CIOs are a Smart Bunch

In talking to CIOs these days, I’m hearing a lot of commonalities when it comes to discussing their focus and priorities.

One of these common threads is the need to opt for on-demand solutions over traditional on-premise software options because of man-power constraints. It seems there simply are not enough skilled folks to administer to these bulky on-premise software tools any longer.

Doing a little casting about on the internet, it seems as though I’ve hit upon something that’s begun to pick up steam: CIO.com published this great article about that very same topic. To quote the author, Thomas Wailgum:

“…however, there is a bigger problem that on-premise software vendors face: The net effect of the skills shortage is pushing existing and potential customers to consider alternative software delivery models, AMR Research analyst Dana Stiffler contends.

‘I think what it really means long term is that people are really crying out for a different delivery model for enterprise software and business functionality,’ she says. ‘And it's my belief that combinations of SaaS and business process outsourcing (BPO) will eventually begin to emerge and make that gap be slightly less noticeable.’

I’ve been banging on the ease-of-use drum for awhile. Consistently, I’ve called attention to the lower cost of entry, lower TCO, instantaneous upgrades, plus the freedom and flexibility that come with a subscription-based service model, but now we must add: no need to hire specialized, expensive personnel to administer to the technology.

Those on-premise software vendors better think about founding some schools just to train qualified technicians for their applications!

Better yet, I don’t want to wake any of them up. Forget I said anything.



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A History Lesson - Wall Street-style

"Those who cannot remember the past are condemned to repeat it."
--George Santayana
(The Life of Reason - 1905)

It’s at times like these that I’m extremely glad I live and work in California, as I would not want to be anywhere near the smoldering wreckage of Wall Street at the moment.

Are we nearing a serious financial crisis? Both presidential candidates seem to think so, as they are each piling in to the latest financial news and using it to boost their campaigns.

It got me thinking about how long these types of securities scares have been taking place.

A long time, as it turns out. Many people seem to believe that the dot-com bubble of 1999-2000 was the first of its kind.

Not so, my friend. You would be off by about 300 years, in fact.

Way back in 1720, the first ‘stock market crash’ rocked the old world. At the time, England was strapped for cash after its involvement in Spain’s War of Succession, so King George I made a deal with a private firm – the South Sea Company – granting them a monopoly on shipping trade routes with Spain.

George saw this as a good vehicle to finance government debt, and the wealthy saw it as a good opportunity to invest some of their hard-earned shillings. It became ever more fashionable for society folks to buy stock in the South Sea Company, and it drove the share price sky high.

Stock certificate for the South Sea Company – circa 1719

Meanwhile, wealthy folks in England were so eager to buy into the company, to keep up with the Lord Joneses as it were, that they were blithely oblivious to one minor detail: the company failed to show any kind of profit, mostly due to the fact that King Philip of Spain was resolutely unwilling to negotiate any more than three English voyages per year in his waters.

Oops. That might have been something that would show up in a good 10-Q or 10-K, hm?

Regardless, the precarious financial house of cards finally came tumbling down, after shares peaked in September of 1720. Investors got wise to the situation, a mad rush to sell shares ensued, and many fortunes were left in tatters.


Even celebrities took a bath on the South Sea Company: "When Sir Isaac Newton was asked about the continuance of the rising of South Sea stock? ---- He answered 'that he could not calculate the madness of people'. (Spence, Anecdotes, 1820, p368); Newton's niece Catherine Conduitt reported that Newton had participated and "lost twenty thousand pounds (a giant fortune at the time). Of this, however, he never much liked to hear..."

This was the world’s first economic bubble.

It reminds of the heady days of 1999 and 2000, when Priceline.com – a little-known website where consumers could ‘name their own price’ for airline tickets and hotel rooms went public despite never having come close to turning a profit; and on the strength of their decision to hire William Shatner as their celebrity pitchman, Priceline’s share price soared, and the company’s valuation was higher than that of the three largest U.S. airlines… combined.

When investors remembered that public companies were supposed to MAKE money, Priceline’s share price retreated faster than a French infantry unit that comes face-to-face with a Cub Scout troop.

This week, I’ve been interested to see what the reaction would be in the wake of the triumvirate of bombshell announcements that came to light – the sale of Merrill Lynch to Bank of America, the declaration of bankruptcy by 158-year old Lehman Brothers Holdings, and the frantic scramble for cash by insurer AIG.

The Federal Reserve Bank chose to reassure the shaken financial markets by holding the U.S. interest rate steady – and in response, the stock markets bounced around in an attempt to make sense of it all.

What does it all mean? Is it, as some have suggested, a harbinger of another crash like the one Wall Street suffered in 1929?



I don’t see it that way, partly because this is a more sophisticated time, although there are times when we seem doomed to repeat the past. For example, the sub-prime credit crisis was predicted far and wide prior to it happening, and Warren Buffett – in the late 1990s – decried the internet bubble as untenable, since it made no kind of sense to have unprofitable companies (companies who had NEVER shown a profit) sporting multi-billion dollar valuations.

I thought about attempting to tie this whole post back to the SaaS market in general, perhaps drawing a thin analogy to the fiscal prudence of using an on-demand model, but I’ll save that for a different day.

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Are We Hearing the Death Rattle of On-Premise Software?

Lately, I’ve been somewhat bemused when I see a small subset of the SaaS buzz that is registering out on the fringes of the blogosphere.

There seems to be an undercurrent of negative sentiment toward the on-demand world these days, and while I’m bemused, I’m not surprised.

I don’t want to confer validation on any of these ridiculous statements by calling them out specifically – though Jeff Kaplan (founder of THINKstrategies) does a very nice job of echoing some of my sentiments in this insightful article that was recently published on SeekingAlpha.

You’ve got people predicting the imminent demise of the SaaS market. Some folks would describe a prediction like that as ‘fuzzy thinking’ – and they’re half right; it’s fuzzy, but it’s not thinking.

The SaaS market is expanding like a balloon at the moment, which is why analysts are quoting growth rates of more than 100% in the next two years.

There are other recent examples of people attempting to throw water on the SaaS flame, but in my mind this fire will not be quelled – in fact, we’re not far from it becoming a raging inferno. However, this hasn’t stopped the haters from hating.

Is this not the *definition* of a ‘disruptive technology’? “…a technological innovation, product, or service that uses a "disruptive" strategy…to overturn the existing dominant technologies or status quo products in a market.”

HOW LOW-END DISRUPTION OCCURS OVER TIME (source: Wikipedia)

That’s what we’re seeing at the moment, I think – the ‘status quo’ vendors in the software space have become roused from their slumber and are reacting angrily to this challenge to their supremacy. So let’s call it what it is: the Death Rattle of the on-premise software world.

"If we are really dying, let us hear the rattle in our throats and feel
cold in the extremities; if we are alive, let us go about our business."

--Henry David Thoreau, ’Walden’(1854)