What’s the value of Facebook’s core intellectual property — it’s software and technology — today? If you were handed the source code to the most powerful social network on the planet, what could you do with it? The answer might surprise a lot of people who’ve spent their lives building and selling commercial software systems. Software has for some time now has been about the innovations and inventions that brilliant architects and engineers could capture and protect. The product was their angle. But Facebook’s biggest value is not its technology, it is its network. It’s the community of nearly 1 billion members who GO to Facebook. Even superior IT platforms cannot compete with the overwhelming advantage of a 1 billion member community. You don’t go where the great functionality is, you go where your friends are. You go where the party is.

What’s happening today in the consumer world is going to be the same in the business-to-business world. You need great innovation and invention to penetrate the market, to get started. And then you need a great strategy to drive adoption in the market, to build the community. But you can’t lose sight of the ultimate prize, which is to build community. It’s a race to critical mass in the market in which you compete.

For example, the world of global commerce and supply chain — the sourcing, ordering, shipping, receiving and paying for product, for every company on the planet is a huge space. It’s  also highly fragmented, inefficient, uncontrolled, and unmonitored.  Even the biggest companies run their global operations in a state of “blindness” because they cannot efficiently and cost-effectively share information with their trading partners. There is no B2B community platform leader in the market today. It’s wide open. All the big software players who’ve dominated the industry for the past 30 years are focused on “old guard” software – the software of record keeping within a single company. But to get your entire trade network on the same page you need software and systems that go beyond your single company. You need systems that can connect you with your community. In commerce and supply chain, these systems are network systems, and they are transformative. They are code breakers. They enable, for the first time in history, massively scalable information sharing across entire trade networks.

But the key to their power is the breadth and depth of their communities. Just as in social networks, you’ll go where the action is. It doesn’t matter how much better MySpace’s technology is now, they don’t have the community. And it’s over for MySpace.

Here’s the way that companies in this space should be valued: they are more like real estate than software. They get more valuable over time, as they become more populated. They deliver more value to everyone, over time, as they grow. When your neighbor improves his asset, the value of the neighborhood goes up for everyone in the neighborhood. There is a reason why the rent in New York City is more than the rent in Anchorage, Alaska.

When customers evaluate systems for monitoring and controlling and improving commerce and supply chain today, they are still thinking about it as a feature/function solve. It isn’t. They need to be thinking about it as a network solve. Which network is likely to be a New York City kind of network? Which of these systems is most likely to give me the scale and reach and “fast-connect” I need to be truly agile when the world is changing so quickly? Who is on the right track?

These are still early days. The market does not yet understand how to evaluate and choose these emerging systems. There are no break-away critical mass leaders yet, but there are at least a few who’ve got the right models. They’re Cloud-based and collaborative. They’re multi-tenant. They have to be! And they are busy building their networks to tipping point status.

While the story is extremely friendly towards what Workday is doing, the author makes a number of interesting points. Consider the following points:

 As you look at (SAP/Oracle) financials they are heavily dependent upon a 90-95 percent maintenance margin business  that effectively sees their customers paying at least twice over in five to six years from the day they first sign up for a license. It’s one heck of a business model but it only works for as long as the vendors continue to feed the pipeline of licensed sales.

Salesforce.com has already taken $2 billion plus out of the market  with their CRM solution.

Workday is interesting because they’ve done something we’ve not seen in the market before. They are taking money off SAP-Oracle’s table stakes in accounts where you would think the incumbents are impregnable. The notion that large-scale rip and replace is a non-starter has been proven to be a fallacy and that trend will continue.

And guess what, the big system integrators are also beginning to see the light with Cloud. They may be finally realizing they can deliver more value to customers and make more money doing it. From the story:

Given some of the numbers I am being quoted, savvy SIs could shave 70-80% off what PeopleSoft customers are being sold as upgrade and still come out ahead functionally. “Whatever they’re quoting. we’ll shave it,” said one SI. I guarantee it will be more cost-effective going with Workday. I’ve crunched the numbers.

We all know SAP and Oracle won’t sit quietly and let this happen. They’re buying cloud vendors, they are running cloud marketing campaigns and say they are 100% committed. Can they execute? Can they pull a 180? Only time will tell.

This article paints a good picture about the role of upstarts and disruptive technologies and what the establishment must do to maintain market share.  The story also speculates about other potential cloud application providers that could be targeted as Oracle, SAP, Microsoft and IBM continue to maneuver.

As I have said many times before in this blog, it will be interesting to see how these big software companies handle these new assets. One of the key benefits of cloud applications is the notion of a shared, multitenant delivery model that gets deployed across the entire customer base. Once these companies and their solution become part of an organization and culture of one-off, highly customized sales and deployments that would seem to be completely opposite of the pay as you go, rapid deploy, less customization approach of the cloud model.

Oracle has gone on record stating their new cloud vision is very much NOT multitenant, which makes me believe that they see opportunity more as series of private, dedicated cloud deployments, on a customer by customer basis. Or, as Salesforce.com CEO (NYSE: CRM),  Marc Benioff likes to say…”false cloud.”

It should be interesting to watch over the coming months, or years.

“When it comes to supply chain where the focus is on inter-company coordination and collaboration among hundreds of companies on a global scale, cloud becomes more than just very good IT economics. It becomes the means by which entirely new information sharing models become possible.”

That’s my favorite line (because I wrote it). Apologies for a little self promotion here, but the story is about a very real opportunity. Think about how big supply chain is and how much money is wasted each day due to lack of visibility and control. It’s staggering. Even small incremental improvements can drive massive savings and operational efficiency.

While Ellison is clearly saying his version of cloud is not multi-tenant (and thus more secure), Benioff calls that “False Cloud” because multi-tenancy is the core of the cloud value proposition and that “private” cloud solutions put behind a firewall, on a stack of Oracle hardware, is good for Oracle shareholders, but not the customer.

I tend to agree with Mr. Benioff on this one. The enterprise software vendors are in trouble because it will be very hard to move all customers onto a single, multi-tenant stack unless they did it from day one, like in the case of Salesforce.com.

It should also be interesting to see what Oracle does with Rightnow, a CRM competitor to Salesforece.com that Oracle just bought. I’m fairly certain they are a mutli-tenant cloud solution.

This story in Supply Chain Brain is based on an interview with Gartner analyst Mike Dominey, who talks about why it has taken nearly a decade for cloud to take hold in the supply chain arena.

In the article, “Dominy says the cloud became an “architectural representation” of the push to break down corporate walls and treat the multi-partner supply chain as a single, coherent entity…By definition, says Dominy, cloud technology is “elastic and scalable.” That’s a tough goal to achieve when hardware and software are isolated within individual companies, no matter how large they might be.”

The story also points out the long list of potential confusion around cloud and all of the terminology and definitions that are being pushed by the vendors.

As I have said before in this blog, it’s not a matter of if, but when. Unlike CRM, where Salesforce.com came in and took on a well established, proven segment software market, there is not an existing software company that has truly mastered the inter-company part of the global supply chain. It’s greenfield and it’s huge.

The Government was the other industry that I figured would hold out but we’ve seen multiple examples of Government cloud initiatives.

In this article in Industry Week, the author talks about how cloud will be used to extend NYSE member trading floor privileges to just about anyone. As the headline says, cloud is disrupting a very insider centric world.

Not unlike what you see with cloud technology in other industries where the small guys are getting access to computing power once only available to big companies, the article states “We are at the first step of what is going to be a long, leveling process in financial services that brings many more participants into exchanges. Your personal wealth manager may be your next-door neighbor rather than a trust manager in a downtown office building.”

I don’t fully understand this industry, but I suspect it will be good for those of us without the expensive badges on the NYSE floor.

In IT it’s even worse, because you also have the Sellers (license software companies) and Influencers (industry analysts) who all do very well in a world where the buyer takes on all the risk and has to keep paying to make sure they finally get what they bought.

The sellers of software continue to make money on maintenance contracts and upgrade packages. If a buyer gets “behind” on their version of software, they’re on their own. At some point the only way out is to write the whole thing off and start over. Ever hear of that happening?

Analysts are paid handsomely to evaluate and provide guidance on all the various software packages, but opinions are formed based on mindshare which requires access to the analysts.  Access costs money so  mind share comes at a price that automatically puts smaller upstarts at a disadvantage.

Lastly there are the big consulting firms, who also get paid by the hour, to help implement the software packages. With complexity comes hours and hours of revenue.

The “Cartel” concept was actually coined by a former Obama administration CIO. In this New York Times editorial, Vivek Kundra references the IT Cartel when describing the state of US Government IT in the Defense industry. The headline: Staggering IT costs and little to show for it. In the story, Kundra makes a compelling case for cloud computing, especially in this era of tight budgets.

While cloud won’t end the need for consultants, analysts and insiders, it is changing the way these companies operate, or, the way they should operate. They are coming around to cloud, but they’re doing it in a way where they safely in the middle, waiting for the inevitable full shift to happen.

In a recent Gartner Research newsletter, Jim Shepherd discusses this concept and makes a compelling case about the future of trade. This statement sums up the opportunity nicely, “The real business problem that today’s manufacturers and distributors are struggling to manage takes place between companies, not within them. Planning, sourcing, production, costing, tracking and fulfillment must take place in an environment that can be accessed and updated by all the players in the value chain. This certainly suggests cloud-based services, rather than a series of on-premises systems hidden behind various firewalls.” You can read the full story here.

We are seeing this take hold in certain business areas, but the single end-all is still a ways off. Supply chain is already developing because the industry has never had a software alternative due to the inter-company nature of sourcing and moving inventory around the world.