the larger vendors, they are often referred to as “Microsoft’s problem” in reference to the fact that many of the companies they have acquired have traditionally competed with Microsoft (and Intuit). While acquiring some well known desktop packages like Peachtree and ACCPAC, Sage has also acquired some not so well known vertical solutions like Timberline in the construction vertical. Say what you will about Sage but they are still a billion dollar a year software company and there aren’t too many of those these days.

Golden Gate Capital (and The Gores Group for that matter, but I’m going to focus on Golden Gate for the purpose of this post) is an interesting bird. While primarily a private equity firm, this group has raised a lot of capital and taken Geac, a moderately large public enterprise software company, private and layered on additional acquisitions under the brand name Infor. The bottom line on Infor is that they have acquired a bunch of software products and done very little to innovate, rebuild, or integrate them… their primary focus is leveraging sales cycle efficiencies for capital returns.

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Remember ChinaDotCom from the wayback Internet bubble machine? Even they got into the consolidator act in acquiring some well known mid market enterprise technology companies. They haven’t really done anything with these companies aside from consolidating sales and marketing operations and targeting some markets they know very well. In short, it’s a brand strategy.

Oracle’s acquisition spree is well documented and you don’t need me to recap it. However, a curious series of events has happened with them over the last year beginning with their pronouncements that they were going to kill off the acquired apps and convert them to Oracle (I guess this is the equivalent to “kill their leaders and convert them to Christianity”!). Needless to say, that didn’t go over very well and Charles (as in Phillips) and Co. spent the better part of a year reassuring their collective customer base that they weren’t going to kneecap them and that they really intended to rewrite all the acquired apps into Fusion apps and provide an upgrade path, which later became clear that the upgrade path would really be best described as my way or the highway because application extension were going to have to be abandoned. In other words, their customers were going to have to regress their operations to whatever Oracle shipped in the final release, and if you lived through the 11i disaster you were wise to not take a lot of comfort in those statements.

Oracle then shifted gears to “we’re going to wrap all that functionality in Fusion pixie dust and sing kumbaya around the campfire, as if wrapping alone was some magical technology strategy that instantly eliminated all of the problems companies have when they try to integrate applications. As an aside, the whole notion of wrapping code must be one of the biggest frauds that the technology industry as a whole has perpetuated on the marketplace, sure you can wrap it but you pay a performance penalty as you would expect whenever you translate calls and the integration itself is far from predictable because of the proprietary methods that companies use for process error handling and exception conditions, and the UI issues. In short, it never works as well as you hoped and your customers end up pissed off until the point at which you deliver then an integrated application suite.

The most recent Oracle strategy is to abandon wrapping and rewriting in favor of simply maintaining the codebases and separate and distinct products. So much for the acquisition rationale that they started with, that they would achieve significant efficiencies by eliminating the diversity of products in the marketplace for a single Fusion product. What Oracle may finally be admitting, if not explicitly then between the lines, is that their acquisition strategy was really a strategy to control unit economics all along. However, despite my obvious biases against the folks in Redwood Shores, I think this may in fact be their smartest strategy yet because customers increasingly don’t care about the plumbing and the architecture, what they do care about is that the products are mature and that their is a consolidated support infrastructure that they can turn to.

Before I close the chapter on Oracle I want to address because they have been doing a remarkable thing with their AppExchange initiative. I originally looked at AppExchange as a very clever way to ramp a high throughput partner program by essentially taking the “master” vendor out of the center; in essence abandoning the hub-and-spoke partner model for a mesh network. However, in looking at this lately I am struck by something that I think is far more significant, SFdC is in effect transforming themselves into a platform play without actually delivering any traditional platform technology to their partner marketplace. Of course, all this fit because they are a hosted play and that is really their religion, but when you consider that they are enabling their partner ecosystem with a very simple toolkit (they wouldn’t call it simple, but when you compare it to NetWeaver, Websphere, or Fusion, it certainly is) you can help but admire the elegance of it all.

In each of the above examples, the technology component of the platform equation is not significant, what is meaningful is that significant brands are attaching themselves to a best-of-breed strategy in the realization that their customers are satisfied with a mixed bag approach to applications as long as their is a consistent, stable, and unified support infrastructure underlying them. In some cases the economics of consolidating sales and marketing operations provide additional economic incentive and rationalize marketplace dynamics in favor of the vendors, for the first time in quite a while. Therefore, the emergence of the brand platform strategy is really the realization that our markets are maturing and customers have lessened their reliance on “amazing new technology” in favor or a more risk averse strategy of consolidating the things that work under one vendor. Perhaps the natural extension of this is to realize efficiencies on the build side of the house with component sharing and co-development, but I’ll wait until I see that happening before I actually believe it.

12 thoughts on The Emergence of the Brand Platform

  1. This is a lopsided view of the world Jeff though I fully understand where you’re coming from. I prefer to view at least some of your targets (Infor and Oracle) as defensive, value plays. In my theory around this, brand supports the continuance of support revenues which cost less and less to deliver while license revenues slide (with GS&A on the cost side) at a perceptible yet lesser rate. It is a long term bet but it has to run out of steam sooner or later.

    Your theory may hold good right now – especially when you realise that enterprise apps are replced on a lengthening cycle – in my bailiwick, accounting apps are being replaced every 7-9 years rather than 5 years. In the case of Sage, which I know very well, they’re really stuck because innovation is not their thing. they are firmly into brand management and account control. Their problem is that they’re being attacked from below by incredibly nimble ‘good enough’ alternatives. One of my clients has chewed out 10K customers in less than 8 months – with one (yes one) telesales person, our blogs and some smart but almost zero cost marketing. If you look at their license sales for Line 50 for instance, they must be spitting feathers.

    The weakness with your argument is that it makes no allowance for innovation. If anything, the theory argues against innovation yet I’m sure you’d agree we’re seeing a veritable surge in ideas, products, services and so on.

    From a vendor perspective your argument has a limited economic life though I will agree thaqt Sage has solved that problemthrough acquisition. But as Oracle found, you can’t simply piss on customer because you have a brand name. What we don’t know is the extent of that economic life. At the enterprise level, it coul be that by trawling through the shelfware, SAP/ORCL could derive fresh value as the brand incumbent to spur additional annuity/support revenues but with the service bonus along the way. Those opportunities may have some years to play out. But there comes a point when innovation from below cannot be ignored without the companies concerned incurring a great deal of pain.

    Just because I disagree doesn’t mean your’e mistaken. Both scenarios could play in tandem. In SAPs case, it would be an extension of its account control approach to industry verticals so would be a natural operational fit.

  2. Jeff,
    This is a very interesting take on the emergence of a few select brands- Oracle, SAP and smaller ones like Salesforce and Sage. In fact, EMC with its acquisition strategy and Adobe are playing out a similar theme.
    The outsourcing trend where companies like IBM take on all responsibility for getting your IT to work may be the underlying theme. By relying on few big vendors, companies like GE and Wal-Mart can influence the vendors, get support and reduce integration costs by shifting the burden to the vendor. Think about it this way- if you were a large oil company that used Siebel CRM, SAP SCM, Oracle Financials and PeopleSoft HR in 1999- you had to take on the burden of integrating all of these 4. Today, you can rely on Oracle to help you integrate your CRM, HR and Financials- even if its not out-of-the-box 100% integration today- and have a somewhat consolidated platform. For example, it is not unreasonable to expect all of these apps to run on same versions of Linux- as an example. All this cuts down costs and headache for the business and IT. This benefit can also be realized by simply picking SAP for all your apps. But for existing PeopleSoft & Siebel customers – they clearly have an easier path with Oracle for the next few years. And then SAP and Oracle will battle it out based on Fusion apps vs SAP apps.

    (Disclaimer: I do work for Oracle so my opinions are probably biased. Also- these opinions are striclty my personal views and don’t reflect views or opinions of my employer.)

  3. I’m not sure I completely follow your arguments, Jeff, but if you are saying what I think you are saying, then I am somewhat surprised. Certainly, it is acceptable (and logical) to treat the very distinct functions of software R&D and selling as being separate. So, an acquiring software company can seek efficiencies in selling, whereas these will be harder (if not impossible) to find on the R&D side.

    But, where are the branding and other marketing efficiencies through an acquisition (i.e. beyond mere selling)? Sage is the best example of the limited scope for efficiencies to be gained through an acquisition strategy. The “Sage” brand is powerful and well-maintained in the UK, but that’s because it started there with this name. Elsewhere? I don’t think so: users and prospects look more to the brands they originally bought, and which are still supported today (Peachtree, Accpac etc). In fact, Sage has only had the rights to the “Sage” name in the US for the past year or so. Same with its channels (the company’s greatest asset): yes, they can cross-refer, but can they cross-sell very different products? A company doesn’t need to acquire another to achieve cross-referring benefits, mere partnerships will achieve this.

    Did Microsoft achieve marketing and sales efficiencies through buying the 5 or so codebases/brands/channel networks amongst Great Plains, Navision, Solomon and Damgaard? Or did they create a mess: unhappy, frustrated channel partners and confused marketing? I would argue the latter, and I think MS has conceded as much.

    Have any of these companies achieved efficiencies in the support function? How many staff can support multiple codebases?

    Of course, the R&D side will always offer close to zero scope for efficiencies through acquisition. I think you say the same. Hence, I am surprised at your interpretation of what Oracle was and is doing with Fusion as Larry Ellison has always felt that a single integrated codebase was the only way to succeed in the long-term (see some of his great lines in Softwar, by Matthew Symonds, p.125: “I don’t think [Oracle colleague] ever understood the unbelievable difficulty of building this magical integration technology…it was like, wouldn’t it be nice to have flying cars? All we need to do is interface the wings to this Oldsmobile and it will be phenomenal. We just need really good glue. Brilliant”.). Sage doesn’t even try to achieve codebase efficiencies. Hell, I’m not sure they even try to achieve marketing/branding efficiencies! Its really best seen as an old-style conglomerate, where each division is set specific financial goals, and where head office focuses on what to buy next.

    So, I don’t have any confidence in the long-term prospects of a “brand platform strategy”. Nor do I think users and channels will put up with best-of-breed products (codebases) that need to be stuck together by someone, IF there are better alternatives around. The beauty of Sage is that it built a multi-billion dollar business when there weren’t such competitors in the SME space out there – but there are now. Who are you going to back in this increasing competitive global SME market? SAP, Oracle, Microsoft, Salesforce, NetSuite….or Sage? They all have a product platform vision, except Sage. How can Sage cope once Microsoft gets its act together, and it drives prices radically downwards, though its Small Business Accounting-Office suite? Surely Sage’s best bet is to wait until Oracle and SAP realize that the cheapest and quickest way to satisfy their SME ambitions is to buy Sage for its global customer base and channel network….as long as they can figure out a way to move both categories across to a new, single platform. Looked at in this way, maybe Sage’s strategy is incredibly logical: instead of facing up to a nightmare task (could you think of a worse job than being the guy Sage hires to fix its disparate codebase mess?), they decide to leave it to their acquirer!

    So, I’ll back a (single codebase) Product Platform Strategy to win against a Brand Platform Strategy, every day of the week. In that sense, I think you guys are 100% right: the way to win is to build a flexible, global codebase and offer it up to the world of ISVs to build upon to solve specific niche markets. I also think Oracle is doing this.

  4. Hey Anshu,
    Can you explain the Fusion riddle for us? Is Oracle really, as Jeff suggests, proposing to maintain its codebases “as disparate and distinct products”, or is it still proposing to build a new, single unified codebase, to which all existing users will migrate?

  5. This information on Oracle Fusion strategy is available publicly. So from publicly available sources, I can tell you-
    1. Oracle will provide lifetime support for many of the acquired products and continue to enhance these product lines
    2. Oracle will build out new Fusion Applications

    So customers can choose to stay on existing products and receive support and enhancements. At some time in the future, if they choose to, they can move over to Oracle Fusion Applications. Frankly, this is not much different from how R/3 and MySAP were rolled out by SAP.

    (Disclaimer: The opinions expressed here are personal.)

  6. Creating a global codebase is a risky proposition. At least with wrappers we know the individual modules (best of breed) work. Increased machine power should mitigate the performance hit still as Jeff pointed out, debugging on integration points remain. Software modules take time to mature, all the years time spent on bug fixes that go into performance and functionality improvements don’t magically migrate because some powerpoint says global codebase. No amount of user tests captures all scenarios. The entire cycle of learning has to be repeated across this new codebase, debugging which is messier given the interactions across the components. This will lead to increase in R&D (to write new code, handle integration and communication).

    Compared to the global codebase approach the brand platform is a stabler proposition. Get some economies of scale in Sales and marketing. Probably Nothing saved on the R&D. But at least you know individual modules work. Customers don’t really care about how the integration happens whether using some netweaver, fusion magic or some perl/SQL scripts. The IT guys will cry a river, but the business owners really wont understand why moving to a newer technical platform with increased risk – migrating old data, immature technologies, newer machines etc – and similar functionality is worthwhile.

    One reason why the technical platform story is so compelling is marketers want to recreate the microsoft windows/office magic. However one critical reason which enabled windows and office to become a standard was the exponential increase of PC sales in the late 80’s through mid-90s. By controlling the default/pre-installed OS and office applications on new PCs microsoft was able to grab huge chunks of market share (purely new PC sales). No legacy to handle! Also, people were doing things that were never done before on a personal computer – word processing, email, graphics, databases etc. Contrast this with its trouble trying to get people to migrate to newer version of Windows where most functionality already exists and the biggest competition is previous version of windows. The problems facing most enterprise vendors are – there are no killer applications on the order of Adobe Graphics or Excel, it is the same Order Entry, Inventory Control, Plant Maintainance, Distribution, Warehouse Handling etc stuff. Also a ton of old information exists in enterprises. So why would enterprise customers be jazzed about moving to a new platform with the same applications but with more risk and dollars. Nick Carr might be right after all, this type of IT doesn’t matter. Buying such software is a matter of risk management and having a brand platform offers lesser risk.

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  8. Don’t forget about Platinum Equity and what they are doing(Tom Gores who runs Platinum is the brother of Alec Gores of Gores Technology Group). They are essentially doing the same thing on the IT Services side by aquiring both CompuCom and GE ITS and integrated them to form one unit.

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  10. I think this is a question of timing — any aggregator with sufficient market presence can create efficiencies and value through a branding or integrated GTM in the short-term. Over the long haul, no ammount of clever marketing can overcome technological hurdles unless one assumes that “as of today” XML and Web Services are the de facto platform and hence ensure complete interoperability (BTW, if you believe that I have a slightly used bridge to sell you). When Microsoft rolled-out Word, Excel, and PowerPoint they built these applications, had the brand, but the killer app in my opinion was OLE DB which gave Microsoft somethign no other pure-play had.

    So, in my opinion, branding platform emerge around strong/leading/monopolies but over time technology must catch-up or else you end-up with CA.

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