Outside the Lines

SAN FRANCISCO--After a decade as the chief evangelist in the wilderness of software as a service, which has morphed into cloud computing, Salesforce.com founder and CEO Marc Benioff is having a more challenging time coming up with groundbreaking industry disruptions. But that isn't stopping him from enthusiastically preaching the cloud computing gospel.

Benioff and company have built a $1 billion business and gradually expanded a CRM application, run like Google runs search in the cloud, into a platform that greatly reduces the friction involved in business software development and delivery. With Microsoft recently entering the cloud-computing platform arena with Azure and practically every vendor staking a claim to the cloud, Benioff's vision has been legitimized and turned into the next big thing. But that just makes Benioff try harder. Salesforce.com is no longer the underdog, but Benioff is relentlessly touting his "no software" theme and irreverently characterizing Microsoft, SAP, and Oracle as dinosaurs.

At the Dreamforce annual customer conference here Monday morning, before a crowd of 10,000 adherents, a supercharged Benioff came out on stage, seeking to maintain his crown as the Pied Piper of cloud-based business software. "There has never been a better time for cloud computing and for Salesforce.com," he said. He was likely referring to the troubled economy, which makes cloud-based software services an attractive alternative to traditional software business models.

The news of the day is an evolution of the Force.com, the company's development platform for building and running business applications in the cloud. Force.com sites will allow customers to run their Web applications on Force.com, and takes care of the domain, URL, and RSS management. In effect, the new service further consolidates Salesforce.com's hold on a company's data and public Web presence. The company also announced Force.com for Amazon Web Services, which allows applications to be built between the Amazon and Force.com clouds.

In addition, the company announced Force.com for Facebook, which allows developers to use the Facebook APIs within Force.com applications and tap into Facebook social graph data via the Facebook Platform and Facebook Connect. The combination will lead to social CRM and social sales, Benioff said. "Facebook has over 300,000 pages run by businesses," said Facebook COO Sheryl Sandberg during the Dreamforce keynote. "By coming together with Force.com we are about to unleash enterprise apps on our network," she said.

Steve Fisher, senior vice president of the Salesforce.com platform, showed a Force.com recruiting application running within Facebook. The connection with Salesforce.com could also be another source of revenue for Facebook, beyond advertising.

Cloud computing is becoming mainstream and Benioff is trying to ensure that he is upstream from the competition. He may not remain in that position, but he will continue to push the industry a whole deeper into the cloud.

This week Microsoft gave evidence that it will continue to be a major force for at least the next decade. The company outlined its products and strategies that more fully embrace the "cloud," such as the Azure set of cloud services; Web-based, lighter-weight versions of Microsoft Office applications; and the latest iteration of the Live Mesh middleware. Google may have won the search war, but Microsoft isn't about to cede the global cloud to the search engine giant.

Ray Ozzie explains Azure to CNET News correspondent Ina Fried.

As in past epochs in its 33-year history, Microsoft ties its success to the developer community, having an army of loyal, or at least well or modestly compensated, software warriors. The Microsoft mantra is: "Build a platform and an ecosystem of developers, partners, fans, and people willing to spend their money will follow." A compelling platform and the potential to reach a large audience of buyers, which Microsoft can deliver, attract the developers, who build the applications and services that attract consumers and business users.

Microsoft also now understands that its platform must span every kind of device--PC, notebook, smartphone, car, home, etc.--and offline scenarios. Microsoft missed the Web search revolution, but it's not going to miss out on the much bigger revolution--the move to the cloud over the next two decades.

Google is building a competing ecosystem from the ground up with similar characteristics and a desire to attract millions of developers. Amazon is pushing its elastic computer cloud, and Rackspace, EMC, IBM, and many other companies are trying to get a piece of the action. Most the cloud companies are focused on hosting services, but the biggest piece will be platforms-as-a-service with developers creating and running their applications for on a cloud operating system.

An early example of this trend is Salesforce.com's proprietary Force.com platform. Sun Microsystems, the company that coined the phrase "The network is the computer," has all the pieces to construct a planetary cloud but seems to be missing from the discussion. As my friend Steve Gillmor notes, Sun is on the ropes.

Openness is a major issue as the global cloud materializes. Businesses don't want to be locked into a particular cloud, and also want various clouds and services to interoperate via standards. Speaking at the Professional Developers Conference last week, Microsoft's chief software architect Ray Ozzie said that the foundation level in the operating system cloud would run in Microsoft's data center, but SQL services, .NET, and Live services can be mixed and matched by developers inside and outside of the company's datacenters. The Azure cloud is also cross-platform, but the various clouds will extract a toll and by nature it won't be dead simple to move applications using foundation services from one cloud to another.

Microsoft's cloud computing efforts have gotten off to a slow start compared with competitors, and it's on the scale of a Manhattan Project for Windows. Azure is in pre-beta and who knows how it will turn out or whether consumers and companies will adopt it with enough volume to keep Microsoft's business model and market share intact. But there is no turning back and Microsoft has finally legitimized Office in the cloud.

Ray Ozzie has a track record of slowly but surely getting things done and Microsoft is famously persistent and cash rich. But building a platform, or Internet operating system, at planetary scale supporting billions of users and trillions of transactions per day, and having fleet Google as a primary competitor will be a major test of Microsoft's brain trust and resolve. Don't be surprised to find a recharged Bill Gates parachuting into the fray as Azure evolves and the cloud war for developers escalates.

See also:

Scoble: Never underestimate Microsoft's ability to turn a corner

Wilcox: How Can You Be So Sure about Azure?

Guest post: Jean-Louis Gassée explains how Microsoft's future business model will borrow from both Apple and Google to compete with the free world of software. The essay was originally posted on Monday Note.

How do you compete with free? That's the question Steve Ballmer, Microsoft's CEO, is trying to answer every morning when he goes to work. On the server software side, Windows Server is doing well, especially with the Exchange e-mail server and the unheralded but very good collaboration server, SharePoint. These products have matured, they're relatively easy to set up and manage by IT organizations. The Exchange component is a spectacular success: it manages e-mail, contacts, calendars for hundreds of thousands of organizations all over the world. Even Apple finally embraced Exchange: the iPhone now syncs well with Microsoft's server and the next version of OS X promises "native" Exchange support. In plainer English: Apple's Mail, Address Book and iCal programs, for example, will sync with Exchange "out-of-the-box" just like the iPhone does. (This will be a relief to suffering Entourage users. Entourage is Microsoft's own Outlook sibling on the Mac, but it is a poor relative and lacks Windows' Outlook depth and polish.) Seeing that Windows Server generated more than $20 billion last year, one is tempted to think everything is going swimmingly.

Unix is the problem or, rather, the free Open Source implementations of its function set called Linux and FreeBSD, to name the best-known variants. While Windows Server and Exchange still reign for many Enterprise applications, tens of millions of Web sites run on Linux of FreeBSD software. Further, the Open Source nature of such software encourages sophisticated users to modify the operating system to fit their specific hardware configurations or applications requirements. For example, Google designs and manufactures (!) its own servers and customizes the Open Source OS they run. There's even a rumor they "roll their own" 10-gigabit Ethernet switches but I don't know vouch for that one. In any event, imagine how much the Google account would be worth to Microsoft if the Mountain View company used Windows Server? Knowledgeable readers will immediately object: Google running Windows Server isn't realistic. Not for price reasons but because Microsoft's server software isn't technically suitable for large "server farms" such as Google's. True. It'll be interesting to look at what Microsoft uses for its own Live cloud. In the past, Microsoft has had to resort to "other" server software for applications such as Hotmail. But, "scalability issues" (the ability to grow to serve very large server farms) aside, Microsoft is losing against free server software for the millions of simpler Web servers sprouting all over the world. And, as Linux and its cousins mature, they will inevitably make inroads in Enterprise applications where Microsoft still leads. Open Source competitors to Exchange do exist, they're not yet a strong threat but, if they keep improving, they will erode Microsoft very juicy server business.

On the desktop, Linux is trouble again, but much less so than in server farms. For consumers, as opposed to technically versed sysadmins, ease of use is still a strong plus for Windows. I bought two identical Asus EeePC netbooks, one running Windows, the other a Linux distribution. Windows is still much easier to use and update, Linux is still a little rough on normal humans. One example out of many glitches: the version I used didn't remember Wi-Fi access points and passwords. I had to re-enter everything each time I turned the machine on. This type of problem has prevented Linux from gaining much ground on the desktop.

But this could change: the success of netbooks, their large unit volumes could encourage a manufacturer such as Asus, Acer or Lenovo to invest in the needed polish to make a Linux-based netbook as easy to use as a PC or Mac -- or close enough at a much lower price. And the name, netbook, reminds us it might not need today's (or is it yesterday's?) full suite of robust desktop applications to succeed--it will run applications on/from the Cloud. Imagine a Google netbook.

Lastly, smartphones. Ballmer tries to change the subject by suggesting Apple ought to license its iPhone OS as opposed to keeping it all to itself. Let's skip over Microsoft's proprietary Xbox and Zune software and, perhaps, the upcoming Danger smartphone. Danger, the maker of the Sidekick PDA, is the company Microsoft bought earlier this year,. Microsoft has been selling Windows Mobile licenses for close to eight years now. In the licensing business, the iPhone isn't the real competition, Android is. How do you compete with a free smartphone OS, and a good one at that, which is supported by Google Cloud applications?

My guess is Steve Ballmer is working on a combined answer, one that is sketched before our very eyes already. Microsoft's Live services are but a rehearsal for a much bigger act, Microsoft's Cloud OS, sometimes called Strata. And, based on Microsoft's own Cloud services, we'll see a Danger-based smartphone, as proprietary as the Xbox and the iPod competitor Zune. Put another way, Microsoft's future business model will borrow from Apple and Google, it will have two components: proprietary devices and "universal" Cloud services. And like its models, it will attempt to extract extra profits by nicely tying both components together. For example: iPods are tied to the iTunes service, Android phones might (we don't know yet) better enjoy Google applications.

Interesting times ahead.

Jean-Louis Gassée is a general partner at Allegis Capital. Prior to his venture capital career he founded Be, Inc., which was sold to Palm in 2001. Gassée also held several positions at Apple Computer. He started Apple France in 1981, and in 1985 became president of the Apple Products Division. Earlier in his career Gassée as worked at Data General, Exxon Office Systems and Hewlett-Packard.

Guest post: Christopher Lochhead, the retired chief marketing officer at Scient and Mercury, offers a follow-up from his post in August on how companies can thrive in a prolonged economic downturn.

Reading The Wall Street Journal and watching CNBC lately can drive a person (namely me) to drink. Which is fun, but beyond answering the question, "Which scotch will I drink?" the seminal question is "How do we thrive in a downturn?"

Downturns are the best time to take market share. Most companies overreact. They get too conservative. They also forget that they are not the victims of the market.

Customers buy (or they don't) based on the way we do business with them, not the other way around. So now is the time to get aggressive, compel customers to buy and hit competitors when they are weak.

I am reminded of the sage words of Steven Tyler, the lead singer of Aerosmith, who said, "Love in an elevator, livin' it up when I'm going down." Well, it's time to live it up.

Invest in new technology
Time has proven that companies that leapfrog with technology win. It is surprising how slowly Web 2.0 and other important new technologies are being adopted in the enterprise. Much of the innovation seems to be coming in the form of new consumer services and technologies. Now is the time for the enterprise to move from Web 1.0 to 2.0. There is a whole new range of new 2.0 stuff to look at and implement. Here is a list of a few of my favorites:

• Cloud services
• Enterprise social software (Social networks, wikis, blogs, prediction markets)
• New software as a service (SaaS) apps
• The emerging category of PaaS (platform-as-a-service)
• Blade servers and storage
• New virtualization & provisioning technologies
• New mobile apps (Anyone notice the iPhone & BlackBerry growth?)

Business technology budgets at many companies will do down in this downturn. The question is, can companies cut and grow at the same time. They need to find and cut waste to fund new Web 2.0 projects. Optimization is the key. Following are a few ideas:

• Whack 10 percent of all development projects (At least that many are no longer needed.)
• Cut production apps by 10 percent (At least that many are under-used.)
• Increase data center and application consolidation efforts
• Look at more areas to outsource

Launch a bold marketing campaign

In bad times, customers look for solid companies. Brands that are visible win. The worse thing you can do in a downturn is cut the marketing and sales budget by too much. While some belt tightening across the enterprise is prudent, this is one cost center where too much cutting can kill you. One area you can cut in marketing is the reach and frequency advertising. It is more powerful and cost effective to go big, in a very targeted way for shorter lightening strikes, than to spread an advertising budget evenly over 12 months. Don't forget, if you make your brand disappear for a while, it may disappear forever.

The seminal move is to figure out what the key differentiator is for your company. Then launch a campaign to drive home that differentiation while building the category for your offerings. Consider traditional approaches (advertising, PR, direct, events, etc.), but emphasize nontraditional, highly-viral ideas. Here are some great recent examples:

• Trek Bikes challenges people to ride their bikes more with their new Web site.
• Kinesio, the new athletic tape, gave their product away to athletes from 58 countries for use at the Olympic Games. One look at the wild, black spidery-like tattoo-tape on Kerri Walsh's body as she swatted volleyballs down opponents throats and a lot of people started buying the stuff.
• This summer legendary billionaire corporate raider and oil man T. Boone Pickens launched a bold campaign to create a breakthrough in market demand for alternate sources of energy. His ads, Web site and PR (appearances on CNN, Fox News, the New York Times and many, many more) make his case for reducing American use of foreign oil and embracing wind, solar, and natural gas, all while creating demand for his new companies.

Buy companies

Downturns are the best time to buy companies, and here are four reasons:

• Valuations and market caps are way down. Any company you want to buy is a lot cheaper today then it was a year ago.
• Doing acquisitions now allows you to expand your market footprint fast, with new offerings, customers, geographies, or markets.
• The dreaded word "synergy," which is a euphemism for layoffs and cost cutting. It may be harsh to say, but acquisitions are a great excuse to take unneeded people and costs out of both the company you are buying and your own company.
• It sends a strong message to your customers, people, competitors, and shareholders that you are a bad-ass company that is going for it, when most of your competition is hiding under their desks. This will often drive them to buy more of your product and your stock.

Making smart cuts is part of winning in downturns. But no one ever cost-cut their way to greatness. Now is the time to go on the attack. It just takes courage, cash, and conviction.

Click here for ongoing coverage from CNET News, 'Tough times for tech'

After twenty years in business and being the marketing chief at three public companies, Christopher Lochhead retired at 38. Now, he serves on a few boards and is a part-time strategy advisor. Every year he gives a handful of speeches, and from time to time writes something. Check out www.lochhead.com.

In this week's EIC Squared podcast, ZDNet's Larry Dignan and I talk about how the economic crisis will impact the tech sector. Both the House and Senate have passed the bailout package, but the legislation doesn't mean that tech or any other industry sector will reverse the downward spiral. Tech companies and financial analysts are rapidly cutting estimates to prepare for a potential nuclear winter in the global economy.

We also discuss Microsoft's forthcoming moves into cloud computing and the state of citizen journalism following the fake Steve Jobs heart attack story that showed up on CNN.

Microsoft is applying its tried and true formula of creating software platforms that can attract millions of users and developers to the hosted applications world. It will be the next major frontier for Microsoft to conquer, competing with companies such as Amazon.com, EMC, Google, IBM, and others. And it's safe to bet that Microsoft becomes one of the major players in the cloud. More to come at Microsoft's PDC event later this month.

Finally, a technology executive willing to tell the truth about cloud computing. Speaking at Oracle OpenWorld, Larry Ellison said that the computer industry is more fashion-driven than women's fashion and cloud computing is simply the latest fashion. The Wall Street Journal quoted the Oracle CEO's remarks:

"The interesting thing about cloud computing is that we've redefined cloud computing to include everything that we already do. I can't think of anything that isn't cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women's fashion. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?

"We'll make cloud computing announcements. I'm not going to fight this thing. But I don't understand what we would do differently in the light of cloud."

I led a panel at the MIT Emerging Technology Conference earlier this week on cloud computing with some of the leaders in the field: David P. Anderson, research scientist, University of California at Berkeley; Matthew Glotzbach, product management director, Google; Parker Harris, EVP, Technology, Salesforce.com; Mendel Rosenblum, chief scientist and co-founder, VMware; and Werner Vogels, VP and CTO, Amazon.com. The group generally agreed that cloud computing involves software running off premises, but that there are different workloads and kinds of scenarios.

The problem is that every tech company now wants to be associated with cloud computing, no matter if their products and services meet the basic criteria. At least Ellison isn't afraid to address the hijacking of the phrase by marketers, including Oracle's.

Frank Gillett of Forrester speaks about the cloud envy of various companies who jump on the cloud computing bandwagon by rebranding existing services in this interview with Beet.TV.

The pile of digital data is growing, doubling every 18 months or less. That pile is the new gold, drawing data miners hoping to strike it rich by finding patterns and uncovering insights that can lead to more efficient markets, higher productivity, safer streets, and the much loved increased profits.

Stephen Baker's new book, The Numerati (Houghton Mifflin), introduces some of the data miners, or numerati, who are leading efforts to probe the depths of the global data dump.

He profiles several numerati, focusing more on the personalities and potential use cases than the arcane details of the computer science and mathematics. Baker, who has written for BusinessWeek for more than 20 years, paints a rich portrait of how the flood of data and the efforts of the numerati will transform shopping, marketing, politics, health care, matchmaking, work, medicine, and other disciplines.

"Just as they've helped medical researchers find genetic markers pointing to certain types of breast cancer and Huntington's disease, they might tell grocers what type of fruit to promote to buyers of canned food or what kinds of magazines dog-food buyers tend to read," he wrote.

IBM researcher and featured numerati Samer Takriti is building detailed mathematical models of 50,000 of his colleagues. Baker describes Takriti's ultimate goal as follows:

"The goal here is to build entire models, complete with each person's quirks, daily commute, and allies and enemies. These models might one day include whether they eat beef or pork, how seriously they take the Sabbath, whether a bee sting or a peanut sauce could lay them low. No doubt, some of them thrive even in the filthy air in Beijing or Mexico City, while others wheeze. If so, the models would eventually include this detail, among countless others. Takriti's job is to depict flesh-and-blood humans as math."

In practical application, data processed by numerati from calendars, instant messaging, e-mail, cell phones, social networks, project records, resumes, and other sources could render a digital portrait of each worker. Machines could handily determine the optimal group for a specific project, taking into account budgetary, geographical, and other constraints.

The data could also be used to ferret out employees who aren't fulfilling their productivity quotient or are bypassing the chain of command. Companies have technology installed to monitor e-mail for spam, porn, and other abuses, they might as well use it to see what people in the company are thinking, Baker told me in a conversation last week. He acknowledged the significant privacy issues that go along with unleashing numerati on the world of data and addresses the issue in his book:

"At work, perhaps more than anywhere else, we are in danger of becoming data serfs--slaves to the information we produce," he wrote.

"Part of what needs to be calculated is how much this freaks out workers. It impacts productivity and the morale of employees. If a big technology company gets a reputation for monitoring every keystroke, the smart people will choose to work elsewhere. Companies have to figure out what works and what is overkill or freaks people out," Baker told me.

He states in his book that the "mathematical modeling of humanity....promises to be one of the great undertakings of the twenty-first century." This concept could be applied to Google and other companies who are extracting and analyzing billions of digital signals generated by individuals and groups.

Just because computer science and applied math makes data divination possible, the means don't necessarily justify the ends. The same technology used to determine the mathematical model of a terrorist or poor performer in the workplace can be used to violate the privacy and rights of unsuspecting, innocent people.

Baker told me in our conversation that we need tools to decide what information to share and with whom. Some of the social networks and major Web sites are working on that problem, but the solutions so far are inadequate. We'll need a generally accepted Bill of Rights for personal data to give the numerati and their overseers guidance on how to avoid "evil" in the evolving digital world. Of course, that is wishful, optimistic, and, perhaps, naive thinking.

On this week's EIC Squared podcast ZDNet's Larry Dignan and I discuss Google's latest disruption in the Web 2.0 field, the Chrome browser, as well as Apple's product launch event on September 9. In addition, Larry explains his idea that Dell and Salesforce.com could merge. Dell is trying to be more of a software company and is using the Force.com platform, and Salesforce.com is a major Dell customer. But, it's unclear how Salesforce.com, its shareholders and customers, would hugely benefit from a union.

Google is well known as a one-trick pony.

Almost all of the company's revenue comes from its search engine, which last quarter accounted for more than $5 billion. New initiatives, such as the Chrome browser, Google Gears, and Google Friend Connect, are focused on building a mostly open-source Internet operating system out of Google technology in order to funnel more user data and targeted advertising opportunities into the Googleplex financial engine.

It's easy to draw parallels to Microsoft, which gradually built the dominant 20th century operating system and applications platform. Bill Gates and company realized that attracting developers to the Windows platform was key. Google is following that advice with its open-source projects and allowing its mad scientists to try to remake the early 21st century software world and take on Microsoft.

Microsoft has led the way with productivity software, gaining a more than 90 percent share of market with Microsoft Office. Google is hoping to replicate Microsoft's office suite success with Google Apps. It's far less feature-rich than Microsoft Office, but Google Apps Premier edition is far cheaper at $50 per user per year.

For some companies, Google Apps is "good enough," and its cloud-based, collaborative core is an advantage--no Microsoft SharePoint server required. Even with a few enterprise wins, Google Apps is a puny business. According to a Fortune article, Google brought in about $4 million with its Google Apps business in 2007, compared with $12.2 billion for Microsoft Office. Google Apps is a profitable business, according to Matthew Glotzbach, enterprise product management director at Google.

Since early this year Google has been touting 500,000 active business customers, primarily small businesses, using at least one of the Google Apps, and more than 10 million active users. In addition, thousands of universities, with more than one million active users, are using Google Apps, the company said. So far, Google's biggest wins are Valeo, a leading automotive suppliers, with 32,000 users, and the District of Columbia, with 38,000 employees.

However, the vast majority of Google Apps users are not paying customers. The company maintains that "hundreds of thousands" of users are paying the $50 annual fee. The $50 per-user-per-year Premier Edition offers several features lacking in the free Standard Edition, including Postini messaging security, APIs for integrating Google Apps with IT infrastructure, 24x7 support, 99.9 percent uptime guarantee for e-mail, Google Video and 25GB of storage per account.

At this point, Google is underplaying the number of Google Apps business customers. The company has been saying that it is adding 3,000 businesses a day, which amounts to over 1 million per year. The reality today is that Google has more than a million Apps business customers. In addition, the Apps suite continues to fill out, most recently with Google Video.

It took Microsoft years to build a base of applications and developer ecosystem for Windows and Office. Google faces the same uphill climb for Apps and its fledgling Web operating system. The company hopes to ride on the backs of the younger generation that has grown up on the Web and identify with the Google brand. As the Google generation moves into positions of purchase authority within businesses, Google is betting that those decision makers will shun Microsoft, especially as Apps product features improve. Of course, the resilient and relentless Microsoft will respond to Google's challenge when it is more than a $4 million or even $20 million blip.