John Katsaros

Chambers and Collaboration

Watching John Chambers give a keynote presentation is always delightful and last week's C-Scape conference was no exception. For about a year the topic of many of his talks has been "Collaboration" with two main themes which he intertwines. One theme is a conversation about the promise that modern Collaboration tools (Web 2.0) have for significantly improving worker productivity - as the CEO of a large company (66K employees) Chambers is the Poster Boy for the importance of modern collaboration tools for significantly improving productivity at a global company. He is probably the best spokesman for Collaboration 2.0 tools. His second theme is Cisco as a provider of these collaboration tools and this is the one that I have trouble grocking. Certainly the bits for these tools traverse Cisco networks and when you're talking about video that will be a lot of network traffic. Chambers' examples of Cisco's collaboration portfolio are VoIP telephony and Telepresence plus a lot of stuff that they've picked up through acquisitions totaling more than $3.3B (see table below), the biggest piece being WebEx. Sure, it can be argued that Cisco has a suite of products including conferencing, e-mail and instant messaging but Microsoft has Exchange, SharePoint and OCS and over a decade of work on collaboration tools. More than that, it's hard for me to picture Cisco as a provider of tools that users interact with like the office functionality that he demonstrated (which, we presume, are examples of what's coming from WebEx Connect). Even though I'm skeptical, I have to remember that it is John Chambers who says that Cisco is going to be a big player in the collaboration business which is enough to keep me interested and watching closely.

The "ilities" aren't enough

The "ilities" don't work as value propositions because everyone has them. You know what the ilities are - marketing buzzwords like scalability, reliability, usability, maintainability, interoperability, openness-ability and portability. These do not reflect any basic customer sensibility or requirement. Most customers are immune to these words since all vendors make the same claims. But what we find most worrisome is that despite these glaring problems, many vendors actually seem to believe their own nonsense for instance by believing that their "scalability" is better than anyone and customers will line up for a piece of it. It is one thing to fib politely in a customer presentation (where you are not exactly expected to speak the complete truth), and it is another thing entirely to build a business strategy on the same flimsy reasoning (to ‘‘inhale your own exhaust'' as it is colorfully described). To our horror, in all too many cases, after mixing their marketing Kool-Aid they actually drink it. We are not against marketers who spin stories to promote their new products. This is part of the game when dealing with creative and highly charged entrepreneurs. As insiders we enjoy seeing creativity at work. The ‘‘spun'' truth is as OK as a polite lie, but can be deadly if you actually believe it. What are we preaching? If you rely on the ilities, it's time to rework you value proposition to something much more substantial (read on...).

Creating Killer Value Propositions — Time for a "big bang" value proposition

Value propositions are the vehicles by which positioning translates into the potential that your product holds for your customers. Like positioning, value propositions are about the future. Value propositions hold the promise for what your customers can gain by working with you. They are about what your customers want to become. It's up to you to create compelling killer value propositions that can hold up, even in this difficult economy. For this discussion we'll use some data center examples but the "killer value propositions" ideas are relevant to all technology markets.

The past three years has seen a huge transformation in the data center. Using virtualization as a key technology, CIO's have consolidated their distributed data centers from many to just a few. Data center operators have been buying fewer, more costly, physical servers to host their virtual servers. While on the surface it may look like spending is about the same, the reality is that virtualization has brought about a huge change in budgets and allocations. Consolidation has greatly reduced the number of data centers which both reduces costs (less power, fewer racks, fewer network ports) and lowers operating expenses. So last year's value propositions might not be relevant for the modern data center buyer. But newer, potentially revolutionary value propositions open up. For instance:

a) Changing the spending dynamics in an IT organization - traditionally, innovation spending in IT was only 20%-30% of the budget while the rest went for support. By, among other things, automating data center operations, CIO's believe that they can invert this so that 80% of IT spending is targeted at bringing new applications online. That can be a big competitive advantage.

b) Extending data center lifecycle - Once upon a time, data centers which housed mainframes had a 10 to 20 year lifetime. That's not the case with modern virtualized data centers - most CIO's figure that in five years they'll need to do significant upgrades. Strategies that can add even just one or two years to the operational usefulness of a data center will have a huge payback. If you're able to increase the utilization of a $300M investment by 40%, that's a huge benefit for any CIO.

c) Resiliency - With virtualization, data center operators are a significant step closer to either redeploying their high availability and disaster recovery infrastructure or, for many, actually putting in place HA/DR capability where none existed before. In either case, these are important high value strategies that can be addressed from a different perspective.

d) Network Convergence - Moving traffic onto a common physical connection. Right now each server in a data center has three connections (to cloud, to other servers and to storage) - double that when you count redundancy. Converging this onto the same fabric will "flatten" out the interconnect complexity in a similar manner as VoIP flattened out the telephony infrastructure.

We'll leave the rest to you — We're hoping that these examples can stimulate your thinking about developing your own killer value propositions and the ways that you can express them.

Market Conditions

It's easy to blame your present frustrations on "Market Conditions." By all appearances, times are tough, especially when compared to those good old days of bubble economics. It's gotten so that you don't want to turn on the TV. By now we've all seen Sequoia's October PowerPoint of Doom telling their portfolio companies that the GOOD TIMES were over and to get real (cut down expenses) or go home. It's times like this that you can't help but recall Charles Kettering's famous quote from a speech he gave in the 1930s during the depression to a group of advertising executives, "I believe business will come back when we get some products that people want to buy." Kettering, the inventor of the electric car-starter, founder of Delco and head of GM's research labs to 1947 after he sold Delco to GM in 1916, was one of the leading technologists in the early half of the twentieth century. In the same speech, Keetering also said, "Research is simply to find out what you are going to do when you can't keep on doing what you are doing now." A lot of companies are caught up in the same dilemma. In the past few months, the world has changed --products that made perfect sense 24 months ago may have little relevance today. Other ideas which maybe didn't previously get traction might potentially be big hits. It's time to sort this out and figure out "what people want to buy."

Value Proposition

As many of you know, when we hear an infrastructure company promote ROI as its leading value proposition, we get impatient, to put it mildly. The way we figure it, organizations spending millions of dollars developing a new product need to start off their value proposition by saying something like: "customers have shown us that they have a problem which, when we solve it, will significantly improve their business to the point where their corporate valuation grows." Technology is a vehicle for corporate transformation -- infrastructure companies need to show how their products can increase their customers' stock prices. We're not saying "don't make the ROI case" -- of course you should. Showing economic justification is part of the marketing basics. What we're saying is that you can and should make a value proposition which includes, but goes beyond saving money. You need to show how your products are capable of making your customers bigger, faster, stronger, more competitive...

Selling Our Way Out of this Recession

So what's the big picture? How, and when, does this recession end for technology infrastructure companies? Back in 2002 when we were asking this same question about that recession, our answer was relatively straightforward -- we pointed at the financial services sector as being the tipping point for tech companies to come out of the recession -- that's because financial services sector: 1) could gain a lot of competitive advantage from technology deployments, 2) was one of the largest spenders on Information Technology (as much as 10% of revenue in some years), 3) was quick to make changes in their budgets (some companies could change their budgeting in just 30 days) and 4) was relatively healthy. And in fact, that is pretty much what happened as financial companies not only led the way out of that recession by spending on new tech infrastructure, they also helped opened up important new value propositions -- compliance and service management -- which previously had been niche markets. Many infrastructure companies were able to build up the financial services market as the "anchor tenant" of their verticals. Our advice to our clients was "the subway token salesman" -- hire a salesperson in lower Manhattan and be ready when the financial services companies started spending again. So how does the recession end for infrastructure companies this time around? There are a lot of worrisome market sectors -- the financial services market is compressing (while generally negative, this may open up some opportunities for infrastructure spending in support of M&A activities). Automotive is in trouble. Manufacturing is flat on its back. Higher Education may have to cut back technology spending as they figure out how to straighten out their endowments. Retailers are worried about making it through the holidays. Wholesale distribution and transportation/package delivery are going sideways. So are Consumer Products companies. Media and Telecommunications companies are faced with difficult decisions. The travel and hospitality industries are under stress. On the positive side - Healthcare looks promising (during the presidential campaign Obama cited technology as an opportunity to significantly reduce healthcare spending) although spending may take time to ramp up. Life Sciences (pharmaceutical, biotech, medical devices) is relatively strong. Engineering and Construction might get a boost as part of the recovery package (although, once again, real spending on technology infrastructure might take time to come online). Aerospace is holding its own. Defense and Home Land Security possibly will help. The High Tech sector has a proclivity for infrastructure spending. That leaves markets like utilities which, while interesting, are relatively small contributors.

So what's the way out? Once again, a recession is something that infrastructure companies will have to sell their way out of. As odd as it may sound, the subway token salesperson for financial services markets is probably not such a bad idea, although this time around a broader strategy is needed. The financial services sector has to settle down pretty soon (if it doesn't then the recession won't end) and when it settles technology spending budgets will begin strengthening. And with more regulations on the way, compliance and service management will be an even bigger driver for changes to financial technology infrastructure. But with fewer financial services companies and a smaller workforce, this time a broader base of vertical sectors is needed. Clearly Healthcare and Life Sciences are markets worth investing in. The same goes for the Federal market. Our suggestions are to "go vertical" by marketing specifically to industry segments. - Reach deep into several verticals, find meaningful value propositions, develop vertical partnerships to establish high value use that will drive technology decision making. Next Issue: Part #2.

MessageLabs Rings the Bell

Do you remember back in early October? (Just last month -- when your 401K actually had money in it!) In an announcement that occurred just as the bottom fell out of the stock market, Symantec announced its intentions to acquire MessageLabs, provider of online messaging and Web security services, for $695M in cash (of which £310 million in Pounds Sterling which turns out to be a pretty good financial move by Symantec as the Dollar gained significantly over the Pound in the past month). We've followed the anti-spam market for years and what never ceases to amaze us is how much startup valuation has occurred in this market segment over the years. We always like to remind people that there are just a few hundred high volume spammers out there who have created over $3B in liquidity events in the past five years. MessageLabs' stats were pretty impressive: Sales of $145M, 19,000 customers (8 million users) in 86 countries (63% of its business from EMA). This is Symantec's third acquisition in this segment (Brightmail and TurnTide were added in four years ago).

Your Success -- Our Cloud

That was the theme of salesforce.com's sold out (9,000) Dreamforce 2008 conference in San Francisco earlier this week. Talk about being in the right place at the right time, salesforce.com has benefited from the recent focus on cloud computing and in fact can even be considered as the poster boy for cloud computing. It's hard to think of salesforce as an infrastructure company but that's clearly the direction that they're heading in -- platform in the cloud (PaaS), force.com Sites and even a relationship with Facebook -- force.com for Facebook (enabling developers to easily use the Facebook APIs within their Force.com applications). To use their term -- "Enterprise Social Apps" are right around the corner. Could Facebook be the next enterprise killer app?

New Positioning

If you've got all of this "infrastructure stuff" that makes virtualized data centers operate efficiently, then why not wrap it up in a nice bow and call it an operation system? Paul Maritz could have used words like "platform" to describe it but it really doesn't matter. What's important is that VMware has built a lot of special stuff and once they get customers using it it'll be hard for them to switch to something else. Is this a new category like VMware claims? Who cares? The phrase Data Center Operating System is functional enough to serve as an overarching name for this collection of virtual infrastructure stuff. So why not fight the battle against Microsoft this way? Interestingly, Maritz spent a lot of time talking about their virtual desktop plans which, apparently, he felt has been underfunded and for which we'll see a big investment in the future. It seemed that Maritz's vision of where VMware is heading served the dual purpose of informing customers as well as telling VMware's own internal employee base where they need to head. If one of his goals was to politely close the book on the Diane era ("we own the market") and start dealing with the competitive threats from Microsoft and Citrix, then that was successful.

BYOPC

With all of the fuss from Microsoft's big virtualization coming out party and the VMworld users conference, Citrix wasn't sitting around idle. Citrix announced its XenServer 5 edition, its partnership with Marathon and its cloud computing strategy -- Citrix Cloud Center (C3). At its analyst conference earlier this month, Citrix demoed its desktop virtualization product portfolio -- probably the most comprehensive suite of desktop virtualization products. Their "guiding light" is that ultimately CIOs will want to get out of the business of owning and managing desktops and instead will adopt the "Bring Your Own PC" for the modern workforce that wants the benefits of consumerism in order to use their own laptops and iPhones instead of clunky corporate issued devices. Two concepts -- BYOPC and "follow me desktops" form the foundations of the virtual desktop initiatives.