Culture: Why Microsoft, Oracle and SAP won’t succeed in the Cloud (and contact center leaders will also #fail)


Share on LinkedIn

“Nothing focuses the mind like a hanging.”
—Samuel Johnson

In the past year, cloud-based solutions are being snapped up by the “old guard” CRM/ERP software vendors. Oracle bought RightNow and Taleo. SAP bought SuccessFactors and Ariba. Microsoft just acquired Yammer.

Can you acquire your way to success in the cloud? I think not. Because it’s not just about the technology or the customer base. These you can buy.

It’s about the business model and culture. Cloud-based software companies are built on a culture of customer loyalty. Not necessarily because cloud company leaders innately care any more about customers. No, it’s because keeping customers loyal is mission critical when your business runs on a recurring revenue model.

Enterprise software companies sell products, not experiences

Traditional software companies don’t have that DNA. Their leaders all grew up in a world where you build and ship products that customers can’t return. Sure some have Voice of Customer programs and maybe even a Chief Customer Officer. But customer loyalty was not engineered into the DNA at the beginning.

And, sorry, you can’t splice in the “customer loyalty gene” later. Have you ever seen a case where the acquired company changed the culture of the acquirer? Me neither.

What do you think the odds are that RightNow will transfer its customer-centric DNA to Oracle? Do you think Yammer will change the culture of Microsoft, as long as Ballmer is in charge?

Contact center industry up next

And this problem isn’t limited to enterprise software companies. The contact center market is dominated by companies like Avaya and Cisco that also grew up in a different era.

Now, I don’t follow the contact center industry closely, but it’s a critical set of tools in delivering great customer experiences. The cloud is coming to contact centers, too.

A couple of years ago I talked to some cloud-based vendors. It seems like the contact industry is at least 5 years behind the software industry, but the trend is strengthening towards the Cloud.

I recently sat down with Paul Jarman, CEO of inContact, one of the pioneers in cloud-based contact centers founded around the same time as He agreed that, while having the right multi-tenant technology was essential, it was the culture that was the biggest factor in success.

Just like enterprise software vendors, traditional contact center providers are struggling because their business models and culture motivate the organization to ship boxes, not to support an ongoing experience-based relationship.

So in the next few years, look for another wave of acquisitions where contact center market leaders try to buy their way into the experience economy, where loyalty really matters. I don’t think it will work any better than when Oracle assimilated RightNow.

Bottom line: the Borg always wins.

Further reading: Stop Making Excuses! Put Your Contact Center in the Cloud


  1. Interesting post, Bob.

    I think there is a chance that Enterprise Vendors can get the culture of the cloud, but it won’t be easy.

    A big aspect of success in the enterprise software market comes from “lock-in”—the perceived or real belief that it is too hard to change. Lock-in generates significant revenues in Maintenance and Support, upgrades, and expanded deals.

    But, I don’t think this happens because of these vendors being great at customer experience. It happens because customers don’t feel they have a choice–or the choices are too hard.

    That being said, there are two sources of opportunity for change.

    First, most of these vendors are now positioning their products as being critical components of their customers’ efforts to deliver great experience. Positioning and marketing toward that forces more understanding of the issues around CX–maybe they will listen to their own marketing and start to change their own behavior.

    Second, since the installed base is so key for these companies, there is the opportunity to shift the focus from customer lock-in to customer experience driving the revenue capture in these accounts. They have a captive audience that, because change is hard, wants to work with them to have a better experience. Its up to them to do it.

    So, the opportunity is there for a culture change. It will be interesting to see if any take it. And succeed in that difficult change.


  2. Hank, I agree there is a chance, but also believe it will take new leadership. If Microsoft hired Jeff Bezos as the new CEO, things would change in a hurry!

    The root cause of the challenge for traditional vendors is not technology. It’s a business model built on selling a perpetual license. This model put too much focus on the initial sale and not enough on supporting the relationship over time. The maintenance revenue stream is not enough.

    SAS is an exception — a big software company that doesn’t sell perpetual licenses. I don’t recall why founder Jim Goodnight decided not to, many years ago, but the implication of selling term licenses instead of perpetual is that SAS must continue to earn the renewals.

    I just had an interesting conversation with Diane Berry, CMO of Coveo. Prior to this, she was with Taleo, which went public in 2005 and then recently was acquired by Oracle. Now at Coveo they do sell licenses, but they are term licenses, not perpetual. Customer-centric leadership coupled with a term license approach can work.

    Public companies can’t easily change how they recognize revenue. So I’m skeptical that any big public company can shift to a model that will drive more customer-centric behavior. They can certainly acquire successful cloud companies and aggregate the revenue.

    I don’t agree that selling products intended to improve the customer experience will cause vendors to actually improve their own customer experience. Vendors may “eat their own dogfood” (use their products internally) but that doesn’t mean they believe the marketing on the label!

    In the CRM heyday, vendors (Siebel et al) sold software to increase customer satisfaction/loyalty, and yet their customers weren’t happy. The business model and a hard-selling culture fostered a sell-it-and-run approach that eventually hurt the company, leading to a sale to Oracle.

  3. Nice post, and agree with the point about culture being significant. A recurring revenue model definitely forces vendors to worry lot more about losing customers, and hence putting in more efforts to keep them happy. That said, in reality, it is not really easy in practice to switch cloud vendors. The data models of say 2 CRM cloud vendors are completely different, and switching from one cloud vendor to another will require major development effort to migrate data from one data model to another. In addition, any customizations (customizations do happen even in cloud-based software), will need to be moved over, requiring additional development effort. Cloud-based software does not really solve the problem of vendor lock-in, especially for large enterprise users.

  4. Bob,

    Had to laugh at the Siebel example (although I would say that CRM 1.0 may have been pitched as for customer satisfaction/loyalty, but they really weren’t. But it is a good point. I do think the CX pitch is different, but agree with your skepticism.

    But I do want to push back on the perpetual v. term licensing. Even with perpetual, many enterprise vendors discount the initial license extremely aggressively (90% discounts) and plan to “get it back” in M&S, both in terms of the initial agreement and future year renewals. I also see enterprise vendors create new revenue streams by creating new M&S agreements that consolidate M&S for multiple products into a single agreement that is easier to manage (particularly when bundled with some new licensing).

    That being said, I do think there is a perception issues around term/subscription licensing v. perpetual that contributes to the cultural issues you mention. It feels like it is easier to lose a customer with subscription licensing, so the culture of experience may be more ingrained. And your point about leadership dictating the culture of the company around attitude toward customers is spot on. (I have seen cloud startups with executives from “traditional vendors” mandate 3 year contracts in the early days of SaaS–and then wonder why they were not successful.).


  5. Good points…

    The perception that it’s easier to switch with a cloud solution is greater than than reality.

    The maintenance revenue stream is a critical recurring revenue stream

    Yet, the culture of traditional software companies is markedly different. From executives to sales reps, the orientation is selling a product, where most of the focus is on the initial sale. If you look at the sales practices of companies that sell perpetual licenses, you see a lot of games played such as heavy discounting, licenses sold that may never be used, etc.

    A subscription (or, more rarely, term) approach helps align vendor and customer interests over time.

    There are plenty of good reasons why software companies *should* act differently, but they don’t. Again, I see it as a result of their leadership and business models, which are very difficult to change.

  6. I love this post. I work in enterprise having come from an Internet start up, eBay, and Yahoo! Enterprise software uses a push model where consumer products are pull.

    With Enterprise you fight for the big deal and then usher in a horde service professionals to deploy and configure and then train users. Your time and effort is spent sucking up to an IT org that is more concerned about dotting i’s and crossing t’s in their security policies than creating great software. Who cares if users feel the pain – software is designed to support workflow and compliance. Enterprise vendors and customers crow about their “cost savings” and high “adoption” levels. Sorry but “installed base” doesn’t count. Ask how many enterprise products are instrumented to measure user engagement? I’d venture to say less than 5%.

    Consumer products use a pull model where users decide which product to use. They have a choice and consumer companies (Amazon) do everything in their power to make their products stand out. Consumer companies create experiences – focusing on the condition – aspirations, pains, joy. Every consumer product is instrumented to the teeth – knowing everything about each user is paramount. Vanity metrics don’t count – active users, cost per user, revenue per user matter.

    Asking if enterprise companies will succeed at Cloud isn’t worth asking. Enterprise moves at a glacial pace. The changes required to create great product experiences designed for people won’t happen overnight. As a consumer product guy even I know this. Success will measured in relative terms. Culture can only evolve if people recognize successes. If Enterprise product teams start acting like consumer product teams, if the right talent is acquired, if existing processes are loosened then I believe products will improve. A new category of apps will be created. Change will come slowly but Enterprises need to start with a heaping dose of humble pie.

  7. Hello Bob

    For me the business model is key. I say that the business model is the hidden design that determines what the organisation focuses upon and how it operates. It may even determine who gets to be in the Tops.

    In terms of where I stand, I am clear that I stand with you: it is highly unlikely that the existing range of Tops will change their spots. We tend to stick with what we know even if we are standing at the pulpits evangelising change, transformation, disruption or innovation. In some ways our talk is a substitute, a displacement activity, that makes us feel that we are changing and at the same time prevents us from making any real changes.

    Maria Montessori said that the children are the future. I agree – the leaders that are yet to be leaders are the most likely to be the agents of change.


  8. Bob – I loved the article and would like to add two comments:

    1. The key elements supporting enterprise system alignment with customer needs are adaptability, extensability (ability to extend functionality) and integration with freestanding application software. These occur (or don’t occur) independently of server or cloud platform. For example, in a recent software search cloud-based NetSuite compared poorly on the first two counts with several client-server systems. It’s only recently that cloud systems have started reaching acceptable levels of adaptability and extensability, and most still lag behind in integration potential. Net, net – while you’re right that cloud companies are more customer-centric, their systems aren’t necessarily.

    2. Paul Jarmon’s comment may be a bit defensive in the sense of blaming the customer. I do work in the contact center space, and transactional processing requirements are often beyond capabilities of current cloud systems. I’m currently working with a very progressive, “customer first” contact center that’s going with client-server transactional software and web systems elsewhere.


  9. Hi Dick, thanks for your comments. I completely agree that being more service/experience oriented is not the only thing that matters. The “fit” of the solution itself still matters, a lot!

    You may recall the study we did quite a few ago that found

    a. Cloud vendors like and RightNow excelled in overall ratings of customer satisfaction (including function, support, technical architecture … )

    b. Some niche vendors (like Unica) also excelled. And Unica, at that time was a traditional installed solution sold (if memory serves) as a perpetual license.

    So maybe the issue is simply this — the old/big software vendors don’t have customer-centricity in their veins. It’s not a matter of survival for them… yet. They have a large customer base that can’t move easily.

    But as the market shifts to the Cloud, these customer-centric shortcomings will be magnified. Just as has changed the game in e-commerce, the newer cloud vendors have set a much higher bar for the customer experience — because it’s their ticket to success.

    All that said, for a variety of reasons including functionality, a cloud solution won’t be the right solution for everyone. I’m sure we’ll see installed software for a long time (decades) just like companies still install mainframes.

  10. Bob, I think your comment about having customer-centricity in their veins is the winner. Whether cloud (where it seems to be more important) or on-premise (where I contend its just as important but perceived–and real–difficulties of switching), delivering value to customers is always what matters.

    SAP solved big problems for customers and grew as a result. So did Microsoft and Oracle. As they grew, they encountered challenges of installed bases (who can’t change and adopt new features as fast as new customers want–or think they want–them). They also had less pressure to constantly make their software more usable and “experience oriented.” due to switching costs. But competition also made them have a desire to improve usability. I’ve worked for multiple companies that have a big initiative around improving usability–but those requirements often get usurped by new product features (so usability and experience was not “that important”.

    As we’ve discussed, language matters. Words like cross-sell,up-sell, lock-in aren’t very customer centric. Long contracts for cloud (“3 year minimum commitment”) aren’t either. Words like “help he customer discover new ways to get more value” and “Cancel anytime you aren’t getting value” are.

    Any VC funded or public company has the pressure of quarterly results and growth. Different business models lead to different pressures based on % of recurring v. new revenue.

    But all of this doesn’t matter if customer centricity and delivering great customer experience is not part of the leadership DNA and extends throughout the company.


  11. Thanks, Hank. Great discussion.

    Let’s hope that as the Cloud matures, vendors don’t adopt the lock-in practices that customers don’t like. I agree that long-term contracts are edging in that direction. But there’s a long ways to go from 3 years to infinity!

  12. Bob,

    When a traditional software company acquires a cloud provider do you think they are just acquiring the technology and the customers and their NOT acquiring the DNA as well?

    If you had evidence that these traditional software companies were acquiring cloud providers and then running the new organizations like their traditional lines of business, you might be on to something. But I expect you don’t have any evidence of that.

    In order to succeed these traditionalists have to run these new lines of business differently in order to be successful. They’ve demonstrated they’re pretty good at being successful. I suspect it may happen again.

  13. I’ve had the opportunity to evaluate SAP’s cloud system up close and personal. Bob’s right – it’s all about trying to force fit the cloud into SAP’s culture. Square peg in a round hole.

    Likewise for Oracle.

    Successful cloud systems are all about agility. Neither Oracle or SAP can put one foot after the other without tripping.

  14. My evidence? Nearly 15 years of observing the software industry. Still haven’t seen a case where the acquired company’s DNA had a major impact on the acquired company. If MK or anyone else can share an example, I’d love to see it.

    I’ve also done my own research on customer-centric business, and found a lack of leadership driving real change is the first and arguably the biggest stumbling block. This insight coming from companies that say they want to be more customer-centric, but can’t seem to get there.

    Read Change Is Good, But It's Also Really Hard for a thoughtful take on this subject. The author Om Malik observes that Google has struggled to become more social in the face of the Facebook threat, because Google’s DNA is software engineering. Great for search engines, not so good for social networks.

    The first step towards change is recognizing there is a problem — a “burning platform” as the organizational change gurus like to say. Unfortunately it takes a near-death experience for most companies to change. Like what Nokia is going through now.

    IBM was in a similar situation and pulled out of the ditch with a masterful job by Lou Gerstner, who recognized that the culture must change.

    I see no such recognition on the part of the big software companies. They are still making money, the incentive is not there… yet.

  15. In the last 15 years have you not seen Oracle recognize that they didn’t necessarily have the correct internal DNA and as a result they went out and acquired it?

    How else could you explain a database vendor becoming a dominant apps and middleware provider?

    If Oracle were not able to recognize an internal limitation and then adjust their DNA as needed, they might’ve ended up like Gupta or Sybase and not like Microsoft or SAP.

  16. Oracle has done a good job assimilating acquired technology companies and making money. Cisco is another great example.

    However, I think there’s something a bit different in the DNA of a company that primarily sells cloud-based solutions. We’ll have to wait and see if and how Oracle and the other big software companies learn from cloud-based vendors they acquire.

    We may find that the service orientation of cloud vendors isn’t as important to the large enterprises that Oracle et al serve. All of the cloud leaders (e.g., Netsuite and RightNow) got their start with SMBs, where customer service and ease of use trump technical features.

    Large enterprises are used to traditional software practices, and make longer-term investments. They are well aware that you can’t easily switch out a vendor, regardless of whether installed or hosted. Maybe they’ll just accept more of the same as vendors sell cloud-based solutions.

  17. Bob and all, I do actually find myself drawn to this discussion, there are many importnat topics raised here.

    I think that in the original article, Bob’s assertions about SAP, Microsoft and Oracle’s abilities to succeed at Cloud are well noted – ‘the cloud’ remains a consistent source of disruption to their legacy operating models, and, as a consequence provides numerous challenges.

    One has to question though what the actual measure of ‘success’ will be for these companies when it comes to ‘the cloud’. Is it really that they will, over time, migrate their existing revenue models (and consequently their products and/or services) to entirely cloud based models? Do the majority of their existing customers ACTUALLY want that? I’m not so sure.

    So the answer lies somewhere in how these organisations will define THEIR success in cloud. For example; perhaps they will view the cloud a little more pragmatically and see a significant opportunity in hybrid solution deployments aloowing customers greater choice, perhaps they will see an opportunity to reach markets (the SMB’s that Bob cites) where they never seriously played before, or perhaps they will embrace cloud (and the cloud applications they have acquired) as the future path for their own applications and promote the leaders within the acquired organisations to drive the necessary change.

    Culture of course will be a topic, but it is by no means the largest hurdle any will face.

  18. Excellent point. What does ‘success’ really mean to the companies providing cloud solutions. I’m guessing the large software firms want a large and profitable revenue stream. And they want to provide a complete solution to their customers now that the Cloud has become mainstream.

    In my post, I was taking the point of view of customers. I think the culture (lack of customer-centricity) will be a big issue. But it’s certainly possible that the software companies will succeed (make money) even if customers don’t.

    The truth, as you suggest, probably will lie somewhere in the middle ground where software companies meet their goals and customers can acquire a suite of cloud-based solutions. It will be interesting to see, however, if current customers of RightNow, Yammer, etc. are less satisfied after the acquisition work is complete.

  19. Bob, I think your comments are spot on. Perpetual vs. term licenses has a lot to do with what behavior is created. With Perpetual license, up front costs vs. long term investment drives a roller coaster pipeline from a sales perspective as well. The old notion, “You are only as good as your last sale” is now giving way to, “how do I create more deterministic pipeline growth?” and likewise, customers want to know, how to I operationalize or create a more deterministic model for my spend? While a perpetual license appears to be attractive on the front end, the reality is it is more expensive in the long run for both customer and vendor.


Please use comments to add value to the discussion. Maximum one link to an educational blog post or article. We will NOT PUBLISH brief comments like "good post," comments that mainly promote links, or comments with links to companies, products, or services.

Please enter your comment!
Please enter your name here