Virtualization – The Next Generation

There are a number of case studies that show that server virtualization and consolidation provides significantly higher utilization of assets. Cost savings occur not only due to direct equipment costs, but also due to savings in software licensing costs, rack space and data center usage and power. Over 75% of large enterprises now use at least some method of server virtualization in their data-centers.

On the client too, desktop virtualization eliminates the need for testing a home-grown application for compatibility and qualification with a number of desktop operating systems, and makes desktop OS migration significantly easier due to fewer dependencies on additional application development and testing efforts.

However, the ever-increasing drive towards more efficient computing organizations will undoubtedly take enterprise IT computing to the next steps in virtualization – where computing, storage and networks are all able to anticipate and re-configure themselves according to demand for specific computing resources.

Dynamic provisioning – where a virtual server is configured as needed, will enable IT managers in capacity planning using averages and medians instead of peaks in usage – which typically occur less than 10 hours in a year. For instance, additional e-commerce virtual servers would be instantiated dynamically on Black Friday, which usually sees the highest sales in a calendar year, and additional customer service virtual servers would be provisioned automatically to handle returns after new year for an e-commerce business.

Demand Orchestration - Additionally, business process configuration and management software will also be intelligent enough to orchestrate demand to balance the need to maintain business SLA's and optimal efficiency. For instance, a line of business file export could be configured to run any time between 12am and 4am, and will be scheduled intelligently between those times by a scheduler using historic data. Intelligent scheduling of computing demand will enable higher utilization due to more uniform usage.

Exciting times are ahead for IT efficiency in general, with virtualization evolving to squeeze more out of infrastructural investments.

Social Networking and Customer Acquisition costs

I was infected with a virus this week. After a few futile attempts to fight ghosts being thrown at me and offers of beer, I succumbed and installed SuperPoke! and to get even, sent a few vampires after those people. Nicholas Carr talks eloquently about vampires and social networks and observes that we welcome these social networks to be part of our lives.

Many blogs and news articles have commented on how Facebook would be able to use profile information to target ads more effectively than ever. While this may certainly be true, I think that peer pressure and peer recommendations are going to drive the next generation of marketing efforts far more effectively than super-targeted campaigns using profile information. This approach is currently far cheaper than other means of customer acquisition, and stickiness is likely to be greater because it is enforced softly by the your peer group.

First, for most of the population the need for affiliation is far more than the need for power or achievement. Analysis of qualitative information around us (I can't seem to find quantitative data with nAff, nPow or nAch scores for US subjects using McClelland's Thematic Apperception Test and inexperienced in conducting such a test. If anyone has some information, please post in comments below or email me) like houses in a sub-division, dress codes, cars in a neighborhood etc. look alike not only because of formal rules, but also because of informal social pressure.

Additionally, cost of web-traffic is growing. For adwords, or paid search, the most used keywords are fairly expensive, and less used search keywords need a marketing specialist to manage a campaign. Affiliate marketing rates for traffic are anywhere from 4%-15% of revenues. With shrinking margins, this cost is often prohibitive for product companies.

Firms have already realized this, and product companies are increasingly moving to own communities (Johnson and Johnson's purchase of Mayasmom and Reliance's launch of bigadda.com are some examples). BuyCostumes has benefited by this trend by writing a Facebook application and saving significantly on costs of customer acquisition.

All this leads me to think that the next logical step for Facebook is offer a valuable service to product companies–set up Owner Clubs for products and charge product companies for this service.

Are Companies Spending too much on IT?

Most IT managers and executives are likely to be creating their 2008 IT budget this time of the year. As companies prepare for an economic slowdown and are looking to reduce operating expenses, IT executives may be hard-pressed to explain any increases in IT spend.

I looked at IT areas where companies are currently spending money, and where there may be room to reduce IT operating expenses without creating investing in large CAPEX projects.

According to META in 2004, the financial services industry is well above overall averages, with projected IT spending of six percent of revenue in 2005, compared to an average of just over four percent and projected spend of 13 percent of operational expenses, compared to an average of five percent.

Gartner surveys say insurance companies in the US spent 2 to 4 percent of their annual revenues on IT expenses in 2006.

Surprisingly, insurance companies were quoted as saying that 65% of their IT expenses were "to keep the lights on." The large amount spent in running the engine leaves few resources for strategic projects that can actually help increase company revenues. Here are a few areas where executives can reduce their IT spending.

Do you really need those servers?

Additional resources come with huge hidden costs. For example, software licensing, data-center space, maintenance contracts and additional system or network administrators needed to manage the product, may end up making a bigger dent on your IT budget than you intended.

See if you can move applications to servers to improve utilization, or use virtualization to squeeze more out of your hardware. Also, using virtualization may mean that you can get rid of some OS licenses altogether. For instance Weblogic runs directly on the hypervisor, and other applications that run on Java VM's may be able to do so as well.

Better Application Maintenance processes

Ensure that you have a documented application development process. Use EPF or Visual Studio Team system to have an integrated approach to application lifecycle management. Enforcing a process ensures smaller learning curves, and consistency in estimates and process when interacting with other departments. Ultimately, this saves time and reduces confusion and risks. In addition, since the process is documented and enforced by the system, you can continually improve process and ensure that every one in the application development team follows it.

Use PPM to determine what Projects to execute
Unfortunately, most executives have more positive NPV projects than the budget will allow (and raising additional capital for projects, while theoretically sound, may not be likely in practice due to transaction costs). If you already have a good system for evaluating business cases, tracking projects, quantifying risks - use your PPM system to monitor and reassess your priorities as the time goes by. Sometimes, it makes sense to nix a project that continues to be on time and on budget if it is no longer as important. If you don't have such a system to track projects, this may be a good time to start. Serena's Mariner or Microsoft Project Portfolio Server are best implemented by professional services or if you have the $$, by consulting companies who have done this many times before.

"Lights-on" Operations
Are you relying on people for operations that can be automated? For instance, diagnosing most issues like batch processes not running or password resets do not require a technical support person. Look at issue logs over the last 6-12 months and identify the issues that were most frequent and required signficant time to fix. Look for opportunities to automate diagnosing and fixing these simple but time-consuming problems using simple scripts or use products like iConclude (now part of HP).

The Malaise at Microsoft

In a business school case (Rohm & Haas), we learned about how channels of distribution were critical to a new product's success. I have added a brief description of the case below.

Joan Macey, Rohm and Haas' market manager for Metalworking Fluid Biocides, found that sales of a new biocide, Kathon MWX, was utterly disappointing. This was all the more puzzling since sales of her other product--Kathon 886 MW, a liquid biocide used only in large-capacity tanks--was well on target and held a steady 30% market share. In May 1984, about five months after the new product was launched, Joan Macey was reviewing her entire marketing strategy with a view to bringing Kathon MWX sales closer to target. Of particular concern to her were the distribution and communication strategies used for the new product.

Designed for Channel, not the end-user. The better product apparently cannibalized strong service revenue retailers were getting, and retailers really didn't have any incentive to sell the new product. Obviously, Microsoft has learned this lesson too well. That is the problem. It is obviously not enough that a product exist to help players in the value chain capture value, it has to create substantial value to the customer too.

Products don't solve a problem: Most products (including Vista) primarily seem to be designed to push more products and services to customers who really don't see a problem being solved.

Products create problems. In fact, most people I know have gone back to XP because all their software and peripherals (Camcorder, Palm software etc.) work with XP but not with Vista. These are people who prefer function to form.

Advice to product managers: talk to end users for product requirements, not just to channel partners.

How much is it again? Licensing is confusing. Now, that is an understatement. Because a lot of Microsoft products are sold through channel, Microsoft has to list really ridiculous list prices for their software. Other software vendors like Oracle also do so, but Oracle primarily deals with large enterprises, whereas Microsoft has a lot of small business customers. If I don't understand pricing, as an IT manager, I will go to a vendor who has a more transparent pricing model.

The licensing tool is an attempt to help with your pricing confusion and perhaps anchor a ridiculously high price as a reference point for you to begin bargaining.

Segmentation Gone Wild
Microsoft Dynamics, after several confusing name changes, has 7 products and each product has an average of 3 editions. Not only is this challenging for the customer to navigate through, it is challenging for the sales staff who has to be up to date on the features of each of those products. Is it really cost-effective to extract every ounce (or more) of value from your customers? Or is it poor post-merger integration?

Peanut Butter with your OS?
Yahoo executive Brad Garlinghouse wrote the Peanut Butter manifesto for Yahoo, but it applies to Microsoft as well. The software maker recently launched Real Live Moms, a Live Spaces site that exhorts moms to be "the most spirited mom in the block" (sic) and other spaces to promote its "community." It may be time for a talk about the problem of spreading resources too thin and shoddy execution on products.

Outlook: I'm moving to GAPE!
As SAAS offerings like Google Applications Premier Edition are beginning to provide rich functionality, avoid issues like local storage, and provide a clear pricing structure ($50/user annually), I expect more small businesses to move to such products. Also, improvements to Google Gears may take care of times when your network go offline for brief periods.