Lawson to ZDNet: Elephant? I Don't See an Elephant in this Room!

Last month I wrote a column for BusinessWeek about the hidden-- and substantial-- marketing costs of software as a service and it created a bit of a stir. The theme of the piece was that the Internet had killed what was once the greatest tech business model: shipping a CD of software that was too brutal to rip out and charging millions for upgrades not to mention ongoing maintenance fees. The business model that built Microsoft and Oracle and SAP, and the business model that injected profitability and growth into maturing hardware names like Hewlett-Packard and EMC.

Of course, the SaaS model-- while bad for investors and would-be tycoons eying all of Larry's yachts-- is great for customers and for those entrepreneurs who were nimble enough to "get it" ten-plus years ago. As much as I firmly as I believe the myth of the magic SaaS business model needs to be busted, I never once disputed that SaaS wasn't the future of software. Think of it like the record industry: Is an Internet world better for label tycoons? No. But it's better for customers and, well, it's a reality.

Recently, we've seen a few signs of old software grappling with this reality. One is trying to figure it out. Another is just pretending the big, loud, SaaS elephant trumpeting in its ear isn't in the room.

i2: The Software Company Even Oracle Didn't Want

Ok, that headline was a little mean. But I wanted to call attention to the fact that the last great 1990s stand alone application company has fallen: JDA Software Group (who?) has bought the once-great supply chain management company i2. i2 was purchased for $346 million, despite $300 million of annual subscription and maintenance fees. Sounds about right.

i2 has been one of those walking dead software companies-- like Siebel, BEA and others Oracle has sucked up like a Hoover Vacuum in recent years-- and its ignominious purchase at a time only software-geeks like me remember its relevance is a testament to how much the "best of breed" approach has failed in enterprise software. I think the same thing is in store for on demand software, which has already been a tougher business model than people thought a few years back, with specialty vendors making less money, with lower market caps. Bring on the acquisitions!

Since this BusinessWeek column about the hidden costs and brutal slog of building on demand software companies ran, I've gotten a load of emails from people telling me how wrong I am  -- mostly from companies with sub-$1 billion market caps and languishing stocks. Somehow, I think these people missed the point of the column. It's not that you can't build a "nice" business in on demand. It's not that it's not the future of software. And it's not that it's not what customers want. It's just that the next generation of multi-billion software names are looking pretty MIA.

Still, congrats to i2 on finally finding what appears to be a good home with JDA, another best-of-breed supply chain company. A lot of people have worked hard to clean up a lot of bubble-inflicted messes at the company and it must be nice to have some finality on some level. Here's a story I did a while back for BusinessWeek that chronicled part of it.

Ad Innovation Check In

When did I start using Innovation non-ironically? Wow. I've been a business reporter too long.

At any rate...per my earlier post 2008 is the year for ad innovation in the Web world, and I'd argue that's harder than product innovation. Why? Product innovation is fun, first off. By its very nature you are working to give people something that will delight them. It's a time when anything is possible and you are your users are totally on the same side. But when it comes to finding new, clever and affective ways to deliver ads over the Web you're inherently at odds with a user that doesn't want to be interrupted, tricked or otherwise profited from. With Web 2.0, community-based sites this is typically where the whole mob uprising thing comes in. (See ch. 5 of my book, or even just the chapter title: "The Mob Giveth and the Mob Taketh Away.")

It also can require a different skill set: Is a product innovator always a good business innovator?

That's a big reason YouTube sold to Google. Amid the iPhone hype yesterday, a lot of people missed a story in AdAge about Eric Schmidt's latest YouTube advertising idea. First off, even Google-- the king of online business model innovation or at least execution-- has not been able to crack the YouTube nut. As the story says, video views swelled to an insane 4 billion in March, even as revenues were just $90 million, according to Bear Stearns. That's a pretty big disconnect. Schmidt has said it's priority no. 1 for Google this year and rightly so. As has been documented extensively by every analyst and business reporter on the planet, Google needs a second act because it can only gain so much more market share in search and on Wall Street it's all about obscene growth. (In the years Oracle-- and a good many other business software companies-- were in Wall Street's dog house they were still indecently profitable.)

The new plan basically lets content makers sell ads on their own video "channels." It's a page out of Ning's playbook-- currently the wiliest business model in Web 2.0 IMHO. Ning from day one told users trey could pay a monthly fee for your own social network, sell your own ads or have them sell ads on your page. No free lunch, means not having to come back and charge for lunch later.

I think it's one of the smarter strategies for YouTube so far.

More on Larry...

Apparently Mark Veverka agrees with me. Eric Savitz of Barrons stopped by the Tech Ticker studios today and we revisited the Larry-as-CEO topic. BTW- don't I look like I'm hiding a pregnancy or something with the laptop placement??? I told the control room and they politely ignored my concerns. For the record: I am not. I need to figure out a better place to put that thing...

Also, had to throw in the Iron Man bit after seeing it this weekend. I love the press conference scene. Reminded me of my first Larry press conference, just after Oracle closed the PeopleSoft deal, when Larry nonchalantly sat on a stool and said, "What do you want to talk about?" I was not a comic kid by any stretch, but my friends I saw the movie with said they were amazed at how well Iron Man translated. I credit the film maker's inspiration. After all, Iron Man is a very Silicon Valley hero: conflicted, maverick, using technology to win, oh yeah, and having to deal with pesky boards and shareholders.

Henry Misses Nasdaq Shoot, and Somehow I Don't Miss Him...

Just kidding, Henry. I *always* miss you. But I had way more fun with Aaron Task today than I do on our usual satellite bicoastal segments, even though I got drenched on the way to the Nasdaq this morning! Thought I'd share a few of our segments with you very, very techy folk who are too cool for Yahoo. (Does that mean I think Sarahlacy.com is cooler? I'll answer with Owen Thomas' favorite haughty expression of mine: Duh!)

Before we get to the clips, note that Yahoo has finally released some of Tech Ticker's numbers. (They've had me gagged.)

Larry Highest Paid CEO? Damn Right.

It's not everyday you find yourself defending a guy that everyone else hates. Oh wait. Actually, I tend to do that a lot. I even found myself doing that last night! But most of them, I defend because I've gotten to know them well enough that I know they don't deserve their public reps. That is not the case with Mr. Ellison.

In the entire time I've been a reporter in Silicon Valley-- including covering Oracle for BusinessWeek-- I've never gotten to interview Larry in person, for a variety of reasons we won't go into here. I've even flown cross country to meet him and it hasn't happened.

But in my time covering Oracle, I have learned one thing: He may not deserve how much he's making, but he deserves to be one of the most highly paid CEOs in the Valley.