Fernando Labastida: Technology, Austin, Latin America

The Free Economy

@indieaustin tweeted a great article by Chris Anderson in Wired Magazine: Free! Why $0.00 Is the Future of Business.

Because of the the effect of the unitary cost of technology halving every 18 months, there comes a point where the closer you get to zero, the sooner you can actually round down to zero.  As Anderson states:

What (Caltech professor Carver) Mead understood is that a psychological switch should flip as things head toward zero. Even though they may never become entirely free, as the price drops there is great advantage to be had in treating them as if they were free.

However, this is not so for consumers.  Anderson again:

From the consumer’s perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you’re in an entirely different business, one of clawing and scratching for every customer. The psychology of “free” is powerful indeed, as any marketer will tell you.

That’s huge.  I have personally experienced this dozens of times, when I downloaded free chapters, or free E-books, and then actually ended up buying the full book, or the larger more comprehensive second book the author of the initial free book wrote.

There’s a name for this type of free, according to the article: Cross-Subsidies.  This is where something is a loss leader, such as razors, and you make money on the blades. Or if you actually allow street vendors in Brazil to burn and sell your CDs, and keep all the money, while you get the promotional benefit as a band and sell sold-out shows, as Anderson noted about Brazilian band Banda Calypso have done with much success.

Here’s the taxonomy of free, according to Anderson:

• Freemium. Users of the free content or free software, the basic versions. 1 per cent of the paying users support 99 per cent of the non-paying users, because it costs the company next to nothing to support the 99 per cent.
• Advertising. This is the typical model of TV, radio, publications, Yahoo, Google, etc.
• Cross-subsidies.  The idea of the loss-leader, such as the Banda Calypso example.
• Zero marginal cost. The distribution model of digital products, where there is no cost involved in its continued reproduction.  Think digital music in peer-to-peer networks, where the music industry is losing the battle and bands are deciding to join ‘em instead of beat ‘em.
• Labor Exchange. Where using the services of a website such as Digg or voting on Yahoo Answers, for example, provides value in and of itself by making it a better product.
• The Gift Economy. Sometimes money is not the main motivator.  Think Wikipedia, a labor of love of thousands of individuals who just want to educate the world.

So how do you actually make money in a world where everything is free? As economics teaches, anything of which there is a scarcity is something you can make money on.  Computational power and Internet resources are not scarce. What is scare, according to Anderson, are time and respect. As anderson states:

The “attention economy” and “reputation economy”

What does that mean? If we can help somebody’s reputation (page rank, etc.), and help people gain attention, such as traffic which leads to money (ads), then we’ve got a business.  This is something that Chris Johnson over at GenuineChris has done successfully in order to leave the mortgage industry rat-race and become a freelancer.  In this case free as in freedom.

Well, after posting my first blog in almost a year, I did a little web search and found this gem of a blog post, Why Sales People Need Social Media, by Socialtext sales guy Scott Schnaars.  It’s actually a blog post about a white paper by Axel Schulze at Xeequa.

Good one Scott!

It’s been quite a while since I’ve posted anything to my blog; actually almost a year now.  I just didn’t have the passion for it anymore.  Data Integration just didn’t juice me up.  I’ve had a lot of time to think over the past few months, and after attending my first meeting of the Austin Social Media Club, and thinking about what’s going on in the world in general, and Austin in particular, I got excited again.

I decided to open it up to talk about two topics of interest to me.

1. Technology for Business To expand on my previous mission to discuss integration software as it relates to business goals and discuss technology from a business perspective.  Many companies fall into the trap of discussing technology for technology’s sake, and don’t do anything to make the connection between their technology and the actual bottom line benefits their customers can gain by implementing their technology.  I believe that software is ultimately a business tool, and not a technology tool, so the goal of this blog is to deconstruct a technology company’s sales pitch and try to figure out if it provides any value to a business or not.

2. Social Media for Sales People To discuss social media and it’s use by technology sales executives.  Since launching my original blog Integration for Business in November of 2007 I’ve been fascinated by social media.  I was actually first turned on to the concept by a weird source, the book Never Cold Call, while I was working as a sales rep at Pervasive Software.  I bought this book from a Google Ad Word (I kid you not) ad on one of my favorite social networking sites,  LinkedIn.  However I still haven’t figured out if social media can be effective as a sales tool to individual sales executives working for corporations, or if it’s still more valuable as a new corporate marketing tool for the corporation itself. So, another one of my goals will be to explore the benefits of social media for sales representatives in order to verify some of the claims of sales gurus such as Frank Rumbauskas or Bill Caskey.

Frank Rumbauskas especially will be examined after his claim that Cold-calling is dead, as per his video here.  What do you think? Will social media replace cold-calling as a tool for lead-generation for sales people?

I’m going to be attending the Spring 2008 MDM Summit in San Francisco March 31-April 1, so I thought it would be appropriate to brush up on the latest and greatest in Master Data Management.  In the process, I ran into three articles today that do a perfect job of tying it all together and making it real.

In Loraine Lawson’s blog Mergers and Integrations, there is a great posting on the petty power plays between the owners of different silos of corporate data (mostly customer data), which leads to the conclusion: the Master Data Management challenge is not so much a question of which data integration technology to use, but of resolving the corporate culture clash between those who are willing to share data vs. those who want to protect their turf.

While this is all good and well, my question is: who cares about Master Data Management anyway? Maybe the description of Master Data Management from an official source can explain why MDM is relevant.  According to Jill Dyché, partner of Baseline Consulting, she cites a definition from her book “Customer Data Integration: Reaching a Single Version of the Truth,” in an interview with James Powell in Enterprise Systems:

…we define MDM as “the set of disciplines and methods to ensure the currency, meaning, quality, and deployment of a company’s reference data within and across subject areas.”

What? Did anybody get that? To borrow from a blog posting on another topic, Business Intelligence, Ann All says:

IT folks who throw out terms like ETL and OLAP, blather about “single versions of the truth” and get bogged down in discussions over how many terabytes of data their business intelligence tools can handle are missing out on a rare opportunity to wow business users.

Ann’s whole blog post is about telling the customer stories about how Business Intelligence has helped actual companies.

Well, providence supplied me with my story via one of my Google Alerts emails. A fantastic article in Internet Retailer by Don Davis entitled Do You Know Me? brings it all together.  The article makes absolutely no mention of jargon such as MDM or Single Version of the Truth, but talks about how Petco, REI and Build-A-Bear are able to more effectively target their customers with personalized offers and messages based on their offline and online purchasing history, and web browsing trends.

Price interviews, among others, John Lazarchic, director of e-commerce at Petco.  Here’s the money quote from the article:

It’s all aimed at making offers relevant. “If a customer buys 40-pound bags of dog food in the store because he doesn’t want to pay shipping charges, I want to keep marketing messages for store stuff store-specific,” Lazarchic says. “But if he’s buying three and a half pound bags of cat food online, I’ll send him online cat offers. I want to keep it specific by channel and pet type.”

So what is MDM?  It’s all about cat food, or rather consolidating data on your customers from various sources so you can market the right cat food using the right delivery method to the right customer.  How did Petco get this data?  They built a data warehouse, merging customer data stored in information silos gleaned from their e-commerce site, their online analytics engine, and their PALS loyalty system for on-site retail purchases.  Price does not mention the term Master Data Management ANYWHERE in the article, but that’s essentially what it is.

So why is MDM relevant?  Why care if you use this or that data integration technology, or if the retail marketing team or the online marketing team hordes or shares their data on the same exact customers who shop online and in their stores?  Just look to what REI, Petco, and Build-A-Bear are doing to provide a relevant and satisfying shopping experience, or rather, relationship, with their customers.

Even though I used a retail example from a retail-oriented online publication, MDM can apply to any other business scenario where different versions of information on the same physical entity exists. But these are the type of stories that make MDM real.

Society of Hispanic Professional Engineers SHPE.

Jason Hiner, Executive Editor at  TechRepublic.com, in his Sanity Check blog, has published a very useful article in two parts on the Alignment between IT and Business.  The first one, a summary of a Wall Street Journal article on the topic (Hiner has had problems with the WSJ’s take on IT issues in the past), points out the divisions between IT departments and a company’s busines goals, a division which can be debilitating to company growth.  Hiner sums up the article thus:

The general thrust of the article can be summed up by this line: “Success in the digital economy of the 21st century demands a strategic role for IT. And for that to happen, the glass wall between IT and the rest of a company has to be shattered.”

He cites analysts’ estimation of hundreds of billion of wasted dollars on failed IT projects, CIOs who come from technology backgrounds and don’t know how to integrate IT with business goals, and business leaders who look down on IT personnel as ‘nerds.’  Although he largely agrees with this particular WSJ article because they relied on IT industry experts Dr. Amit Basu and Professor Chip Jarnagin instead of internal writers, his own prescription simplifies the articles’ own prescription:

1. Hire a CIO who has business savvy but can also gain the respect of the techies in the IT department
2. Improve IT awareness/training among executives and team leaders throughout the business
3. Improve business awareness/training among the company’s IT managers

The second article in the series is a summary of an MIT Sloan School of Management paper on avoiding the IT Alignment Trap.  Apparently, it’s not enough to just align IT with business goals.  Companies that do that have to also make their IT processes more efficient; if not then they actually spend more on IT than the average company, and the company’s sales goals fall short of the average.

The key is not only to align IT with business goals, or rather, integrate IT with the business, but to simplify IT department processes:

1. Reducing complexity by establishing standards and getting rid of redundancy
2. Rightsource the job, by making strategic decisions as to what to keep in-house, what to outsource, and what to hande with packaged applications, and
3. Creating end-to-end accountability.

Hiner generally agrees with the MIT Sloan paper, except for it’s prescription for centralized IT management.  He advocates a certain amount of decentralized decision-making, especially as it relates to alignment with the goals of separate business units or departments.  He also disagrees with the “alignment” word, citing “integration” (my favorite word; Martin Luther King Jr. would be proud), as better because IT should always be subordinate to the business.

This article series I believe supports an argument I’ve been making throughout this blog, that IT projects should be considered from a purely cost-benefit point-of-view.  Relating this to integration, the purpose of this blog, Loraine Lawson cites an interview with Philip Russom with the Data Warehousing Institute where he states the benefits of “rightsourcing,” in this case using a packaged application:

Data integration requires a senior-level programmer typically, he said, which means you’ll be paying at least one programmer six figures to spend months coding data integration from scratch. By comparison, you could build a comparable solution in two to three months with a vendor tool for less money, he said.

In my experience, the time can be considerably less than two to three months.

Integration’s role in a company where IT and Business are aligned or integrated should be to get out of the way as quickly as possible, not be a bottleneck, stay simple, repeatable and in the background so IT can properly support business goals.

Fantastic article in The New York Times online’s Techology section on Saturday, “Why Old Technologies Are Still Kicking.” by Steve Lohr.

The two most important implications about this article for this blog, because it speaks to the heart of the existence of this blog in the first place:

1. Legacy technologies are not going way, meaning integration between disparate systems is a perpetual need for corporations, and

2. Strategic technology decisions are business decisions, pure and simple.

The gist of the article is that the mainframe is not only here to stay, but IBM has invested huge sums to retool the mainframe and modernize it because of the demand within key sectors of the economy, such as the financial industry, for it’s mission critical capabilities.

“I.B.M.’s most recent model, the z10, represents an investment of $1.5 billion and the work of 5,000 technical professionals,” says Lohr in the article.

This despite the prediction in 1991 by Stewart Alsop, cites Lohr, that mainframe technology would disappear by 1996. Why is this? Here’s the money paragraph of the article:

The unfulfilled predictions of demise, experts say, tend to overestimate the importance of pure technical innovation and underestimate the role of business judgment. “The rise and fall of technologies is mainly about business and not technological determinism,” said Richard S. Tedlow, a business historian at the Harvard Business School.

So for all those who say they don’t need to worry about integrating legacy technologies or invest in integration skills or technologies because “all applications are now web services enabled,” think again. The mainframe, and hence legacy technology, are alive and well, and getting stronger!

Many companies who have never embarked on an integration project are now plunging head first into their first ever integration projects; at the same time, many departments within larger corporations are also tackling their first integration projects. There seems to be various reasons why companies and departments are starting to look at integration now, such as CRM implementations, Business Intelligence, and mergers and acquisitions. I won’t get into that here. The important thing is more and more IT departments are starting some form of data or application integration project, and are looking for ways to get started.

The goal of this post is to list the top five things IT directors need to ensure a successful integration project.

1. Determine the goal of your integration project. An integration project should be pursued from a pure cost/benefit standpoint. How will it advance your business goals? Are you trying to build an executive dashboard so the CEO and CFO can graphically see marketshare, profitability, and sales trends? Then you’re going to need to build a data warehouse with data from various sources, including ERP, CRM, text files and your website, from which your executive reporting tool can make pretty business pictures. Do you want to enable your sales executives to know everything that is going on with your customers, so they can avoid accepting a purchase order from an account that is on credit hold? That would require synchronization between your CRM system and your ERP or accounting system. Are you hoping to make it easier for your suppliers to provide you with shipping information and invoices so they just automatically show up in your wholesale or retail management system? Then you need to EDI-enable these systems.

2. Determine what kind of integration you’re pursuing. Is it a migration, an ETL project, an application integration or B2B integration? Here’s a nice little diagram that can help you with this:

If you’re trying to synchronize data between your CRM system and your ERP or Accounting System (often the ERP/Accounting system is the “system of record,” meaning that’s where the customer master data is stored), then it’s an interface integration. This requires real-time, or near real-time movement of bits and pieces of data back and forth between both systems at a business logic level. On the other hand, if you’re trying to extract data from operational systems, such as your ERP or CRM system and dump them into a repository in order to slice and dice the data for more accurate reporting on your business, then you’re looking at ETL. The requirements here are usually for nightly, weekly or even monthly batch loads from your operational systems, usually late at night or on weekends when these systems that run your business won’t take too big of a performance hit.

3. Determine the sources and destinations of your data. The best way to break down an integration project into easily understandable steps, and to calculate the time and effort it will take, is to determine where the data is coming from and where it’s going to. I’m not just talking about what applications you’re moving data to and from, but also what tables or data objects, and how many. So, for example, if your goal is for your sales people to close a sale in your CRM system so it will kick-off a sales order in your ERP system, this would involve:

• The Accounts or Company object in your CRM system
• The Contact object in your CRM system
• The Opportunity object in your CRM System
• The Product object in your CRM system

That’s four objects in your CRM system. You also have to determine object name and count in your ERP system, as well as determine how data from your CRM system will change, combine or interact for it to make sense to your ERP system and to successfully create a sales order.

4. Determine your resources. Many times an integration project is so easy that it can be done in-house with minimal effort expended. Sometimes what you thought might be very easy turns out to be a very complicated project that drags on for eight months with the current manpower at your disposal. Knowing who you have available and what his or her skills are is crucial. Some integration projects require just one business analyst. These could be simple migrations such as exporting data into a flat file from one system and importing that same flat file. Sometimes Microsoft Excel is all you need to do this. However, most integrations are not as simple. Interface type integrations require lots of heavy programming. You would need somebody familiar with java, C++, and web services programming skills, and they don’t come cheaply! These issues are largely mitigated by commercially available integration tools, which are typically designed for use by a business analyst. If your company has no technical resources (rare), or if they are all allotted to other projects and not available for your project, then it might make sense to hire a consultant for a time to do the integration for you.

5. Choose your approach: Build vs. Buy. This is largely determined by number 4 above. It doesn’t make sense to invest in a $100,000 ETL tool if all you’re doing is loading data from a mailing list into your CRM system. It can also be the death of a project if you decide to use in-house resources, and it ends up taking up to 6-9 months, or requires a highly-paid java programmer to update your custom code every time you want to add a field to your CRM to ERP synchronization piece. It’s up to you. It might not be too much of a headache to do it in-house if it’s a fairly straightforward integration with few to any changes in business logic, and if data structure and field names are the same. If, however, you, have to transform the data in some way, or you’re integrating between two completely different data sources or data types (which covers the majority of integrations), then you should opt for a data integration tool. Most of the time your urgent integration project will not be your last. Because people come and people go, and high-valued technical resources are constantly being poached by other companies, an integration tool that is easy to learn and use will enable you to tackle present and future integrations without having to rely on the knowledge locked away in the brain of your top developer.

As an add-on to my March 12th posting about Integration and The Recession, I neglected one of the most important reasons to acquire integration: Business Intelligence. In a recession it is important to be ruthless about measuring every aspect of your business, from profits, sales, marketing effectiveness, all the way to your web marketing campaigns. By the way, in the aforementioned article, ThePPCGuru.com mentions web marketing as the most cost effective, as well as the most fully measureable marketing method out there, ideal for the recession.

Business Intelligence requires a functional reporting tool, from industry stalwarts Business Objects and Cognos, to up-and-coming value business intelligence company Bitam out of Mexico. It also, (surprise surprise) requires a data integration tool, or ETL tool (extract, transform and load), in order to bring data from various sources such as back-end business applications, websites, web analytics applications, etc. into a data warehouse or data mart on which the business intelligence tool works.

A great little article by Sean McGrath from from ITworld.com appeared yesterday which should serve sales people as well as data integration project managers equally. Essentially, to summarize, if an executive says she wants to connect A to B, you need to dig deeper to see what that really means.  Is it connecting A to B to “advance some process that B is involved in”? Or is it to connect A with information from B in order to enable a report from a reporting module in B.

In reality, McGrath says, A to B in the first scenario is just a simple application integration scenario, where B needs data from A in order to effect a business process.  The second scenario is an ETL scenario, whereby you need to actually take data from A and B and put it into a third repository, C, in order to run a report on this.

I think McGrath does a great job of simplifying the message that a seemingly straightforward integration request is not as straightforward as it seems.  You need to ask the right questions, dig deeper, and find out what the end-goal is.

Gartner’s  report in Tekrati about 9 cost-cutting measures for the tough economic times has a chock full ‘o’ tips for corporations on how to cut costs in their data management initiatives. You can click on the above link for the full report, but here are my comments on a few of the points:

Optimize Data Integration Tools Licensing: Gartner notes typical investments in data integration tools of $200,000 - $500,000, and $50,000 to $100,000 for annual maintenance.  If companies are spending this much on data integration then they seriously need to consolidate.  If you want to cut costs for the hard times, cut out the expensive, kludgy, inflexible data integration tools. And if you think you’re going to lose functionality then you’ve fallen victim to the slick marketing campaign of the super-expensive data integration vendor.

Leverage Established Data Structures and Data Integration Processes: Gartner here touts the benefits of re-use of data related assets built in the past.  In my opinion this is one of the principle driving factors in standardizing on a data integration tool, the ability to re-use data integration processes.  If data integration processes are not easily re-usable then there are no efficiencies to be gained by acquiring a data integration tool.  Easy re-usability should be at the top of anybody’s list of deciding factors when looking at consolidating (see above) on integration vendors.

Defer Replacement of Custom-Coded Architectures: Gartner, I believe, is talking about the opportunity cost of directing labor to the non-productive activity of learning a new data integration tool and replacing custom code that works, as well as the expense involved (again, they mention the exorbitant amount of $100,000 to $500,000 for data integration tools) in acquiring data integration software. Any integration tool worth it’s salt should be architected to “integrate” already existent custom-coded processes that work without having to replace everything, and without forcing a company to invest that much in licensing and maintenance costs.  Again, “big iron” integration vendors have done such a great marketing job that it is generally believed current custom-coded processes necessarily have to be replaced by a data integration tool.  Not so.  A data integration tool should incorporate what has already been done, serve the purpose of making subsequent integrations easy to implement, and require less than $100,000 in licensing.

Explore Open Source Licensing: Open source data integration tools, again, in my humble opinion, would end up costing corporations more, not less.  They typically offer a very reduced set of adapters and connectors, forcing corporatons to custom code connections to the APIs of those applications they want to connect to.