OPINION

Systems Integrators and the New Garage

Salesforce.com issued a press release last week that by now looks rather ho-hum by its standards. The company announced that Deloitte & Touche had signed on as a systems integration partner and that got me thinking about how many things have changed, and how many have not.

It wasn’t that long ago that Marc Benioff was comparing Salesforce with Siebel and the different amounts of integration resources it took to get the respective solutions up and running. His point was about the complexity of client-server architecture and the simplicity of on-demand. That was then. Today, there is still plenty of complexity in the IT department with all of its legacy systems and integrating with them can be a challenge, so teaming up with the integrators makes as much sense now as it did then.

Pulling Them In

Almost three years ago, I forecasted that the integrators would have to become involved in the on-demand market for the simple reason that the market was pulling them in that direction. The integrators have great relationships with the largest corporate IT users that go back many years and multiple implementations — if you plan on integrating your on-demand solution with the rest of the legacy applications in the glass house, they are necessary.

Nonetheless, the association was not a slam dunk for the systems integrators (SIs) for the simple reason that there isn’t as much to be gained for them in deploying an on-demand solution. The turning point has been the need that users have for both lower cost of ownership and the reality of their legacy systems. As I said at the time, and still believe, there is still a lot of work for the SIs to do even if they never take on another traditional integration project.

SIs could probably make more money sticking with conventional software deployments, but the number of customers willing to take on conventional software is in decline, hence the apparent rush to hook up with the on-demand players.

To be sure, on-demand vendors have done a lot in the last two years to make their products appealing to the integrators. Platform technology, open architectures and openness to custom coding are all responsible for the SIs interests, and the openness comes down to the same basic motivation. It will be years before any enterprise goes to a 100 percent on-demand IT profile, if ever.

In the long interim, there is real money to be made hooking up modern on-demand solutions with increasingly archaic solutions that originate from enterprise software vendors and internal IT shops. Someone has to manage all that spaghetti, and the logical choice is the systems integrator.

The New Garage

Integrator involvement with on-demand is the last part of the rollout of what I called the “New Garage” in 2004. I am still waiting for the term to catch on. The idea was that innovators needed more control over their destinies, and it needed to become possible once again to build software in your garage or spare bedroom and eventually build a company around it without all the high stakes games played with venture capitalists.

Venture capital is good and necessary, but I think we got into a mode during the bubble years — and since to a great degree — of thinking that if you couldn’t get funding for your idea that it wasn’t good enough to pursue. Just looking at all of the emerging companies that are working from the AppExchange makes you realize that not having capital is no reason to scuttle a dream.

On the flip side, a lot of companies that got funding back in the bubble years crashed and took a lot of money with them. There had to be a more efficient way for the market to work, so for a lot of reasons it made sense to me that the next move would be back to basics.

VCs are still an important part of the picture and like SIs, they are morphing. For example, Salesforce launched its incubator a few weeks ago with which it hopes to provide “garage” space for innovators using its platform. Incubators like this should enable innovators to make less expensive mistakes and enable the investors to see more before they put serious money into a venture.

This also signals a new kind of VC model evolving too. Rather than investing in myriad companies, investors might begin looking for themes such as specific business processes to support. That approach worked well in the back office, and I think it might be time to examine how it works in the front office.

Only the Beginning

We have already seen the beginnings of a transition from conventional software to SaaS (Software-as-a-Service), even for the largest enterprise software vendors.

SAP recently announced its investment in a new business model for the mid-market, which surely will grow up to take over the company’s largest customers, and Microsoft has been dabbling with various on-demand models for a while, not wanting to put all of its eggs in one basket. Oracle has its own ideas that range from Siebel On-Demand to a hosted facilities management option.

For all that though, it’s the business models of the major software companies that need to change most. It’s one thing to tell the world you can offer an on-demand solution and quite another to handle all the details of a successful partner community, which is a necessary part of it.


Denis Pombriant runs the Beagle Research Group, a CRM market research firm and consultancy. Pombriant’s research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and Web site. He is working on a book and can be reached at denis.pombriant@beagleresearch.com.


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