After a small conversation with Frank Scavo – whom I hold highly – it struck me: we old enterprise boys that keep kicking the #socmed chins might be on our way to retirement. Not saying that Frank’s one of them, but I certainly count myself to the pack as I’ve only been around multinationals and global companies for the past 15 years. I’ve never consulted a national company – save governmental agencies – let alone SMB or even smaller
I’m talking IT, of course – as usual. And I had a moment of revelation. IT used to be so expensive decades ago, that only big (or in the very beginning, huge) companies could afford it. Buy a mainframe (currently you all have one of those in your hands when you use mobile) 30 years ago? Cost a fortune, and you’d write that off in 20 years – you’d hope
Then, the pace accelerated. Mainframes got company from midframes, a little later the client-server concept kicked in: one slim server but fat clients on all sides so eventually it would all end up to the computing power we were used to. The time-sharing invented in the 1960’s which I now equate to Cloud, at least when it comes to PaaS, was a predecessor of the “we want more for less” paradigm
Still, with the client-server concept, it was purely business oriented: IT consumers didn’t exist in the last century until the nineties, when that market slowly came to rise. Main applications back then were Microsoft Office, and games – but it was a market in which both were priced too highly to get any decent spin-off, and floppy disks were easily exchanged – there goes the profit
Then, the 21st century came – and Linux along with it, targeted at the consumer. Did that work? Not at all, even Linux was used by businesses to lower the cost of operation. It coincided nicely with the rise of web servers to offer business-to-consumer (B2C) services via internet sites and web shops. Some raving lunatics equated those web servers, supplying functionality to customers, with web services and the biggest mistake in IT since object orientation saw the light – services have always been channel-independent and always will be, so after 10 years I can finally smile at the demise of web services, XML and SOAP. REST, JSON and … are now taking their place – there’s still a lot of work to do before we can get back to the blessings of the 20th century when it comes to information exchange
Back to topic: the market became increasingly more consumer-oriented, yet the only commodity offered was internet browsers, email and search engines – and how extremely difficult those were!
At the same time, Google arose. They focused on a search engine, and did a great job. It wasn’t business-oriented, it wasn’t consumer-oriented, it was just a search engine and entirely Internet-oriented, and free
Many fanbois whine about Apple being so great – well memory serves me correctly and Apple just sucked hard in the 20th century. Way too expensive, compatible with nothing, and as arrogant as a queen-bee. Apple is still way too expensive, compatible with nothing, and as arrogant as a queen-bee, but at least Google provided them with a means of existence (and of course Microsoft saved them from bankruptcy in 1997, not to mention Intel gave them another much-needed boost in 2005) – but the real reason that the consumer market finally broke through, was the fact that you could actually go onto the Internet, go to Google and know where you had to go – Apple finally found an audience
My first computer was a P-2000, back in 1981, and I wrote a game on it – in BASIC. 8 years later I owned my first PC, and I fooled around on that in DOS and Windows 3.1, changing everything to my liking. Oh and I did play games that my friends handed me on diskettes, and vice versa. I went online in 1997 and didn’t have a clue where to go – what was I looking for? Browsers and email and search engines kept struggling with the new model where unknown people would use their product with unknown results, and the outcome was simply bad
Then, Google came along, as the new kid in town, and was applauded for its bravery. Today, it’s a billion dollar company with only 20,000 employees that revenue 1.2 million dollars each, and generate an operating profit of $ 420,000 per employee – and increasingly their “don’t be evil” slogan gets questioned
Compare that to the old enterprise world: Oracle, HP, SAP and IBM. Together they don’t have 20,000 employees, no, they have 1,000,000 employees: 1 million, 50 times as much as Google. What is the combined revenue per employee of those four then, you might ask? I have the answer
The combination of Oracle, HP, SAP and IBM has a virtual average employee that revenues 310 thousand dollars a year; 4 times less than Google.
How much operating profit do they get from that then? Well, if you fasten your seat belts, I’ll tell you. Ready?
The combination of Oracle, HP, SAP and IBM has a virtual average employee that generates an operating profit of 55 thousand dollars a year; 7.5 times less than Google. Remember now, you old lovers of economies of scale: that virtual combination has 50 times as many employees as Google, and operates almost exclusively in the enterprise market
So, does Google get enterprise? Maybe, maybe not – but please do tell me under which rock the business case is hidden where it shows them that they should.
The enterprise market is dying, the consumer market is adolescent – faites vos jeux – carefully…
(Cross-posted @ Business or Pleasure? – why not both)
For one, I don’t agree with your contention that Linux focused on the consumer.It was initially a hobbyist OS, then became a server OS and it is still yet to make any significant inroads.
Also I dont agree that Apple survived because people could visit the Apple website through Google. Thats just way too simplistic, and wholly incorrect, way of looking at the come back of Apple (and Steve Jobs). Without good product, a search engine cant do anything.
Most importantly,its a completely fallacious argument you are making about economies of scale. Oracle, HP, SAP, IBM and Google are different companies with very different product. For example, Oracle(Sun),IBM and HP are into hardware, Google and S&P aren’t. IBM has a huge IT service business but the rest don’t. You are comparing very different businesses with very different labour and capital requirements. The IT services business or the hardware business has far less margins than something like search or product development. You are comparing chalk and cheese.
Also, ‘getting enterprise’ should be important to Google. With consumer products, your company and its products face a much bigger risk every time you launch something new because building relationships with the end consumer is tougher than building a long lasting relationship with another business. It’s also tough to gauge the requirements of a much larger consumer base rather than a smaller number of enterprise customers where you can even build in customer specific customizations. Bottom line :revenues from enterprise is more steady and predictable. If I were an investor in Google (or Apple) I would be more at ease if it had significant enterprise presence (more so in case of Apple).
Thank you Sandip – although you do make a few assumptions here
Linux was targeted as a client OS for sure, there’s no doubt about that
It certainly wasn’t a hobbyist OS, it was the first open source OS. It was so good that 70% of web servers, mail servers and DNS servers now run Linux (http://en.wikipedia.org/wiki/Usage_share_of_operating_systems#Servers) – you shouldn’t let yourself be fooled by the trick that most “usage stats” measure in revenue rather than units: of course Microsoft wins out on that
I also didn’t say that Apple survived because people were able to locate their website – you don’t need Google for that anyway
I took the four largest enterprise IT providers. Btw, HP provides more IT services than the others combined, so again there you’re wrong. Apple sells hardware and software and they also provide services to consumers, so it’s a perfect comparison – and don’t whine about margins when my point is that margins Google makes are hugely better than margins made by businesses who are in the enterprise market
To get back to my Apple rant: Apple has always sold products that were priced too high, and they created many failures: http://www.wired.com/gadgets/mac/multimedia/2008/01/gallery_apple_flops?slide=1&slideView=9 will give you a good impression of those, oh and did I mention Apple TV?
With regards to your second comment: who needs relationships? What for? Requirements? Whereas the enterprise market is dominated by customisation, the consumer one is dominated by standardisation
I agree you are a geek, as you state yourself on your site…
I have been using Linux since kernel 2.2 and even then you had to be lucky to get the GUI up and running on your board.Things improved with 2.4 but the GUI still wasn’t that great. It wasn’t until some of the later releases of Suse, Mandrake and finally the advent of Ubuntu that things started to improve. Redhat made all its money on enterprise and so did Suse(Novell). Until Ubuntu I did not see much attention given to usability in Linux. I don’t hate linux; in fact I founded 2 LUGs (one in my 8th grade). Linux still is pretty much limited to servers and desktop presence in minuscule(sadly).
Now about the comparison. Let’s take IBM versus Google as an example.Now IBM has a huge Global Services division which is basically IT services. Now profit margins in IT services, a manpower intensive business, cant even compare with something like search which is Research intensive but not manpower intensive. That is why I said the comparison was not valid. Google enjoys both economies of scale and scope. It’s huge datacentres are example of that. It would cost more to host each of the services (like GMail, Search, Google+ etc) separately than it would to host them together. In fact, a friend of mine working at Google datacenter engineering team told me that hosting Google+ was not much of a load on google’s computing resources to the extent that the infra costs were negligible.
And yes, I know of Apple’s many failures. I am not an Apple fanboy. More like a Google fanboy 😉
As for relationships, I could explain it to you in terms of economics, more precisely ‘transaction costs’. For a enterprise, the transaction cost (cost of searching for providers of a particular service, evaluating them, bidding, forming a contract, implementation and other issues) are far higher than those for a single user. Hence enterprises would enter into longer contracts, and would not be as ready to try out new services/products as a individual user. There is lies the challenge for a user oriented company like Google or Apple.
Great Post…
The bigger question is why does’t the enterprise get “Google”…
John Willis
DTO Solutions
a.k.a @botchagalupe
Martijn, respectfully, I don’t think comparing Google with the likes of Oracle, IBM, SAP, and HP is the right comparison to make. Google is in the ad business, whereas, the others are in enterprise software and services business.
Google’s 2011 Q2 financial reported that 96% of revenue came from ad sales. (http://investor.google.com/earnings/2011/Q2_google_earnings.html). The other 4% came from a category called “Other”. I can only assume that Google Apps fits someplace inside this Other category. It would be interesting to see what percent of the total revenue is generated by Google Apps. And to make matters more difficult for comparisons, Google Apps for SMB (under 250 employees) cannot be compared with the products of IBM, HP, SAP, and Oracle. To be fair we would need to look at the Google revenue from Google Apps for Enterprise and the employees working that space at Google to get a better idea of how efficient Google is on a revenue per employee model.
Maybe a better comparison is to compare Google with the mass media industry, such as BBC News, or the likes of Facebook and Yahoo!