Infor juices up its maintenance program value with Infor Flex
Infor announced enhancements to its software maintenance offerings today. The program, dubbed Infor Flex, allows customers at little or no license costs to upgrade to the latest, SOA-enabled versions of their Infor products or to exchange those products for other, newer products in Infor's portfolio.
I won't spend more time describing the program, as Infor has a good blog post on Infor Flex with embedded presentations. On balance, I would say it is a good move on Infor's part.
As I've written in the past, with its huge installed base, Infor has an opportunity to differentiate itself from its competitors in terms of its maintenance program. Many of its customers are on older legacy products, which Infor or its predecessor companies acquired over the past several years. Some of them pay maintenance, others don't. Most of them are going to do something in terms of new systems in the coming years. Infor has some decent up-to-date products in its portfolio, such as Baan and Syteline. But how can they compete against SAP, Oracle at the high end, or Microsoft, Lawson, IFS, and others in the mid-tier? The only way is to make upgrading or exchanging the customer's legacy products a no-brainer. This is what Infor Flex is intended to do.
It remains to be seen whether this program will succeed in moving significant numbers of its installed base to its newer products. On the one hand, I spoke to one early adopter of Infor's Open SOA products a couple months ago, and he was very positive about the experience. He also spoke well of Infor's maintenance and support services. This is a good sign and it says more to me than any number of vendor press releases and statements about future direction.
On the other hand, by my observation, Infor gets "outsold" by other vendors, even in situations where it is the incumbent supplier. Current economic conditions are likely limiting its ability to more aggressively and thoroughly present its leading products, such as Baan and Syteline. Hopefully, the new Infor Flex program will provide a more compelling value proposition, allowing Infor to win more deals where it already has a customer relationship.
I would like to see this program succeed. In these days, customers need more alternatives, not fewer.
Update: I see Vinnie has already posted his view on Infor Flex. Read Flex should also include down, not just up. Vinnie points out that the "flex" option is only for more product and services, not less. A good point, but Infor is reluctant to give customers an option to pay less than they're paying now. Of course, Infor is not alone in this reluctance.
Update: Dennis Howlett weighs in, in his usual style: curmudgeonly. Read the whole piece, at least to see how Dennis can manage a reference to Hulk Hogan when talking about ERP.
Update:More from Ray Wang, who writes, "...These new policies may engender good will among loyal customers and be just enough incentive to keep competitors from poaching existing accounts."
Looks like the vendor consolidation trend in ERP is not yet over. Infor announced this morning that it is buying SoftBrands, for $80 million. Softbrands adds two new products to the 50+ ERP systems in Infor's wide-reaching portfolio of enterprise software.
SoftBrands may not be a well-known name, but one of the two products in its portfolio is better know: Fourth Shift, a Tier III ERP system that has been around for some time and has a fairly extensive installed base among small and mid-size manufacturing firms.
What's most interesting about this deal at first glance is that Fourth Shift has had a partnership relationship with SAP since 2004 to offer Fourth Shift as a small plant solution to SAP Business One customers. Business One is SAP's small company ERP system, which does not have extensive manufacturing system functionality of its own.
Whether SAP is going to be willing to extend this relationship with Infor going forward remains to be seen. SAP views Infor's installed base as a target for its own sales efforts, so a continued partner relationship with Fourth Shift may be awkward. Loss of the SAP relationship would no doubt be a significant loss to Fourth Shift, but Infor surely must have considered this risk already.
SoftBrands' other products are systems for the hospitality industry, which it picked up in 2006 with its acquisition of Hotel Information Systems (HIS).
Update: Ray Wang has additional insights and goes into more detail on the hospitality side. He also doesn't think SAP will continue the relationship for Fourth Shift. However, that wouldn't stop Infor from continuing to try to sell into the SAP installed base.
Update, Jun 15. Jason Carter, in a series of Twitter direct messages to me, raises some interesting question: why didn't SAP buy SoftBrands? It would seem an obvious way for SAP to build out its functionality for Business One. If SAP wasn't in the bidding, what does that say about SAP's commitment to Business One? If SAP was in the bidding, why did Softbrands go with Infor?
Gartner Mid-Market ERP Magic Quadrant: Should Have Stayed in Retirement
Back in 2007, I noted that Gartner had retired its mid-market ERP Magic Quadrant (MQ). As my source said at the time, the reason was that as a result of consolidation there were not enough vendors left in midmarket ERP to populate the quadrant.
Well, apparently Gartner found some more vendors and has now brought the mid-market ERP MQ back from retirement.
As soon as Gartner had issued its latest Magic Quadrant for Midmarket and Tier 2-Oriented ERP for Product-Centric Companies, resellers for Microsoft Dynamics AX (Axapta) were touting its position in the so-called "leaders quadrant." In fact, according to Gartner, MS Dynamics AX is the only product worthy to occupy a place in the leaders quadrant, a fact that Microsoft itself was quick to proclaim in a press release today.
A quick look at the MQ itself, however, shows some problems. In fact, it is difficult for anyone familiar with these vendors to understand how Gartner could come up with this evaluation. For example:
QAD and Syspro show a better "ability to execute" than any SAP or Oracle product
Epicor Vantage shows a better "completeness of vision" than any SAP or Oracle product
Perhaps the answer is in how these criteria are defined. Gartner does list the factors it considers.
Ability to execute: product/service, overall viability, sales execution/procing, market responsiveness and track record, marketing execution, customer experience, and operations.
Completeness of Vision: market understanding, marketing strategy, sales strategy, offering (product) strategy, business model, vertical/industry strategy, innovation, geographic strategy.
This is not meant as a slam on either QAD, Syspro, or Epicor, but how is it possible that QAD or Syspro in the current economy can have the "overall viability" to allow them to execute better than SAP or Oracle, with their fat maintenance revenue streams? And how is it possible for Epicor to have a better geographic strategy than SAP or Oracle? Gartner does not release individual scoring for each vendor for each factor, so perhaps it scored these vendors better on other criteria.
Nevertheless, my issues with Gartner's Magic Quadrant for Midmarket and Tier 2-Oriented ERP for Product-Centric Companies are several fold:
As indicated above, the positionings make no sense to anyone familiar with these vendors.
Gartner's criteria for evaluation are almost certainly going to be different from the criteria of a specific buyer. For example, if I run a manufacturing company with operations solely in the U.S, why do I care about worldwide geographic presence?
As a buyer, is "completeness of vision" really one of the two primary criteria in evaluation? How about fit to my functional requirements and industry? On this note alone, IFS and Lawson, with their industry-specific focus are being shortchanged in this version of the MQ.
The MQ is incomplete in terms of vendors. Specifically, as Vinnie Mirchandani pointed out in a private Tweet to me, Gartner has conveniently left out the pure SaaS vendors, such as NetSuite and Intaact, from this MQ.
Futhermore, the MQ does damage in the sales cycle as vendors are quick use the MQ in their sales presentations, if their position is favorable, with the implication that prospects ought to choose them because of it. First-time buyers, especially in small or midsize companies, may not understand the misuse of the MQ in this way.
To be fair to Gartner, the fine print at the bottom of its study says:
Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the "Leaders" quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action.
Nevertheless, I think this MQ does more harm than good. In my opinion, Gartner should have left it in peace to enjoy its retirement.
Based on the large number of search engine referrals to the Spectator this morning, it appears that another layoff is underway at Oracle. As it turns out, a surge in such hits in the past has been an early indicator of layoffs, as news spreads within the organization and people search for more information.
If you have information or more details on what functions are affected, and numbers of terminated employees, please post a comment to this post or email me. Anonymity is honored, as always.
Update, Jun. 10: I have just received confirmation on one point made by the second and third comments on this post. At least one Oracle sales rep here in Southern California has been laid off and replaced by someone working out of (get this) India. I'm not sure how an India-based salesperson is supposed to rep product in Southern California.
by Frank Scavo, 6/05/2009 09:56:00 AM | permalink | e-mail this!
Consolidation is generally an excellent strategy for reducing the cost of IT while maintaining or even improving service levels. Server consolidation, storage consolidation, data center consolidation, and applications consolidation are all examples of strategies that organizations use to accomplish these objectives. Our research at Computer Economics on consolidation consistently points to strong return on investment experiences of organizations that undergo server consolidation, storage consolidation, data center consolidation, and applications consolidation.
Vendor consolidation may also be included in the list. Reducing the number of IT suppliers has a number of benefits: fewer contracts to administer and volume discounts are two obvious examples. But vendor consolidation has one big downside: risk of vendor lock-in.
The benefits of vendor consolidation are grossly overrated. Split your dollars across many vendors. Also, vendors often misinterpret long term relationships as license to pull lock-in shenanigans. Benchmark them constantly and refresh your vendor base periodically.
This is especially true in the case of enterprise software, such as ERP, CRM, business intelligence, and supply chain management systems. Once these systems are in place, it is very difficult to switch. Hence, enterprise software vendors promote the concept of vendor consolidation, with all of its benefits to the customer, realizing that it is also of immense value to the vendor that remains. Nowhere is this better seen than in the drive by major vendors, such as SAP and Oracle, in charging their software maintenance fees at 22% of original software license cost.
Larger firms especially have options. It is still the exception, rather than the rule, for large companies to standardize on a single enterprise software vendor. Most have two or more vendors, whether by design, or more likely as the result of mergers and acquisitions. What I am suggesting, which is contrary to conventional wisdom, is that there is some benefit to this situation. Rather than consolidate to a single vendor, rationalize the choices made and consolidate to no fewer than two.
There are several ways this strategy could be maintained. For example:
Consolidate to a single vendor for worldwide financials, but standardize operational systems on another vendor's platform. Always leave the option open to replace one with the other.
Consolidate to a single vendor for centralized CRM and order management, while allowing one or two different vendors to provide operational systems at the plant level, perhaps one for large plants and one for small plants.
Revive a best of breed approach. Leave HR, asset management, and other non-core systems outside the scope of the primary vendor's implementation.
Test vendors' touted SOA capabilities to build composite applications. If these capabilities really are what vendors say they are, they ought to allow "seamless integration" with third party applications.
Vendor consolidation does have merit in supplier relationships that do not lend themselves to vendor lock-in. Think supplies, such as laser printer toner. Or, temporary staffing. Or, equipment leasing.
But when it comes to enterprise applications, beware of vendor consolidation.
by Frank Scavo, 6/03/2009 10:19:00 AM | permalink | e-mail this!
Rimini Street, SAP, and the future of third-party maintenance
At last year's SAP SAPPHIRE conference, Rimini Street indicated its intention to expand into third-party maintenance for SAP customers. Now, right on schedule, at this year's SAPPHIRE event, Rimini Street is announcing the availability of its support services for SAP customers, building on its similar offerings for Oracle's J.D. Edwards, PeopleSoft, and Siebel customers. It's a good move for Rimini Street and hopefully provides further validation for the third-party maintenance model.
I spoke with Rimini Street's CEO, Seth Ravin this morning about the launch. Seth indicated that his firm already has several SAP customers on board, with strong interest from many others driven by SAP's increasing prices for its own maintenance program. SAP has since backtracked on its forced march to Enterprise Support, but its original stated intention to increase maintenance fees to 22% of original license cost appears to have been enough to start SAP customers looking for alternatives.
The mood is nowhere better evidenced than by the response of German SAP users. Until now, few competitors dared challenge SAP on its home turf. But that changed when 30 CIOs invited Rimini Street to present to them in Berlin, according to Ravin. Rimini Street already has several of them as early adopters of its SAP support services.
Spread Thin? Seth assured me that his resources are adequate to support multiple ERP vendors. Each product is supported by a separate leader and dedicated resources. In the case of Rimini Street's SAP unit, the leader is Shawn du Plessis, a "16 year SAP veteran who has held leadership roles across more than 15 major SAP full life cycle implementations with global companies such as Nestle, Sebastian International and Siemens," according to Rimini Street's press release.
But the launch of its SAP offerings has forced Rimini Street to go global. It has put up a German version of its website, and it plans to hire local resources in Europe and the Far East, complementing its workforce that until now has been limited to North America. Contrary to the practice of SAP and Oracle, it does not believe in an offshore service delivery model.
Flexible Contract Options Seth indicated that the phrase "flexible contract options" in his press release does not refer to tiered pricing options. Rather it indicates flexibility in the contracting period. Most customers sign up for a five year term, but others buy into ten or even 15 year periods. Others adopt shorter periods, for "gap coverage," while they migrate from one system to another. Flexibility refers to the ability to tailor the contract length to the actual need. I also note that Rimini Street provides support for customer modifications or extensions to the base system, something that goes beyond what SAP or Oracle offer to their own customers. Generally, modifying base code "voids the warranty" with SAP or Oracle, as so to speak.
Why Not More Third-Party Maintenance Providers? Why haven't there been more players like Rimini Street rising up to meet the market demand for third-party maintenance? Seth believes there are significant barriers to entry. In the case of SAP or Oracle, a potential service provider has to be willing to take on two powerful multinational organizations. Existing business partners of SAP and Oracle, those that are best qualified to offer third-party maintenance, are reluctant to offer services that compete with the parties that they rely on for sales leads, training, product access, and general good will. Finally, it takes significant resources, including funding, to build a 24/7 support organization, much of which must be built before the first customer is brought on board.
My Take I agree with Seth that the barriers to entry are significant, though not insurmountable. The Tier I enterprise software market is ripe for disruption by third-party maintenance providers. With SAP and Oracle realizing gross margins in the neighborhood of 90% on their maintenance business, the economics are simply too strong for third party maintenance providers not to rise up.
Rumor has it that there are smaller, niche players besides Rimini Street already offering third-party maintenance contracts "under the radar," on a case-by-case basis. But they are reluctant to publicize their offerings out of fear of incurring the wrath of their business partners. Oracle's lawsuit against SAP and its former TomorrowNow unit, which provided third-party maintenance for Oracle products, only heightened these fears.
As I've written before, it may take one or two antitrust lawsuits before larger service providers feel comfortable venturing into meeting this market need. Interestingly, today's Wall Street Journal notes that the U.S. Department of Justice plans to step up antitrust actions against illegal monopoly conduct. One can only hope that one of the first markets they explore is enterprise software maintenance and support.
i2 is in a litigious mood these days. In 2007, i2 sued SAP for infringement of seven U.S. patents awarded to i2 between 1998 and 2006. SAP settled that case in 2008 for $83.3 million.
Now a Spectator reader calls my attention to i2's lawsuit against Oracle for allegedly infringing on 11 of its supply chain management patents.
i2's civil complaint against Oracle is on i2's website. The complaint was filed in the US District Court for the Eastern District of Texas, the same court that i2 chose for its SAP litigation and one that is generally regarded as friendly to patent litigants.
i2's complaint against Oracle does not indicate which Oracle products i2 believes infringe on i2's intellectual property. The 11 i2 patents are listed below, and some of these appear to be the same patents that were the subject of i2's lawsuit against SAP:
Extensible Model Network Representation System for Process Planning (two patents)
Planning Coordination Systems for Coordinating Separate Factory Planning Systems and a Method of Operation
System and Method for Allocating Manufactured Products to Sellers (two patents)
Computer Security System
System and Method for Remotely Monitoring and Managing Applications Across Multiple Domains
Intelligent Order Promising
Generating, Updating, and Managing Multi-Taxonomy Environments
Value Chain Management
Extreme Capacity Management in an Electronic Marketplace Environment
I have no idea whether i2's case against Oracle has merit. But it's not a good sign that the only area where i2 appears to be growing these days is in patent litigation. My source notes that in the first quarter i2 layoffs hit sales, marketing, and services pretty hard. Layoffs may continue in Q2 and affect the R&D group as well. It would seem, therefore, that the one area where i2 is allocating additional budget and headcount is in the legal group.
Update, May 4: Vinnie Mirchandani follows up with his view, which is pretty funny, about the state of software industry today. Must read his short post.
Enterprise software vendors such as SAP, Oracle, Lawson, and others often argue that their maintenance revenues are essential in funding their R&D efforts. These ensure that their products are kept current with new technologies and customer investments in their systems are preserved.
But Jason Carter just blew a hole in that argument. He calculates a new metric: R&D spending as a percentage of maintenance revenue. His calculations show that for SAP, Oracle, Lawson, and Epicor, R&D spending as a ratio to maintenance revenue has actually declined since 2001. (He also reports on Sage, but the results are confusing because of how Sage reports its financials.)
Further thought: The vendors' argument in defense of maintenance revenue makes no sense.
First, they argue that their maintenance revenue is needed to fund their new development. But Jason's findings show that R&D as a percentage of maintenance revenues are declining. So much for that rationale.
Second, it is without a doubt that recurring maintenance revenues are the way that Oracle and SAP, among others, have been funding their acquisition programs. But most of the functionality acquired by SAP and Oracle is not available freely to existing customers. For example, SAP does not make Business Objects products freely available to SAP customers. So customers pay twice: first to fund the vendors' acquisition programs, and then again if they want to use those acquired products.
Well, well, well. SAP announced today that it is deferring its scheduled increase in maintenance fees. The price hike, from 17% to 22% of software license fees was scheduled to kick in as SAP moved all of its customers to its high-end Enterprise Support program.
The rationale provided by SAP is that it has not yet met the improvements in key performance indicators that it worked out with its user group executive network to "measure and verify the ongoing value of SAP Enterprise Support." My understanding was that these measures should have already been reported.
Still, SAP has good reason to back-pedal:
Current economic conditions are no time to be raising prices for customers. Due to the vendor lock-in effect, SAP might get away with it short-term, but at the risk of long term customer relationships.
SAP was already forced in December to let its customers in Germany and Austria stay on on their current maintenance contracts through 2009. This was a crack in the dike, as so to speak as customers in other geographies wonder why they should be different from Germany and Austria.
Other customers have been exercising contract rights to limit maintenance fee increases. I know of at least one customer here in Southern California who was thrilled to discover that his consultant had negotiated such a limit in his original contract.
In the larger picture, there are growing signs that some providers, especially the SaaS vendors, see excessive maintenance fees as an opportunity to adopt a low-price-leader strategy, something that is long overdue in the enterprise software industry.
My guess is that SAP is looking for a way to soften or modify its forced-march toward one-size-fits-all Enterprise Support. I don't know what the answer is, but I'm hoping it provides greater flexibility and choice.
Ray Wang has a more in-depth analysis. He also points out the factor that is still missing in SAP's program: choice. He writes, "The one thing left in the choice, value, predictability equation is choice - meaning a tiered maintenance program or access to third party maintenance." I couldn't agree more.
Dennis Howlett gives his take. He writes, "I’m convinced SAP had no choice but to take these steps as a way of mollifying a very unhappy and increasingly vocal customer group. Even so, it is good to see that SAP has finally bent to the inevitable and now has an opportunity to put this fiasco behind it."
Enterprise software: who wants to be the low-cost leader?
As enterprise software matures as an industry, why haven't we yet seen a major player competing on the basis of lowest cost? If anything, the major players--SAP and Oracle--seem to be moving in the opposite direction, raising maintenance fees and pursuing even higher margins.
SaaS as One Answer As I wrote in the previous post, Attacking and defending software vendor maintenance fees, I think this situation is unsustainable in terms of the economics. I also listed several possible market responses to this situation, including the rise of software-as-a-service providers to provide a low-cost alternative.
Then today, I received a confirmation: Chris Kanaracus at Computerworld emailed me the latest missive from Marc Benioff, CEO of Salesforce.com. It's supposedly an email to his management team, but Chris received it from Benioff's PR group, so the audience is clearly the general public.
Benioff writes,
It's time for The End of Maintenance. Every year, companies spend billions on maintenance fees and get relatively little in return. Maintenance fees cover updates that are mostly patches and fixes, but they stop far short of the kind of innovation every that enterprise needs to survive. Companies pay to keep the past working and they end up doubling down on technology that can never keep up with their needs. The fees that companies pay have actually been rising, from something like 17% a few years ago to numbers more like 22% today. Every four or five years, companies are paying for their software all over again.
Benioff is right to take this approach. A large part of the so-called investment that traditional on-premise software vendors, such as SAP and Oracle, make in product development does not go toward new products or new functionality. Rather it goes into porting and regression testing every product change against myriad combinations of databases, versions, server and desktop OS releases, middleware, third-party products, and other platform components. SaaS vendors avoid many of these costs as they write to a single platform: their own. Therefore, they ought to be able to deliver the same functionality for lower cost. In other words, they have a natural cost advantage that they can exploit in competing with traditional on-premise software vendors.
And this does not take into consideration the fact that SAP and Oracle are realizing gross margins somewhere in the neighborhood of 90% on their software maintenance revenue. It would seem that beating these guys on the basis of price should be a pretty easy target.
Disruption of a low-cost strategy As industries mature, the basis of competition generally moves to price. In fact, there are really only two strategic alternatives for a business: low-cost leader and differentiation (everything else). For example, in retailing, Wal-Mart competes as the low-cost leader. Wal-Mart's entire business model is designed to give it a cost-advantage, resulting in its ability to be the low-cost leader.
Nordstrom, on the other hand, competes on the basis of being different, mainly on the basis of customer service. Nordstrom's entire operation is organized to give excellent customer service.
Today, nearly all of the traditional software vendors compete on the basis of their products being better, and therefore commanding a higher price--either the initial license fee, or more commonly, high annual maintenance fees. But these days it is difficult to differentiate SAP, Oracle, or other vendors on the basis of functionality. In many ERP selections, the leading enterprise software products can check all the boxes—so where is the differentiation?
Perhaps the large vendors think they can be the Nordstrom of enterprise software. If so, they should learn from Nordstrom, as it is difficult to find any buyer that would describe the customer service experience of enterprise software vendors to be "excellent."
So, the time may be right--especially in light of current economic conditions--for some vendors, especially the SaaS providers, to come out and use their inherent cost advantage to compete on price.
If Marc Benioff wants to take the lead, more power to him.
Side note: as I'm writing this, I see Dennis Howlett is making a similar point, about open source business apps gaining ground due to their lower cost. "Low-cost leader" may not sound like the place where enterprise software providers would want to be. But there's nothing special about business applications: as the industry matures, cost must become a dominant element of competition.
And, Dennis Howlett points out that open source CRM SaaS provider SugarCRM just announced a price cut yesterday. It's a long post, worth reading, as Dennis goes into the economic advantage that SugarCRM is enjoying. This very much confirms my point that we may very well be entering into a phase where some enterprise software providers can succeed with a low-cost-leader strategy. Read: Sugar CRM reduces prices across the board, looking for broad adoption.
Now Vinnie points out that SAP has announced a postponement of its maintenance price hike. Maybe SAP is finally seeing that raising maintenance fees is an untenable position, especially in this economy.
And be sure to read the comments on this post, as there is much good discussion.
Attacking and defending software vendor maintenance fees
Conversations in the so-called blogosphere can be hard to follow sometimes, and there's an interesting one going on the subject of vendor maintenance fees.
The short version: on my previous post on the Lawson CUE conference, I had one point regarding a dialog that several of us had with Lawson executives regarding Lawson's maintenance program.
Paul Wallis commented on the post, expressing the view that vendors need to do a better job defending their maintenance programs, and pointed to one of his own blog posts where he elaborated in more depth, concerning SAP's maintenance fee hike.
Vinnie Mirchandani then responded on his own blog.
Anyway, if you want to follow along, read the following posts in sequence:
My post on Lawson's CUE. Read the section headed, "Touchy on Subject of Maintenance Fees" as well as Paul's comment at the bottom of the post.
My take: I'm with Vinnie on this one. The balance of power between software vendors and customers has tipped too far to the side of vendors. This is what many of us feared when the software vendor consolidation trend heated up with Oracle's takeover of PeopleSoft. The escalation of maintenance fees is just one symptom. I am a believer in free enterprise, and I believe that ultimately the economics of the current situation are unsustainable.
Some possible market responses include:
Some vendors deciding to compete on maintenance and flexibility
Third-party maintenance offerings (perhaps strengthened by some much-needed antitrust rulings)
Open source business applications
A pendulum swing back toward custom-development, especially when combined with open source
SaaS alternatives
I don't know what the answer is, but as I indicated, I think the current situation is unsustainable.
Lawson invited me to attend its annual conference in San Diego this week. I last attended Lawson's CUE in 2005, so this was a good opportunity to catch up on the latest with this vendor of enterprise software. It was also a chance to spend some time with like-minded bloggers such as Ray Wang, Vinnie Mirchandani, and Michael Krigsman. And by like-minded I mean those that write from the perspective of technology-buyers.
Here are some of the points that to me were most meaningful, from discussions with Lawson executives and customers as well as from dialog in the analyst meetings. I'll try to comment beyond what is in the announcements and press releases.
Lawson Refining Its Vertical Industry Focus Dean Hager, the Lawson executive in charge of product management, laid out what I thought was a coherent rationale for Lawson's current industry focus. I've always been a fan of industry-focused strategies, and I like Lawson's identification of narrow sub-sectors that offer growth. For example, Lawson's M3 (the former Intentia product) has been, for some time, focused on the fashion industry, among other sectors.
But Dean pointed out that Lawson is targeting not fashion manufacturers per se, but rather organizations where the focus is on fashion design, sourcing, and distribution. As much apparel production has been outsourced to low-cost locations, such as China and India, the greatest opportunity for Lawson is not in manufacturing but in these higher value links in the supply chain.
Likewise, Lawson's M3 has always been strong among equipment manufacturers. But rather than focus on this entire sector, Lawson is targeting firms that sell and service or rent their equipment, since the most profitable segment is the aftermarket sub-sector.
One challenge facing Lawson is in differentiating itself from the two largest enterprise software vendors: SAP and Oracle. Lawson is unlikely to beat either of these players in total application software sales. But by adopting a strategy of targeting narrow verticals it is quite reasonable for Lawson to seek to dominate them. Dean quotes the work of Geoffrey Moore along these lines, and I agree. The strategy is right. Whether Lawson will be successful in execution is the real test, of course.
Technology Update At CUE 2005, I spent some time learning about the new Lawson System Foundation (LSF), with its Landmark design tools. So now, four years later, I was interested to learn what progress Lawson had made. Here, the word was encouraging, with 90% of S3 customers and 400 M3 customers reportedly taken delivery of the latest versions under LSF.
I was also encouraged about plans to roll out use of Lawson's development toolset, Lawson Application Designer (LAD), to partners and even customers. Lawson's professional services group has already been building some LAD-based apps as custom development for select customers. The next step will be to roll out to this capability to partners, with the goal of expanding the ecosystem of software developers around Lawson. I feel this move is really key, as a core enterprise system vendor, such as Lawson, can only be successful if there are many other parties surrounding it that have a way to make money supporting Lawson. Lawson simply does not have the global or even national scale to reach every opportunity: only by making itself attractive to VARs and other local service providers will it be able to leverage its investment in its core products.
Smart Office and Enterprise Search Dean Hager spent a good part of his keynote demonstrating Lawson's new user interface, dubbed Smart Office, and the new enterprise search capability. Smart Office is essentially a Windows desktop that holds a number of "widgets" tailored according to the user's job or "role." Lawson gives you a starting set of widgets for typical roles, but you can then tailor them further. The whole look-and-feel is Vista-like. The product shows extremely well.
I notice that vendors like to demo the user interface. It's something that's easy to show and also something that everyone in the audience can understand. That's not the case if the vendor tried to show functionality: for example, improvements in calculation of available-to-promise or how drop-ship orders can be tracked.
User interface features may grab the attention of prospects, but ultimately they are not essential to success. I know of no ERP implementation that failed because user interface wasn't slick enough. On the other hand, I have seen plenty of ERP implementations that floundered because functionality did not work as expected.
Still, I must admit, Lawson's new Smart Office is pretty slick. I was told by someone closer to the action, however, that there are few if any implementations outside of Lawson's beta sites. Hopefully that will change, as new prospects buy it and plan for it as part of greenfield implementations.
The new Enterprise Search capability also looks promising. Built on top of the open source Apache Lucine software, it allows users to quickly find all occurrences of key data in Lawson data structures, regardless of the file or format. For example, if there is another "peanut scare," a food manufacturer could find all places where a certain peanut product was referenced, whether in purchase requisitions, customer orders, manufacturing records, or bills-of-material. The capability can also extend to non-Lawson data, such as data on the user's own desktop.
I like features like this, which blur the line between ERP data and other enterprise information. Few organizations have all of their enterprise data in their ERP systems. Whether customers will be willing to let Lawson be the hub for enterprise search is an open question, but Lawson is making a good move to try. I also like that Lawson is building this capability on open source technology.
Touchy on Subject of Maintenance Fees CEO Harry Debes spoke in his keynote about Lawson's new Value Improvement Program (VIP) for software maintenance. The program allows customers to fix maintenance costs for three years and extends maintenance for discontinued products. In addition, there are new maintenance offerings to improve incident response time, extend hours of coverage, provide better resolution of critical issues, and give a single point of contact for the customer. The goal, according to Debes, is to increase value to the customer without increasing cost.
Software maintenance costs are a subject of keen interest to some of us, so during the analyst meeting afterwards with Dean Hager, Dennis Howlett (via Internet) asked something to the effect of whether Lawson was prepared to work with customers to reduce maintenance costs. Dean thought for a moment and then said, essentially, no. His answer was that, in order to serve customers, it is important for Lawson to be financially healthy and maintenance revenues are a part of Lawson's financial health (I'm paraphrasing here). Ray Wang and Vinnie both followed up with questions regarding the value that customers receive for their maintenance dollars. To both, Dean repeated essentially the same point, that Lawson would not cut maintenance fees. I then attempted to give Dean an out by asking whether Lawson's offer of tiered maintenance (Bronze and Silver) was in fact a way to give customers flexibility in how much they wanted to pay. But Dean didn't take the out and again repeated that Lawson would not cut maintenance fees.
I found the entire exchange to be odd. The only explanation I can come up with is that, with a number of financial analysts in the room, Lawson finds it important to reassure Wall Street that its maintenance revenue stream is not threatened. A couple of us later checked with Lawson's PR group concerning pricing for Lawson's two tiers and found that Silver is priced annually at 22% of software license cost, while Bronze is just a two point discount, at 20%. We were underwhelmed, to say the least.
Is it just coincidental that the 22% number is exactly the same as Oracle's and also the same as SAP's new one-size-fits-all enterprise support?
SAP is getting quite a bit of resistance from its customers worldwide, who resent being put on a forced march to unbudgeted-for maintenance increases. Now it appears that Lawson is heading down the same path: arguing that the increased costs are justified by the better value of its VIP program. Ultimately, it is customers that will need to decide whether the increased costs are justified. I would just like to see some vendor try a different approach and really attempt to compete on lower costs and flexibility in maintenance programs.
Thanks to Lawson, though, for giving us a forum to ask these questions.
Customer Experiences Lawson arranged for me to interview two M3 customers, without PR folks present, which I appreciate. I always learn something from speaking with customers, and this was no exception. From Shahi Exports in the apparel sector, an installed M3 customer of three years, I learned that current economic conditions are putting strains on planning systems. Customers are holding orders until the last minute, giving planners little time to determine resource availability. This would likely be a problem regardless of the system and many apparel manufacturers are turning to point solutions to solve the problem. I also heard about challenges in localizations for international markets, always an issue for vendors that want to sell worldwide.
I also spoke with Jeff Greenway, of Washingon-based Bargreen Ellingson, which is just seven weeks into a new M3 implementation. It was good to hear that Lawson is able to make new sales in this economy. (A check with a friend who works for Lawson confirmed that there are new M3 deals closing in several key verticals.) For a mid-size business, Bargreen Elligson appears to be well-positioned for success, with a full-time core team of eight, several full-time M3 consultants, and a reasonable timetable for go-live. Jeff outlined his project plan and approach at a high level and assuming the effort is successful, it should make a good case study.
Oracle has stepped in to buy Sun, and Sun's board agreed this morning, nearly ensuring the deal with go through. The total deal value is $5.6 billion.
Oracle's move looks good for Oracle. It now gives Oracle pieces of the entire technology stack, including hardware, which it formerly lacked. It also gives Oracle a lesser but important player in the operating system market: Sun's Solaris. Historically, Solaris has been the primary OS on which Oracle deployed its database and applications software, though in recent years, Oracle has positioned Linux as its preferred OS (as a low-cost platform, Linux allowed Oracle to save more of the customer's budget for its own products). Oracle also gets mySQL, the leading open source database, which Sun acquired a couple of years ago. But most importantly, I think, Oracle now gets ownership of Sun's Java, one of the leading programming languages.
Whether Oracle's move is good for enterprise buyers generally is another question, and here there is a mixed picture.
First, Oracle now commands a larger percentage of the IT budget in many organizations, especially large companies. Although there may be some small benefit in CIOs having fewer vendors to deal with, many organizations have been trying recently to reduce their total spend with Oracle, not increase it, as Oracle has shown itself to be particularly aggressive in maintaining and increasing its maintenance revenue. Having a larger share of the customer's budget only strengthens its position of power over the customer.
Second, Oracle's ownership of mySQL is particularly troublesome, as it competes with Oracle's database at the low end. Don't expect Oracle to make the sorts of investments needed in mySQL to allow it to move up market where it will be more of a threat. I was much more comfortable with Sun's ownership of mySQL, as Sun could be seen as having an interest in investing in it. I doubt Oracle will kill mySQL outright, as it does give Oracle an entre into small businesses. But rather I see Oracle limiting it to applications where it doesn't compete with its own database offering. Oracle has been deeply involved in the open source movement, with its heavy commitment to Linux development. On the other hand, Linux does not compete with any of Oracle's own products, as mySQL does, or could if given adequate resources.
The factor that is a bit more difficult to evaluate is Java, a leading software development language and SOA framework that Sun invented and recently moved to an open source license. On the one hand, Oracle has deeper pockets than Sun and may be in a better position to promote it. On the other hand, it spreads Oracle's influence further into the R&D efforts of many other organizations, many of which are already writing to Oracle's database and middleware offerings.
However, our research at Computer Economics shows Java lagging Microsoft's .NET recently, especially in smaller organizations. I seriously doubt that Oracle is thrilled with the outlook of Microsoft's .NET being the dominant framework for SOA development. So, maybe Oracle will put a more concerted effort in strengthening Java as a platform. If this turns out to be the case, Oracle's acquisition of Sun could have a silver lining.
Vinnie has a decidely downbeat view of Oracle's bid for Sun.
Update, Apr. 21: For an extensive analysis of what Oracle's takeover of Sun could mean, read Michael Coté's post, Oracle Buys Sun Omnibus
Update, Apr. 22: As usual, Bruce Richardson has good insight. He thinks Oracle will immediately sell off Sun's hardware business but will keep mySQL viable but in a minor role.
More from Josh Greenbaum: head-spinning speculation on IBM actually favoring Oracle's takeover of Sun and the threat this poses for SAP, which might be motivated to revive talks of a merger with Microsoft.
Michael Fauscette reports on his conversation with Oracle's co-President Charles Phillips and what Michael thinks the prospects are for Oracle's use of Sun's hardware expertise in Oracle's nascent appliance business. He is also more optimistic than most concerning the outlook for mySQL.
I just noticed a surge in web traffic from Google referrals for "Oracle layoff" and "Oracle layoffs, April 2009," and a quick check with LayoffBlog is showing many new comments yesterday and today indicating that another wave of layoffs is occurred on April 15-16.
The comments indicate that the reduction in force (RIF) is primarily impacting consulting and support groups in the U.S. and Canada, with some comments from overseas locations as well. The Orlando support center is mentioned several times. No mention of the development organization being impacted.
Layoffs hitting the support group would be unfortunate, as Oracle has been boasting in its financial announcement of the fat margins it realizes from its maintenance revenue. But there are already reports of customer dissatisfaction with Oracle's aggressive attempts increase revenues from its installed base. Therefore, one might argue that Oracle should be increasing its service and support resources, not cutting them. Otherwise, it increases the risk of a major customer backlash in the future. As Rick Aster pointed out in a blog post this morning, don't confuse customer patience with customer satisfaction.
As has been the case in previous waves of Oracle layoffs, there is no announcement or press notice from Oracle directly. If you have more information, please drop me an email or leave a comment on this post.
Update, Apr. 27. Over the past several days, there have been a number of hits to the Spectator looking for information on Oracle severance packages. If you have information on why this subject is suddenly of interest, please drop me an email or leave a comment on this post.
I just got word from a Spectator reader, who is known to me, that layoffs are underway at i2. There's no news on the i2 website, no news on the wire, nothing on the blogs or Twitter. But the reader is in a position to know.
He reports that layoffs have hit "lots of senior talent" over the past few weeks.
i2 has been in a tough position since December, when JDA called off the merger it announced with i2 back in August 2008. At the time JDA did not disclose any information about why it canceled the deal. However, it did announce in November that it needed more time to secure financing, leading to speculation that the global credit crunch might force JDA to pull out.
I have attempted to contact i2 by phone and email to get confirmation and further insight but have not yet heard back. I will update this post if and when I do learn more.
In the meantime, if you have information please feel free to leave a comment or to contact me by email.
Update, Mar. 30. No response to an email and a voice message to i2's public relations representative.
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Send tips, rumors, gossip, and feedback to Frank Scavo at
. I'm especially interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.
