Salesforce.com and Oracle: A Tale of Two Worlds

In the current edition of First Thing Monday I opened by asking, “What’s salesforce.com doing at Oracle OpenWorld? At the conference, I found the answer: salesforce.com is making the most of what might be a one-time opportunity.

On the first day of the conference I stopped by the company’s booth in Moscone West. At the right end of the booth sat a pair of Mini Coopers wrapped with the company’s cloud logos and bearing the “best of both worlds” messaging. Each night at 6:00 p.m. salesforce.com is giving away one of the cars. This will continue for three days. The only requirement is that winners must reside in one of the 48 continental states. Sorry, no shipments to Alaska or Hawaii, or outside the country. Outside the convention center, six similarly clad Minis make a continuous loop around the sprawling Moscone complex.

Next to the car giveaway there was a small theatre that was full every time I walked by. Periodically, a joint Oracle/salesforce.com customer would take the stage to talk about their experience straddling the two worlds. 

I stopped to talk to a couple of salesforce.com employees who were clearly enjoying their front row seats in a foreign arena. One told me that they were thrilled to be invited to participate in the “IT event of the year.”

The heart of the booth featured standup stations with product demos. The banners on top of the booths proclaimed that this was the home of “Service Cloud2,” “Sales Cloud,” and “Custom Clouds.” The latter is a reference to a new announcement with Dell where the two companies will provide cloud offerings for small and midsized organizations.

Ironically, SAP had a booth behind the salesforce.com pavilion. While this may have seemed to be a good opportunity for guerilla marketing, I sense that staffers would have preferred to be almost anywhere else. When I walked through, I saw employees talking only to each other. 

At 12:30 p.m. on Tuesday, Jim Shepherd and I walked over to the Novellus Theatre to see Marc Benioff’s presentation. We were surprised to see hundreds of people already queuing in line despite a heavy downpour. While some may have been there to receive vouchers for one of the 500 Flip video camcorders distributed at the booth, I suspect that most were here for Marc’s theatrics.

Shortly after 1:00, Marc took the stage. He opened by thanking Oracle for inviting him and acknowledging Larry Ellison for being his first investor. He also talked about how he had appeared on this stage many times to introduce new products during his 13 years as an Oracle employee. Before long, he was into a sales pitch for cloud computing. As he talked, a PowerPoint behind him illustrated the three generations–or worlds–of enterprise computing: mainframes, client/server, and cloud computing. For me, the not-so-subtle message was that client/server was the old world that he left behind when he co-founded salesforce.com a decade ago.

After a brief overview, Marc was joined on stage by Michael Dell who recounted the various ways that their two companies have worked together as partners and mutual customers. When Michael left, Marc invited two employees to demo the new Service Cloud2 and the integration with Facebook, Google, and Twitter. In the new cloud world, social networks matter.

Near the end, Marc invited Sanjay Mirchandani, EMC’s CIO, and a mutual Oracle customer on stage. This was another brilliantly calculated move. The messaging here is that smart companies are looking to cloud applications that link to their legacy ERP system.

To be fair to Oracle, salesforce.com is a relatively important customer. Its multi-tenant architecture is built on Oracle’s database and middleware technologies. The company also runs Oracle financials as its internal backbone. 

Still, the presence of salesforce.com only reinforced that we’re on the edge of another critical technology transition. Oracle needs to step up and take a leadership position before new companies do what he did to Cullinet and McCormack & Dodge. Attendees are waiting to see what Larry has to say on Wednesday afternoon.

Stay tuned.

Tom Gunn Comments on My “ERP Doomsday Scenario”

I first got acquainted with Tom Gunn by name only after the publication of his book, “Manufacturing for Competitive Advantage” in 1987. This was one of four books Tom wrote on manufacturing. At the time he was the national director of Arthur Young’s manufacturing consulting group. That company later became part of Ernst & Young. 

I met him when he was serving on the board of a supply chain company that had hired me to run marketing. Tom later became CEO of that firm. He then went on to serve as Process Information Officer at General Motors and to be the managing partner of the worldwide manufacturing practice at AT&T Solutions. He’s still active in this market through his Gunn Associates consulting practice. 

Needless to say, Tom has extensive experience in MRP II and ERP. Here’s his take on my update doomsday scenario:

 
Hi Bruce:
 
Re: Your Re-Visiting My 2006 "ERP Doomsday Scenario"
 
You nailed it, Bruce! A few thinking CIO's have figured it out. Here's the scenario in many large companies with respect to large ERP implementations (in addition to other large application software implementations):
 
1. The CIO's company is already one or more revision levels behind with respect to their ERP software
 
2. Their company's current users are using less than 15% to 20% of their current ERP package's functional capability
 
3. Their company has for years underinvested in ERP education and training efforts in order to reduce costs. Older trained and experienced ERP users are being laid off or are retiring. The company is hiring entry level people with little to no ERP or manufacturing/supply chain management backgrounds and throwing them into positions for which they are not prepared. At best, users know how to use the few screens that their department is responsible for. No one understands the big picture of how the company's business processes and total ERP system is supposed to work. Since few to no people really understand the status quo, no one knows enough to drive systemic improvements in the company's business processes and information systems.
 
4. ERP software vendors are continuing to raise their annual maintenance fees.
 
5. The accuracy of the underlying data used to drive the ERP system—bills of materials, routings, inventory levels, customer/supplier data—has degraded over time, rendering the ERP system's output value increasingly questionable.
 
6. As you pointed out, there is no downtime available for software upgrades, no additional IT and user staff to do the work, and no money for new education and training for IT staff and users on the new revision level's increased capabilities and operation.
 
Add it all up and why continue to pay software companies usurious maintenance costs? Instead, keep the maintenance money, hire a small specialized IT firm to help keep the current ERP system going, and use some of the saved money to focus on getting more out of the current system by increasing user education and training and improving the accuracy (and real-timeness) of the data that drives the ERP system.
 
The software applications world is heading toward a hybrid model of cloud computing and software-as-a-service that is bound to prevail in the marketplace as it offers superior value to customers. Once application software is standardized in a cloud service, look for this scenario to be married to application software vendor and industry-specific applications add-on products to develop similar to Apple's iPhone applications store offerings. Want a custom master production schedule add-on for your ABC vendor's ERP cloud software that drives your brick manufacturing company? Download it from ABC's approved apps library directly into your company's cloud-based ERP system.
 
Application software vendors should take a tip from the cell phone companies and focus on perfecting the core product, while making it possible for and encouraging customers and outside developers to develop industry-specific add-ons.
 
Keep up the great work, Bruce.
 
Best regards,
 
Tom

Revisiting My 2006 “ERP Doomsday Scenario”

Three years ago I published a piece entitled “ERP Doomsday Scenario: Death by SOA?” that questioned whether “rapid adoption of SOA will lead to the end of the ERP market as we know it.”

While I may have overstated the importance of web services and service-oriented architectures and the time horizon, I think I got some things right. Look at the first two sentences in the fourth paragraph:

“Between 2010 and 2012, these same (ERP) customers start to gripe that their legacy ERP systems have become bloated “understructures” that have become too expensive to maintain. CEOs threaten to withhold maintenance payments if fees aren’t sharply reduced.”

I thought of this earlier this week when I received several e-mails about an article in a European publication that said a large, well-known industrial company had notified its ERP vendor that it was not planning to renew its annual maintenance agreement. Various related stories had the customer tendering a RFP for a third-party replacement for maintenance.

While it’s unclear what will actually happen in this specific case, I have talked to several Fortune 500 companies who are questioning whether they should freeze their existing systems at their current release level and turn to a third party for maintenance and support. When you ask them whether they would miss the innovation coming from updates and upgrades, they tell you that they don’t have any available downtime windows in which to test and install the new software. To them, all of that innovation is going for naught. As a result, the cost of maintenance exceeds the value.

This represents a serious threat to vendors who have grown increasingly reliant on maintenance streams. While we question whether there are enough third-party specialists to support more than a handful of customers, it will cause predators to circle. One large manufacturer told me that he’s under a lot of pressure to replace his ERP vendor’s on-premise HR applications with one of the new HCM-as-a-service offerings. He doesn’t know whether he will be able to successfully fend off those eager for change.

Are we close to an ERP Doomsday Scenario? What do you think? 

Readers’ Comments on “Too Late for the Sky”

Last week’s piece on the challenges facing ERP vendors who may not have moved fast enough to support cloud/SaaS apps drew the most e-mail so far this year.

Peter Fingar was the first to comment. Peter recently teamed with Andy Mulholland and Jon Pyke on "Enterprise Cloud Computing: A Strategy Guide for Business and Technology Leaders." He has also written or co-authored several must-read books on technology, including "Dot Cloud: The 21st Century Business Platform Built on Cloud Computing," "Extreme Competition: Innovation and the Great 21st Century Business Reformation," "IT Doesn't Matter, Business Processes Do," "Business Process Management: The Third Wave," "The Real-Time Enterprise: Powering Profits with Process Automation," "The Death of 'e' and the Birth of the Real New Economy," "In Search of BPM Excellence; Enterprise E-Commerce," "The Blueprint for Business Objects," and "Next Generation Computing: Distributed Objects for Business." 

“Bruce, are you slacking... you totally didn't include the VPC (Amazon's big announcement) in this fray. Haven’t you been reading Dot Cloud. I'm now almost done with Enterprise Cloud Computing w/ Jon Pyke of WfMc (Workflow Management Coalition) and Andy Mulholland, CTO, Capgemini.”

Naomi Lee Bloom, managing partner of consulting firm Bloom & Wallace was quick to follow: 

“Bruce,

I hope this finds you well and prospering. 

I've been thinking a great deal about true SaaS versus licensed/on-premise in the HRM software market, and I'm about convinced that almost no one should be going down the licensed/on-premise route with a new implementation, beginning in 2010, with SAP HCM (could do NorthgateArinso to get this same foundation in a SaaS version if you must have the SAP foundation to fit a broader corporate IT strategy) or Oracle PeopleSoft HCM (there is no SaaS version available, although there are some single tenant, highly templated BPO offerings). 

I believe that, by 2010, Oracle EBS HCM 12.1 will appear in a SaaS offering, if not from Oracle then from another source, but that's down the road a bit, and I hate to bet on futures. 

I just can't see starting a multi-year implementation in 2010 of software that's about to be overtaken by Fusion Apps HCM (in the case of Oracle EBS or PeopleSoft HCM, for neither of which, IMHO, will there be much functional innovation after 12.1 and 9.1) and whatever next generation results from the forced death march development effort that I presume SAP will launch if Fusion Apps looks like a winner once it emerges. 

For large, multi-national to global companies, there just aren't many good SaaS options for core HRMS replacements, and the talent management SaaS vendors, although they are trying to build toward becoming the system of record, have a LONG way to go to catch up on the basics of regulated and record-keeping HRM. 

Workday is coming along very well, and there will be a few more options in a few years, but it's a little thin on the ground for the highest end of the market as we make this eighth (could be ninth depending on how we address the various client-server architectures) generational change in software architectures since I wrote my first line of code.

Am I being too aggressive in guiding end-users to reconsider licensed/on-premise and very dated ERP/HRMSs? Your thoughts would be appreciated. 

Naomi"

Three Questions on the Oracle-Sun Deal

The only thing more surprising than Oracle’s $7.4B bid for Sun would have been a U.S. man or woman winning yesterday’s Boston Marathon. 

After participating in calls with Oracle and the press, and reading a plethora of coverage in newspapers and online, I’m left with three questions. All are based on the assumption that the deal will be approved by shareholders and any regulatory bodies that may get sucked into the vortex.

1.    How quickly will Oracle exit the hardware business? 

My bet: ASAP. I’ll wager that Oracle is already having or has had talks with HP and/or Dell about picking up the pieces. Outside of Larry’s fascination with high-performance database appliances, there’s nothing attractive about a business that has supermarket-like margins. The one reason he wants to keep Sun out of IBM’s hands was to protect the database and middleware revenue streams. Imagine the great sucking sound of Oracle software being ripped and replaced by DB2 and WebSphere.

During the call with Edward Screven, Oracle’s chief architect, I reminded him of Larry’s disdain for expensive hardware. At Oracle AppsWorld in January 2003, the primary message was how Linux performance on Intel boxes was “three times faster and five times cheaper” than other operating systems running on more expensive hardware.

Of course, that begs the question as to why Mark Hurd or Michael Dell would want Sun’s hardware business either.

2.    MySQL: Keep or Kill?

My bet: Keep … at least for a while. That puts me in the minority. Based on e-mail and comments in news reports, most people seem to think like my friend Jim. He asked me if I thought one of the reasons for buying Sun was to “ensure that MySQL suffers a quick death?”

In my view, the database is the last layer between complete commodization of the underlying stack (operating system, app server, and related components) and applications. Meanwhile, developers at Compiere, OpenBravo, and SugarCRM are racing to commoditize all the way up to ERP and CRM.

There’s a market for open source databases. Larry wants to ensure that it’s confined to startups, embedded systems, and some internal development. I think he wants to control the growth before it spreads like kudzu.

3.    Who does this deal hurt?

My bet: IBM and Red Hat, but not SAP. If Oracle is successful in the acquisition and ongoing assimilation of Sun, this is the equivalent of Larry pulling Sam Palmisano’s hockey jersey over his head and giving him a pretty good beating in front of Scott McNealy and the hometown crowd. On the flip side, the first fight is never the last, and even the most punishing rarely lasts for a minute or two before being broken up by the referees.

For some reason, I think Red Hat is one of the intended victims, too. The company has been on Oracle’s radar ever since Larry trotted out the four live penguins to join him on stage at Oracle OpenWorld in 2006. 

Several reporters asked if this deal hurts SAP. I don’t see that, although SAP is running out of large middleware companies to buy to bolster NetWeaver’s deficiencies. We will likely see tighter anti-Oracle alliances being formed. Want to wager that the Oracle news set off the red phones in Armonk, Redmond, and Walldorf? Think there has been any rumbling about anti-trust should Oracle own the #1 commercial database and the #1 open source database?

Bonus Question: Did John Chambers start all of this?

In my view, there were two drivers to Larry’s move to save Sun’s Jonathan Schwartz from becoming the ponytailed Jerry Yang. Clearly, IBM’s decision to walk away was the most immediate catalyst. It gave Oracle a chance to buy a company that it didn’t know it wanted.

The other impetus may have been Cisco’s decision to get into the server business. Suddenly, there were no clear lines of demarcation between networks, servers, and software. Every giant had the right to be in every sector of tech.

With that as a guideline, there is no telling what could come next. Will IBM or Microsoft make a bid for SAP while Cisco mulls buying EMC? The end of the world as we know it? 

ERP and the SaaS Question

As we mentioned in this week’s newsletter (subscribe here) , ERP vendors don’t seem to be getting the big picture regarding SaaS.  Like the Big 3 domestic automakers, the largest ERP vendors will have to embrace and develop a hybrid strategy. In this case, it  means supporting multiple deployment options. They don’t have time to develop their own multitenant platforms. Instead, they will have to buy to fill the gap. The most vulnerable flanks for on-premises ERP vendors are in CRM, human capital management (HCM), and supply management. That leaves financials, inventory management, some supply chain processes, engineering, and manufacturing. Over time, cost issues may favor moving another slice to a new SaaS product versus upgrading the on-premises version. The hybrid model is not perfect. There are issues on integration and master data management. On the flip side, software as a service has more innate appeal to line-of-business (LOB) buyers that are developing more say in software purchase decisions. SaaS deployment options remain a top inquiry from clients across the board. As for a complete ERP-as-a-service offering for large enterprises, it's still way off in the distance. Workday is following the PeopleSoftpath by delivering HCM and financial applications. While it has been able to sell HCM into Oracle and SAPaccounts, the strategy for the foreseeable future is coexistence, not replacement. Not convinced? Look at the relatively high number of new customers that the leading SaaS vendors add every quarter.

Charlie Eggerding's War

As we mentioned in the newsletter (subscribe here), Charlie Eggerding took the seemingly impossible job at QAD selling into the struggling auto industry (QAD also sells into consumer packaged goods,food and beverage, high tech, industrial and life sciences industries, and SaaS products targeting a wide-range of companies). His mission: Unravel the complexity that hounds midsize auto suppliers. Google MMOG/LE If you’re wondering what massive multi-player online games have to do with automotive, that’s the other MMOG acronym; here we mean Materials Management Operations Guidelines/Logistics Evaluation. Developed by the Automotive Industry Action Group (AIAG) and Odette in 2004, MMOG/LE was intended to define a common set of business processes and best practices that OEMs and suppliers could use for material planning and logistics performance. MMOG/LE consists of 206 criteria that span six chapters: strategy and improvement, work organization, capacity and production planning, customer interface, production and product control, and supplier interface. Suppliers use the criteria for self-assessments. Many OEMS, such as Ford, Chrysler, PSA Peugeot Citroen, Renault, and Volvo, require global suppliers to use it to improve performance. And Tier 1 suppliers are pushing their suppliers to adopt it as well. To help create awareness and speed adoption, QAD has been an active participant in MMOG/LE education seminars sponsored by large OEMs. Mr. Eggerding described a recent program in which he toured 22 cities in Europe (mostly in Central and Eastern European countries), Asia, Latin America, and South Africa with one of the large U.S. OEMs. A North American tour is planned for 2009. For its part, QAD is working with key OEMs and Tier 1 suppliers to help set process maps for the most important criteria. For example, one customer has identified more than a hundred criteria or points critical to the company’s plant managers. The majority of these points are not associated with ERP processes. In effect, QAD is working with customers to ensure it can help identify and manage all the critical processes needed to ensure optimal performance with suppliers. By having the customer’s process maps, QAD can say, “Here’s what you need,” versus forcing the suppliers to retain consultants to spend weeks on the discovery process. MMOG/LE SaaS as secret sauce Mr. Eggerding described some projects currently underway in which customers are looking to his firm to help educate and onboard hundreds of suppliers spread across China and India and as far away as Vietnam. QAD brings these suppliers into compliance by offering all the necessary software via software as a service (SaaS). A small, 10-user system may be deployed for $2,500 a month. This includes EDI with one or two trading partners, the full ERP suite, shop-floor data collection, and QAD’s Supply Visualization software. Charlie Eggerding’s war on complexity has attracted a lot of interest from seminar participants and the broader automotive community. It will be interesting to see if this translates into significant revenue in 2009. It should help retain QAD’s strong position in this sector. As of summer 2007, QAD’s ERP software had been installed at 1,100 automotive sites in 90 countries, include 66 of the top global 150 suppliers. I suspect that these numbers have jumped since then, even in a cruel economy. According to AIAG, MMOG/LE has attracted interest from hospitals, construction companies, aerospace firms, chemical manufacturers, electronics firms, industrial companies, and retailers. If interest turns into action, QAD may be sitting on a rich oil field. Coming next week: SaaS as the safe haven for software companies We’re happy to report the research is nearly complete for next week’s detailed look at the prospects of five SaaS vendors relative to the on-premises market. The only unfinished bit is attending salesforce.com’s Cloudforce event and a dinner with Marc Benioff. Look for highlights next week. As always, I welcome your feedback and ideas.

My Unsolicited Advice for SAP: Add IntelliCorp to Best-Run Now

In the past few months, I have had several conversations with IntelliCorp executives to discuss their application lifecycle management tools. At the end of each meeting or phone call, I always end with the same thought: Why doesn’t SAP buy them? The company’s product set would make a great complement to SAP Solution Manager.

 

IntelliCorp is one of those specialty software firms focused exclusively on the SAP customer base. It has several software products that allow SAP customers to automate the identification of change and the analysis of the impact of change. In a typical example, customers are monitoring the differences between the test system and the live production system. The software discovers what’s new and provides an immediate impact analysis. As such it can be used for managing upgrades (including Support Packs and Enhancement Packs) and instance consolidations. We also like its flexibility: the tools can also be used with the SAP Business Suite, BW, Master Data Management, CRM, and other SAP applications.

 

One customer was planning a release of 70 custom objects. Without IntelliCorp, a team would have to manually identify the effect the new software would have on the production system. What might have taken eight hours manually was accomplished in three minutes.

 

SAP has started to bundle multiple support packs into support stacks. The stacks could represent 3,000 changes or 300,000. Often these are ignored as the time and cost for customer testing and the risk of change outweighs the potential benefits. IntelliCorp helps reduce shelfware by quickly identifying the changes and impact in the new stack, resulting in higher quality for less cost.

 

IntelliCorp can also be used for auditing and compliance. One large customer’s internal audit group uses IntelliCorp’s LiveCompare software to extract data out of the production system to compare day-to-day operations to ensure compliance or identify where they are not. For example, LifeCompare can be used to identify shipments without purchase orders or invoices.

 

Customers are also using the software to catch untested changes before they reach production and cause the inevitable downtime.  Another customer uses it for master data management. LiveCompare manages more than 100 workflows in the nightly system synchronization.

 

To date, IntelliCorp has more than 100 brand name SAP customers spread across retail, consumer goods, energy, financial services, automotive, industrial manufacturing, life sciences and healthcare, public sector, aerospace and defense, chemical, telco, and high tech.

 

Pricing appears modest. Smaller companies can get started for $75K, while enterprises larger than $1B are looking at a $300K start price.

 

If you compare SAP’s revenue opportunities from Rail Car Management and Fleet and Fuel Cost Containment Management with that of IntelliCorp, you might question why SAP is not focusing more on software that has much broader appeal across its enterprise application base.

My unsolicited advice to SAP: Add application lifecycle management tools like IntelliCorp’s to your Best-Run Now holiday shopping list.

 

For everyone else, the following research can help with your ERP management needs:

 

• Strategies for Exploiting SAP Solution Manager
• IT Management Landscape: Major IT Vendors Evolve Toward IT Resource Planning Suites
• Enterprise Architecture Techniques for SAP Customers
• Reduce the Pain of ERP Upgrades With Better Planning 

And see the companion blog post: SAP Adds More Bite-Size Applications.

SAP Adds More Bite-Size Applications

In our “ERP Update” a few weeks ago, we mentioned that SAP AG had unveiled a series of Best-Run Now products, which we described as “bite-size applications.” There were six products for large companies and several more for small and midsize businesses.

The high-end products included Business Objects’ Business Planning software, Liquidity Management for the finance department, Implementation Fast Track (based on SAP’s Solution Manager and third-party software from Open Text, Redwood, and RWD), Business Intelligence Accelerator database engine, Managing Workforce Through Change, Energy Data Management, and Optimized Procurement.

The snack apps also came with the option of 0% financing for 12 months as well as packaged implementation services. There were also a wide range of BI starter packages to help speed adoption of Business Objects throughout the base.

 

Last week, we received an email from SAP announcing six additional industry-specific packages. These include Project & Portfolio Management in R&D and IT, Rail Car Solution for Transportation Management, Rapid Response to Business Risk, Confident Decisions Based on Instant Line of Sight, Fleet and Fuel Management Cost Containment, and Manufacturing Visibility, Intelligence, Integration.

When the initial program was unveiled, it was limited to select geographies. Best-Run Now has since been expanded globally, with some variations on financing. All of the high end products are available now. Pricing has not been disclosed.

While it’s great that SAP is pushing to provide deeper functionality for verticals, there are some needed products that are common across the entire customer base, specifically for helping customers cost-effectively manage implementations and upgrades. We could make a strong case for adding products like IntelliCorp’s to the Best-Run set (see our companion post).

SAP 3Q Results: Too Conservative for Its Own Good?

SAP's 3Q results had few surprises given that company executives pre-announced only a few weeks ago. Nonetheless, here are some of the highlights from the earnings call and our subsequent phone call with Bill McDermott, president and CEO of SAP’s global field operations.

 

 

Non-GAAP software revenue came in at €791 million, up 11% in constant currencies, while non-GAAP software and software-related service revenues were just under €2 billion, up 22% in constant currencies.

 

On the earnings call, co-CEO Léo Apotheker walked through the geographies. The bright spots in EMEA included Germany, the Nordic region, and some “southern European” countries. This was offset by weaker than expected results in the U.K., France, and Russia.

 

In the Americas, he said the U.S. added a lot of “new customers” and was helped by a strong contribution from sales of Business Objects software. He described Latin America as “good,” with another strong quarter from Brazil.  North of the border, Canada did well, too.

 

In Asia-Pacific Japan, SAP continues to do well in China and Japan. Mr. Apotheker said Japan was strong, but mostly for large enterprises. This was true in the U.S. as well. One logical explanation was that the larger enterprises already have some sort of investment in SAP, while many smaller companies may be first-time buyers. It may be easier for larger firms to execute on a strategic expansion, while the decision-makers at smaller firms opt to wait out the financial storm.

 

Mr. Apotheker said the company did well in five industries: consumer products, life sciences, chemicals, public sector, and banking. During our call, Mr. McDermott added oil and gas to the list and noted that retail was “good.”

 

As for hot products, Mr. McDermott led with CRM and Business Objects. The new CRM products have drawn strong interest, especially among some of SAP’s largest customers.

 

Q4 outlook:  I see lots of runway … with a little fog on the horizon

 

In the last few weeks, I have talked to lots of SAP customers who continue to expand their footprint and/or plan for upgrades. One long-time SAP customer told me of plans to add 50,000 new seats, while another is embarking on a billion-dollar transformation project. A well-known East Coast company is buying its first SAP software: CRM for a series of innovative customer-facing projects.  

 

While I see lots of runway, SAP is playing it very conservatively. To improve margins, the executives are looking to cut spending by €200M this quarter. They expect to achieve this through a hiring freeze, travel restrictions, and other spending efficiencies. Contrary to recent rumors, there are no plans for a dramatic reduction in field personnel.

To help jump-start sales, Mr. Apotheker described a series of projects that can be quickly deployed to help companies realize benefits in liquidity management, inventory and purchasing optimization, and energy data management. While the programs have been introduced to the field, the actual announcement may come later this week. It is logical to assume that there will be some programs specifically geared to encouraging small and mid-size customers to sign this quarter.

Straight from the Source: Conversations with Ariba Executives

Over several meetings with Ariba’s president Kevin Costello and Tim Minahan, his top marketing strategist, we talked about how the market and the competition has changed the past decade. While we didn’t specifically talk about why Ariba survived and thrived while others didn’t, Mr. Costello attributed his company’s success to a transformation that began five or six years ago.

 

At that time, the company recognized that it needed to be more than a technology provider. Mr. Costello recognized that he needed to build a strong services component to augment Ariba's software and Network. This was a sharp departure from the higher margin “software factory” model that was in vogue.

 

Today, Ariba has 700 consultants with expertise across more than 400 categories. The company maintains service centers in Bangalore, Pittsburgh, Prague, and Shenzhen, using these sites to help customers set up and manage international procurement centers.

 

Ready for “Spend Management 2.0”?

 

During our last conversation, Ariba executives outlined their plans for the next generation. They seem to be borrowing some ideas from salesforce.com, including a “walk-up” user interface and simpler configuration and administration. While it may be a stretch to draw a comparison to salesforce’s AppXchange, Ariba wants to open its network further to include all sorts of third-party applications and services, including those from Oracle and SAP. After all, it’s all about transactions and content.

 

Ariba is also going deeper into web-based community services such as a best-practice center and “Category Playbooks,” as well as providing more role-based spend dashboards. Ariba Sourcing customers can directly access Ariba Category Playbooks, which provide current supply market dynamics, cost drivers, and RFP templates for more than 50 spend categories, all within the context of their application. Customers can also punch out from Ariba Sourcing to search, discover, and assess new suppliers via Ariba Network Discovery.

 

This week in the First Thing Monday newsletter

 

You can read more of our conversations with Ariba in this week’s First Thing Monday newsletter (subscribe here), where you’ll also find our Economic Turmoil Survival Guide.

Inside SAP's New Support Plan

For those who subscribe to our weekly newsletter, we discussed SAP’s new Enterprise Support plan for all customers, new and old, that it would be requiring them to move to the next few years. Since then, AMR Research’s Derek Prior has fielded calls and e-mails from around the globe from clients asking how best to manage the shift to higher maintenance fees while trying to reduce total cost of ownership. Here is the continuation of that conversation with Derek:

 

 

FTM: At last count, SAP has somewhere around 350 customers on MaxAttention. This was SAP’s first offering for customers that were willing to pay more of net license value per year. What does MaxAttention provide? Why haven’t more companies adopted it?

 

DP: MaxAttention is still SAP’s premier service for customers that run their enterprises 24/7/365. It provides a highly personalized and highly customized support service. Our original article, “SAP Enterprise Support Contracts: Deal or no Deal?” explains the key differences between the services, but Standard Support has gone for good. Our second article, “SAP Enterprise Support Contracts: Counting the Real Costs,” explains the typical SAP lifecycle cost impact of Enterprise Support.

 

There are only about 350 right now, but many more have actually used it for critical periods of their SAP lifecycle, like an upgrade. MaxAttention makes most sense for companies that incur a very high cost from business down time.

 

FTM: Can you explain what exactly the Run SAP bit of Enterprise Support is?

 

DP: Run SAP is a new methodology that SAP has developed for the implementation of end-to-end system operations and support of SAP systems plus third-party applications. It’s very good, especially for new customers, but most existing customers are already highly experienced in this area. They developed their methods and procedures long ago because they had to. They usually don’t want to replace them with something newer, unless it is better and cheaper.

 

FTM: I’ve seen the e-mail strings and blog posts from angry customers and been to some of the chat rooms. That said, it seems that 22% maintenance is inevitable. What other choices do customers have?

 

DP: 22% is inevitable, as you say. A clear best practice is to accurately measure your actual use of existing SAP software, right now and in the future. A number of independent tools are available to quickly and independently do such a measurement. You need this insight to be sure that you are making the best possible use of all your existing SAP licenses before buying more plus its annual maintenance, whether it is 17, 22, or any other percentage. Professional software asset management is an integral part of proper SAP lifecycle planning.

So far I have not heard of anyone threatening to use third-party maintenance providers. If your systems are important to your business it’s probably not worth taking unnecessary risk.

 

FTM: What advice do you have for CIOs?

 

DP: Several CIOs we have spoken to are anticipating a really tough ride at their next board meeting. I really think that they have to present what a fantastic job that they are already doing right now with their major investment in SAP. That means long-term SAP lifecycle planning and careful cost management at every stage in that plan. We know that they are already doing that too. I think that CIOs should also carefully monitor the quality of all support delivered by SAP Active Global Support and regularly review it with them.

 

Another thing that we are doing at AMR Research is to try and help hard-pressed CIOs to refocus on the actual value delivered by their overall SAP Program. We simply have to shift gears from cost to value. We have some stunning new research from AMR Research’s SAP Peer Forum that will really help here.

 

SAP is urging customers to be aware of and take advantage of the support that is available to them in Enterprise Support. This includes Continuous Quality checks.

It’s always wise to invest some time with third parties that specialize in contract negotiation. Many SAP customers think they have the skills in-house. It turns out that they cannot keep up with the complexity of the ERP landscapes and the new changes to the contracts. That’s an area where AMR Research’s own Contract Negotiation and Benchmarking Service can be of great help to CIOs and their legal/contract counterparts.

 

FTM: What advice do you have for SAP?

 

DP: I think that SAP needs to start treading much more carefully. SAP continues to do very nicely from a revenue point of view. In my conversations with many SAP customers, I have noticed that they are becoming more concerned with increased system landscape complexity due to NetWeaver and the sheer number of different software components to tuck up in bed at night.

 

Secondly, more and more are finding that license complexity means that ease of doing business with SAP is receding. The license fallout of the Business Objects BI roadmap alone is pretty big. Along comes more good news in the form of 22% software maintenance. SAP needs to understand that you can stretch customer loyalty only so far, even if you are the market leader. I think SAP needs to be careful.

 

FTM: Is 22% the ceiling? Or can you envision a period where we get to 24% or 25%, or even higher?

 

DP: Higher prices are not inevitable, but I think they are quite likely in a couple of years. All customers should always try to lock in the 17% or 22 % figures into their SAP contracts for as many years at they can. The only problem is that customers will realistically only be able to achieve this through smart negotiation when buying more software from SAP.

 

Bruce, if our readers feel strongly about this issue, I really hope that they will get directly it contact with us to discuss it further. My e-mail is dprior@amrresearch.com.

 

FTM: Thank you, Derek.

 

As always, we welcome your feedback.

E2open and the Trillion-Dollar Transaction Hubs

We recently met with Mark Woodward, the new CEO of E2open. Two months back, Mr. Woodward succeeded Greg Clark, the effervescent former CEO, who has since returned to Australia to head up Mincom, a leading provider of enterprise asset management (EAM) software.

In previous analyses of E2open, we’ve focused on the expansion of the network. For example, two years ago we wrote that the company had grown to 64 customer hubs, 751 trading partners, and 60,327 users, primarily in high tech and A&D, but with new penetration into automotive. That was up dramatically from July 2003 when there were just seven customer hubs, 1,500 trading partners, and 8,384 users.

 

Today, E2open has expanded to 82 customer hubs, 72,000 trading partners, 200,000 users, and 180 million annual transactions. The company estimates it processes more than $240B in spend per year. Its goal is to be the first to reach the magical $1T mark by 2010, which I wrote about in December 2006. In fact, E2open’s last PowerPoint slide featured my article.

 

Privately-held E2open doesn’t disclose revenue. During our meeting, the company said its backlog and license revenue were $82M. Annual revenue was described as up 100% over the year-earlier period, while total contact value was up 136%.

 

The company does a nice job in describing the benefits of membership. The value is in streamlining business processes between customer and supplier and/or Tier 1 supplier and Tier 2 supplier. This is usually for supply chain planning, execution, and visibility (forecasting, vendor-managed inventory, strategic cost management, procurement, order management, and end-to-end demand to supply visibility).

 

Since E2open’s founding in 2000 as a trading exchange for high-tech companies, SAP and Oracle have vowed to offer the same functionality, but it hasn’t happened yet. In fact, about 70% of E2open customers are running SAP software on the backend.

 

To maintain its head start, E2open has been developing business process templates for order and inventory management, logistics visibility, global procurement, and multitier cost management.

 

How big can E2open get? Can it succeed at persuading more and more customers to move processes off its ERP systems and onto its network? Or should it aggressively pursue relationships with Oracle, SAP, and Infor to achieve broader adoption? Can it move beyond its core verticals and into new markets? These are the same questions we’ve been asking since our first meetings with company executives. At the same time, we are intrigued by the growth in customer hubs, trading partners, and users. What do you think?

Epicor 9: The Accomplishment That Eluded Microsoft and Oracle

Once upon a time, Microsoft embarked on Project Green, an ambitious undertaking designed to take the best of its four ERP systems and converge them into a single code base, albeit a fifth product.

 

Meanwhile, in a parallel universe, Oracle set off on Project Fusion. This was to be the lunar landing of convergence, melding the best of Oracle, PeopleSoft, and J.D. Edwards into the Apollo of enterprise applications.

 

Today, Project Green lives on as a set of design principles for future application development. The dream of one product is long past the REM stage.

 

Project Fusion has become the service-oriented architecture (SOA) framework for connecting the original Fusion ERP components with the subsequent acquisitions (such as Agile, BEA, Demantra, G-Log, Hyperion, Retek, Siebel, and the rest). Given that it’s likely that Oracle has other application purchases in mind, it might have been unrealistic to expect the company to ever deliver one master software suite.

 

Epicor 9: Living the dream

 

Like Microsoft and Oracle, Epicor has grown its product line through acquisitions. In the early part of the decade, the company was supporting nine different products. By the first quarter of 2005, the product set had been reduced to four brands. This was manageable, but not really optimal for a mid-size vendor.

 

 

Based on the current plans, the company will ship Epicor 9 later this year. While it will continue to support and enhance the heritage brands, this will be the one path forward for new customers in manufacturing, distribution, retail/hospitality, and services. Getting to one brand obviously offers the potential for greater efficiencies in sales, marketing, consulting and services, and product development.

 

While the hard work is nearly done in development, the next challenge will be to see how quickly Epicor can migrate its 20,000 customers to the new release. Until then, Epicor 9 will be the fifth (or 10th) product in the mix.

 

Getting to 9: Protect, extend, converge

 

Epicor has developed a three-phased approach for existing customers: “protect, extend, and converge.” The goal of the first phase is to assure customers that there will be no forced migrations. Customers can move to Epicor 9 when they are ready for the new functionality.

 

The extend phase represents the side-by-side coexistence of the old with elements of the new, while converge brings the existing base over to the new release. Epicor 9 has “converged” the best features of the other products with Vantage 8 and added deeper functionality across a broader product footprint, a “second generation SOA,” new composite apps, a replication server (for backup or support for other sites, suppliers or partners), enterprise performance management, and a new-and-improved user experience (including mobile device support).

 

One of the few remaining mid-caps

 

Epicor is one of the largest mid-size software vendors. The company closed 2007 with revenues of $429.8M. The latest guidance for 2008 is $525M-$535M. This is down from the $545M-$555M provided last January due to some slower than expected sales in the retail industry. As I write this, the company’s market valuation is $506M, or less than one times the expected revenue for this year.

 

During a meeting with CEO Tom Kelly, he explained that the company was continuing to add new customers (150-plus in the last quarter) and to win back previous customers (more than 175 last quarter). He also discussed one metric that may be unique to Epicor: average software selling price of the 10 largest deals. This has trended up from $193K in 2003 to $422K last year. For the first half of 2008, it has inched up to $462K. This could be affected by large year end deals. For 4Q07, the company reported that the average software license fee for the Top 10 deals hit $600K.

 

Given all of the market’s attention to SAP and Oracle, it’s easy for the mid-cap vendors to get overlooked. Epicor needs to successfully execute the launch of the new release. Customer adoption and testimonials will be critical. Done well, the company will have a much higher profile by the end of the year.

 

Here’s a closing thought for you: If Epicor can execute, does it find itself on the Oracle acquisition ledger as the new Fusion ERP upgrade product for J.D. Edwards? My colleague Jim Shepherd questioned me as to why Oracle might want a product based on Microsoft and Progress technologies. I say it’s all part of the next land grab.

 

Let me know what you think.

Infor ’s new farm project: more “green beans”

The first stop on our Southern Fried Software tour was to visit Infor. The original plan was to meet Infor CEO Jim Schaper for dinner. Unfortunately, American Airlines had its own plan and cancelled my flight from Dallas. While I was able to get on another flight three hours later, I arrived too late for dinner.

 

Being a good sport, Mr. Schaper offered to meet me for coffee the next morning at 6a.m. The naturally caffeinated CEO showed up promptly and on message. We began our conversation with a review of his fourth quarter (ended June 30). Total revenue for the privately-held company came in over $600M, up 9.8% from the previous quarter. License revenue came in at $154.2M, up 25% from 3Q. In all, Infor added 561 net new customers in the quarter.

 

Deal sizes trended up, too. In the quarter, Infor closed 38 transactions worth more than $500K, with three to four of the deals valued at more than $1M.

 

A closer look at geographies showed that the Americas had a “record quarter” after relatively lackluster performance for the first nine months of FY08. This is an important region for Infor, accounting for 80% of licensing deals … and half of all revenue.

 

Europe had a very strong quarter, too, after uneven performance in the first three quarters. First and third quarters sales were weak, while the second and fourth quarter was very strong. Asia results were up 40%, with “very good” sales in China.

 

IPO next year?

 

Infor closed FY08 with $2.27B in total revenue. The company is the third largest ERP vendor behind SAP and Oracle. Given its size, we always ask about a potential initial public offering. Mr. Schaper said that he was preparing the company to be “public-ready.” This includes all of the necessary audit work. He estimates that the company will have a 10-K out in the first quarter of next year that will look like that of a public company.

 

Mr. Schaper is also a master negotiator. He’s grown the company through a series of well-timed acquisitions. When asked if a potential IPO might deter him from deals, he said that “we’re looking at five to six companies … mostly large deals.”  Stay tuned.

Before he left to catch a flight, Mr. Schaper disclosed two other organizational moves. The first is to transition his Indian development center to a services organization. His plan is to shift development to a new near-shore site in Monterey, Mexico.

 

The second move is his new “green bean” program. Infor is aggressively adding new college grads and young workers with a year of work experience to its payroll. The company hired 25 in June and another 55 a few weeks ago. It is complementing the hiring with a new mentor program. Mr. Schaper hopes to use the program to build a new Infor culture similar to the one he remembered fondly from his days at MSA.

 

Next up, Lunch with Logility

Market Cap Race

SAP posted stronger than expected results for nearly all lines and geographies of its operations, last week. As a result, the stock closed that day at $58.98, up nearly 10%. Shares came within a dollar of matching the 52-week high of $59.86, which was set on October 1. This is a nice turnaround from the cold January stretch when the stock dropped to 43.

 

As I write this, SAP’s market cap is hovering around $69B. While this is welcomed news to shareholders, it’s still $40B less than archrival Oracle. The delta also happens to be slightly less than the total amount that Oracle has paid for the more than 40 acquisitions it has made since closing the PeopleSoft deal in January 2005.

 

Many sources of future growth

 

SAP has a lot of ways to grow the top line. Take maintenance, for example. Support generated Euro 1.099B in 2Q08, up 16% from 1Q08. The new Enterprise Support increase will add 8% next year.

 

The services industries are red hot. In my call with Bill McDermott to discuss 2Q results, he was very happy with the success SAP is achieving in retail, banking, insurance, public sector, and higher education. The service industries market is about twice the size of the manufacturing market. While SAP no longer breaks out vertical results, I’d bet that process and discrete industries still outsell all the services industries. That leaves a lot of runway.

 

SAP needs a stronger story to help drive add-on sales of CRM, Business Objects, and GRC (governance, risk management, and compliance). It’s running CRM as a separate business unit under Bob Stutz. Business Objects, GRC, and other software outside the Business Suite and NetWeaver are now under Doug Merritt, executive vice president and general manager of Business User Global Sales.

 

SAP did not break out revenue from Business Objects during the earnings call. In my call with Mr. McDermott, he noted that Business Objects added 16 points to SAP’s 2Q results. It’s unclear whether this was related to the license sales, support, and/or consulting and other services, or how the unit’s performance compared to the same period last year when Business Objects was an independent company. A year ago, Business Objects reported $363.2M in total 2Q07 revenue, including $149.1M for net license fees, $152.3 for maintenance, and $61.8M for consulting and training.

 

What do you think? Can SAP catch Oracle in the market cap race? Let us know here, and be sure to read this week's First Thing Monday newletter column (subscribe here), where I discuss the New SAP, and some of the big changes the company has made in recent months. It's a whole new ballgame.

Q & A with Kronos CEO Aron Ain: The Future of Work

Our interview with Kronos CEO Aron Ain ventured into numerous areas. This week’s column in the First Thing Monday newsletter (subscribe here) explores how Mr. Ain took his company private and the benefits from doing so. We now continue that conversation, moving to a broader reflection on the workforce management and enterprise software markets.

 

Here’s the second part of my interview:

 

My first memory of Kronos is a time and attendance system I saw in a Boston hospital around 1979 or 1980. How should Kronos be thought of today?

 

Mr. Ain: Think of us as providing software and services that allow organizations to effectively manage their workforce. Everything we do is related to managing the workforce.

 

Time and attendance remains a major focus for Kronos—our “bread and butter”, so to speak. Now, we also offer applications for selecting and hiring the best people, scheduling them, tracking absenteeism, paying them, and analyzing workforce data. We help customers reduce costs, increase productivity, improve employee satisfaction, and ultimately enhance the level of service they provide.  

 

Our solutions are used by organizations large and small. We offer Kronos Essentials for SMBs, which is a bundled solution to fit their budget and IT resources. And we offer bundled solutions to meet unique requirements in most major industries. These bundled offerings combine select applications, dedicated service teams, and industry best practices.

 

Kronos entered the talent management market two years ago by acquiring a recruiting vendor for hourly employees. How is Kronos’ move into recruiting playing out?

 

Mr. Ain: We acquired Unicru in 2006 and Deploy Solutions in 2007. These moves complemented our existing offerings and made us the undisputed leader in hourly recruiting. We target organizations with a high concentration of field-based employees, such as retail, healthcare, dining, and entertainment. Think of us as the “eHarmony of field-based recruiting;” we connect the best people with the most appropriate employers and jobs. It’s instant love when a match happens between the employee and the hiring company.

 

We’re very pleased with our progress. We have a strong platform, and our behavioral science and analytics capabilities remain differentiators for Kronos.

 

As Christa Degnan Manning wrote in an AMR Research Report a few months ago (editor note: read it here for free until July 18), Kronos has all but locked up the market for hourly recruiting. She highlighted our greatest asset as our assessment capabilities to help predict which employees will perform well and be more likely to stay longer.

 

How is business progressing in the HRMS space?

 

Mr. Ain: We’ve established a customer base of close to 500 organizations since we entered the business a few years ago. As expected, we’re seeing the most traction in the mid-market from customers who desire an integrated suite from a single vendor.

 

So far, you’ve completed 58 acquisitions. When do you think we’ll see your 59^th and 60^th acquisitions?

 

Mr. Ain: Acquisitions remain a part of our strategy to fuel our company’s growth. We are currently working on several opportunities in the U.S. and in Europe.

 

Last time we spoke, we talked about Kronos’ operations in China and India. Any surprises in having recently moved into these geographies?

 

Mr. Ain: Lots of early surprises, the biggest of which is the newness of the concept of workforce management. We’re essentially creating a market in these regions. In addition, we are surprised by how many companies manage their workforce with manual, legacy systems. This all translates into a wonderful opportunity for us. I’m visiting China and India next week, so I will likely have an additional perspective later in July.

 

What percent of companies have automated their time and attendance function? Is there more runway?

 

Mr. Ain: While I’m not sure of an exact percentage, I can tell you there is plenty of runway left. We just finished a fantastic quarter with product sales accelerating yet again. We see no end in sight.

 

In your opinion, how has the workforce management market evolved the past 10 years?

 

Mr. Ain: Oh, how far we’ve come! It’s been an amazing ride as the market-maker in the space. From our perspective, the market has evolved in four ways:

 

·                                             Globalization has driven the need for more scalable, centralized, localized products

·                                             More people work remotely, which has driven the need for more mobile solutions

·                                             The proliferation of the web has fueled a desire for more employee self-service capabilities, allowing employees to access and interact with personalized data

·                                             The desire to analyze data across locations, regions, and company-wide has driven the need for more sophisticated analytics tools to assess performance, monitor outcomes, and make better decisions

 

According to AMR Research’s own quantitative studies, the human capital management market leads enterprise application growth, which speaks volumes to how far the market has come.

 

Globalization continues to be a hot topic among AMR Research clients. What advice would you offer these companies regarding how to manage a global workforce?  

 

Mr. Ain: Do it! The tools exist today to manage your global workforce in a central or decentralized way. Technology makes it possible to effectively manage your employees anywhere in the world.

 

What are the technical implications of managing a more complex and geographically dispersed workforce?

 

Mr. Ain: Globalization and technology will change the meaning of “the right person, in the right place, at the right time.” The physical location of an employee will be less relevant in the workplace of the future as technology enables greater virtualization, and as organizations develop the means to bring the work to the worker, not the worker to the work. This shift is imminent. I recently read that 80% of Fortune 1000 companies are likely to introduce a telecommuting policy in the next two to three years.  

 

As for the technical implications, vendors must deliver solutions that are increasingly scalable, flexible, and cost effective. They should leverage existing infrastructures and be easily integrated with other products. And vendors must offer a vast network of support because customers will require and should expect a consistent level of support on a global basis.

 

Are there particular types of buyers who are interested in workforce management? How has the typical buyer changed over the years with the proliferation of products beyond time and attendance, and as the products have become more sophisticated?

 

Mr. Ain: We generally see two types of buyers, the differences of which have become more distinct as add-on products (such as scheduling) have become available.

 

There’s the functional buyer, who seeks deep functionality and a full suite of applications, and typically taps into our vertical and global expertise. And then there’s the ease and value buyer seeking preconfigured, bundled solutions with an option to have someone else host the application, ease of integration with other applications, and flexible payment options.

 

A common concern among best-of-breed vendors is encroachment by the large ERP vendors. What’s your perspective on the best-of-breed vs. ERP debate?

 

Mr. Ain: In our world, buyers sometimes have the perception that it’s cheaper to extend their ERP solution to include time and attendance. On the surface, that may appear true. The facts, however, do not support this perception. The reality is that our (best-of-breed) products are less expensive on multiple dimensions. Unlike ERP, whose primary focus is not managing the workforce; we can quickly configure software because we’ve done it tens of thousands of times. That makes it less costly. In addition, we have invested a lot in integration to ensure that the process is smooth for our customers.

 

We built a $700 million company by being the best. Our business is accelerating. If you do it better than anyone else, you will win!

 

Last question: What should we expect to see in workforce management in the next 5-10 years?

 

Mr. Ain: In terms of the vendor landscape, I agree with you that we should expect to see more consolidation. My theory is that if you’re not among the top 2 or 3 vendors, it’s virtually impossible to survive in the long term. That said, many of the small, niche vendors have good customers and products, so they may make ideal acquisition targets.

 

Regarding the changing nature of the workforce, several things come to mind. First, the need to bring the work to the worker will become even more prevalent, which will create demand for more innovative approaches to support a virtual workforce. Second, attracting and retaining workers will continue to be a competitive concern, so we should expect to see even more demand for applications that help find and hire the best people. Third, globalization will continue to drive the need for more scalable, centralized, localized products.

 

And finally, I believe that providing superior service will prevail as a major competitive differentiator. Here’s my theory … every organization provides a service – whether to shoppers in a retail store, patients in a hospital, customers using a software application, patrons in a restaurant, subscriber to a service, etc. You get the idea. My point is that providing superior service starts with the people providing the service. I believe the best way for a business to thrive is to hire the best people and provide them with tools to maximize their performance. Service is king.

If I Ran SAPPHIRE …

I attended my first SAPPHIRE in 1991 in New Orleans. Since then, I have only missed the 1995 US event and two European SAPPHIRES, including last year’s conference in Paris (it overlapped with our annual Supply Chain Executive Conference. Speaking of which, make sure you check out FTM’s sister blog and newsletter, Chain Reaction).

 

Barring a last minute un-invite, I will be in Berlin for the European SAPPHIRE in mid-May. Looking back to this week, I offer two suggestions for improving the event:

 

First, move Business Objects CEO to a core time slot

 

Whose idea was it to have John Schwarz speak at the end of the day?

 

Here was the flow of the keynotes on Tuesday: SAP co-CEO Henning Kagermann opened the program with a keynote that went from 9-11 AM. He was greatly aided and abetted by Ian Kimbell’s skillful/hilarious demos which played to a near full house. Mr. Kimbell did a great job of integrating various Business Objects products into SAP scenarios.

 

When the keynote concluded, attendees were free to wander the vast exhibition area or attend break out sessions.

 

For some unknown reason, the other Tuesday keynotes were in the afternoon. Co-CEO Leo Apotheker spoke to a large crowd from 2:00 to 3:15. While there were product demos, much of his presentation was built around testimonials provided on stage by CIOs from Procter & Gamble and Harley-Davidson who talked about the importance of SAP software to their operations.

 

For some inexplicable reason, there was a 75-minute break between Mr. Apotheker and John Schwarz. By the time Business Objects’ CEO took the stage shortly after 4:30, the crowd was maybe a quarter of the size of the earlier keynotes. Given that C-level customers want to gather as much information as possible into a concentrated amount of time, I think SAP lost a major marketing opportunity.

 

Mr. Schwarz opened by talking about some of the cool things that Business Objects has done for customers. He should have continued on this path. Instead, I sensed that he was trying to blend his pitch into the classic SAP executive style, right down to the template. It didn’t come across as natural.

 

I had seen a Business Objects executive present at an Accenture-Oracle conference in March 2007 in Miami. It may have been Mr. Schwarz. If so, he was also the victim of poor timing there as Oracle had just made its bid to acquire Hyperion, his arch-rival in the business intelligence/performance management space. Nonetheless, the Miami audience was treated to a bold, insightful presentation. I suspect the SAPPHIRE attendees would have preferred that, too.

 

Second, adopt terminology that is more intuitive to business people

 

Before Mr. Kagermann took the stage, the audience was greeting with a very clever video that was several minutes long. The video showed a group of young people passing a soccer ball to each other against a rapidly changing global backdrop. It fit in perfectly with the themes of collaboration and globalization for “Business Beyond Boundaries.”

 

If only SAP’s product messages could be so simple. I think it’s time for the company to move beyond geek-speak or “SAPanese” as they say internally.

 

Over the last couple of years, customers have had to learn what SAP means by “Business Process Platform,” “EhPs, “SOA by Evolution/SOA by Design,” and “Enterprise SOA” (how does that differ from regular SOA which few business people understand). These terms are great for analysts, who own the secret decoder rings, but do they mean anything to the increasingly important line-of-business buyer?

 

For example, if you attended SAPPHIRE, did you understand what they meant by “side-by-side innovation”? Again, this is a great concept for analysts, but what does it mean to a CFO or a vice president of marketing? Exactly what is on the other “side?” Where does it come from? How much does it cost?

 

For a company that does so well with corporate branding, SAP needs to invest more in product branding. One man’s opinion. Leave comments about my thoughts on how SAPPHIRE should be run, and on the full column in this week’s newsletter.

SAP Earnings

SAP is releasing its earnings, this week. We talked to Bill McDermott, SAP Americas' CEO, president, and newly appointed SAP AG board member. We'll have a full report on how the quarter went in this week's First Thing Monday. And look for any additional insights here.

Of Terabytes, March Madness, and Network Performance

In this week's First Thing Monday, I explore some of the issues Derek Prior recently raised in his report on the growth of ERP databases. If you haven’t had a chance yet, read Derek's “The ERP Terabyte Club.” The only requirement for membership is to have an ERP production database with at least a trillion bytes.
For his research, Derek surveyed 67 SAP customers in conjunction with the American SAP User Group (ASUG). Their average databases were 3.7TB and growing by 10 to 100 gigabytes per month. The largest ERP production database uncovered was 18TB. Many of the survey respondents are running large, single global instances of SAP and supporting up to 11,120 logged-on ERP users. The dependence on the global instance puts increasing pressure on IT to reduce the planned downtime windows needed for emergency fixes, problem resolution, upgrades, and enhancements.
I have asked Derek Prior to join me in Boston on Wednesday, April 2, at 11:00 a.m. EDT, for our first webcast focused exclusively on managing large production ERP databases. During the call, Derek will share findings from the study, provide insights on what it means for CIOs and SAP Basis administrators, and explain how SAP Solution Manager might help address part of your concerns. You can register here.
Read Monday's newsletter for some highlights of Derek's insights, what role network performance is going to play, and how checking on your brackets for March Madness is bringing productivity to a halt.
Do you share my concerns? Is your database spreading like kudzu? Are you seeing a causal relationship between growing databases and network performance? Will more widespread adoption of business intelligence and performance management software have any affect on the size of your database or your attempts to manage it? Finally, who do you have winning the NCAA tournament?
As always, I welcome your ideas and comments.

Oracle Earnings

Oracle's third-quarter earnings rose 30% from a year ago, in line with Wall Street expectations, but sales missed forecast. We talked to Oracle President Charles Phillips prior to the earnings call and will have a complete rundown of what he had to say in Monday's First Thing Monday newsletter.
We also talked to Sonny Singh, Oracle’s senior vice president responsible for the company’s products and industries business unit. Given that Oracle does not break out performance by vertical market, we were eager for his perspectives on the economy. The first two markets he talked about were the growing opportunities in communications and media (including gaming). These two verticals are increasingly linked around the growing importance of content. He said Oracle is benefiting from the “high volumes of data that are flowing around that require accessibility and auditability.”
The continued rapid evolution of the communications market is helping to increase adoption of Oracle’s Application Integration Architecture (AIA), a component of the company’s service-oriented architecture (SOA) plans. AIA figures in 80% to 85% of deals in this space as buyers push for new processes and software to support order-to-bill activation and agent-assisted billing care.
Mr. Singh asked if we remembered what it was like when the telcos first introduced DSL (digital subscriber line) services. It took nine months before there was software ready to support provisioning, billing, and other functionality. In today’s instant-on world, that latency is unacceptable.
From telco and media we shifted to banking and retail, two markets described as “steady” despite the press warnings of a slowdown in consumer spending and the ongoing sub-prime mortgage mess.
He cited utilities as one market with “tremendous momentum.” I was a little surprised given that this had been an SAP/PricewaterhouseCoopers stronghold earlier this decade.
A base requirement for utilities is enterprise asset management. As a result, it was logical to jump to a discussion of asset-intensive industries ranging from oil and gas to mining to other commodities. Spending has fueled by the seemingly insatiable demand from China for fuel, metals, and other building materials.
As we rounded out the other market, Mr. Singh said that discrete was “stronger” and public sector was “very strong” thanks to new opportunities in state government and social services. Several interesting developments are underway in life sciences and healthcare, too. Speaking of healthcare, at the SaaSCon event, a reporter asked me if I knew of any acquisitions that Oracle may be making in that segment. I didn’t, but we will watch that space.
I suspect that we will be hearing a lot more from Mr. Singh and his team as they prepare to get far more aggressive in targeted verticals. Looking forward, I see a lot more Oracle versus SAP head-to-head battles inside existing accounts and ERP legacy replacement opportunities. Discussions with buyers show a shift to industry-specific business processes (like order-to-bill activation) and away from software modules (like CRM). That is going to make SOA more compelling.
In the 18 years that I’ve been analyzing Oracle, the company has never suffered from a shortage of confidence. The big difference now is that the story and strategy mesh. In my pre-dawn meeting with Mr. Phillips, we talked about the high cost of winning new business. Clearly, in many cases it makes more sense to buy the installed base than to try to win it one customer at a time. He will have a lot of opportunity to add to the customer base this year.
Whle Mr. Phillips has the potential to reshape the software and services landscape, Mr. Singh’s opportunities are more granular. The next wave of Oracle-SAP confrontations will happen over killer business processes at the industry and individual account levels. That’s where it’s going to get interesting. For our part, you can expect more detailed analysis of all the major vendors across the core vertical markets we cover.
What do you think? Does the current down economy represent a good buying opportunity for Oracle and others? If so, who are some of the companies you would put on the prey list? Can Oracle execute at the level that I’ve given them credit for?
Oh, and we got late word that Oracle is buying the web application testing and monitoring software products of Empirix, a privately held company. That makes 41 acquisitions in the past three years. Our Dennis Gaughan will have analysis of that purchase.

Infor an IPO?

As we posted the other day, we met with Infor executives this week to discuss the company's strategy, and we hoped, plans for an IPO. Full details of the discussion are available in this week's First Thing Monday newsletter.  But here's a brief synopsis. If you had been privy to the 90-minute presentation by Jim Schaper, chairman and CEO, you would have witnessed a clinic on how to make money while running a very large global software company. You also would have been impressed by his detailed knowledge of all facets of his business, which we detail in the newsletter. Tony and I also discuss some of these thoughts in this week's First Thing Monday podcast.
While the company was not in town to talk about any plans for an IPO, I couldn’t resist asking the question. Mr. Schaper said that barring another substantive acquisition in 2008, it’s conceivable that the company could begin the registration process later this year and be a publicly traded company by spring 2009. 
While Mr. Schaper also talked about new products, his real passion and expertise is in closing successful acquisitions. At the end of his presentation, I asked him to describe his best deals.
Mr. Schaper started with Brain, which he described as a “$100M bankrupt German company.” He paid a fraction of that for the company and drove nearly twice the purchase price in free cash.
The second deal cited was MAPICS, calling it a turning point. “From a cultural perspective it was the best deal we have ever done.” He bought Atlanta-based MAPICS in January 2005 for $375M, or two times revenue. MAPICS made Infor into a $600M company with 17,500 total customers.
His third best deal was Datastream, purchased for $217M in January 2006. He described this acquisition as the “best performing deal.”
What will life be like after the IPO?
As Mr. Schaper talked, I could not help but compare the transparency of his presentation with the scant details his publicly-traded competitors provide on their quarterly calls with Wall Street. I sensed, though, that once he takes Infor public, he may not be able or willing to provide the same level of detail anymore.
On the walk back to my office, I was struck by the following scenario: Infor issues the S-1. After studying the company’s profitability and cashflow, Oracle’s Safra Catz and Charles Phillips fly to Atlanta to make an offer for the company either before or after the IPO. Like Infor, Oracle knows the value of buying a large base versus spending a small fortune chasing new customers. Predator becomes prey, and smiles all of the way to the golf course.
Maybe I’m wrong about Oracle. Maybe it’s IBM or Microsoft or even SAP that comes calling on Infor to make a deal. If that happens, Mr. Schaper should write his memoirs and share his tales of the deals that got away.
What do you think? As always, I welcome your comments and ideas.

Infor in town.

We are meeting with Infor's top executives, this week.  While the company is not in town to talk about any plans for an IPO, I can't resist asking the question.  The company has been on an amazing trajectory. Since its founding six years ago, the Atlanta-based company has grown from $110M (fiscal year ended May 31, 2003) to an expected $2.3B for FY08. While much of the growth has been fueled by 30 acquisitions across the enterprise application landscape (remember names like SSA, Marcam, Baan? All are Infor brands now), Infor has also grown revenue organically through new license sales, cross-selling, increased maintenance renewals, and higher utilization of professional services. 

Could an IPO be in it's future? We'll let you know after we talk to them.