Vinnie Mirchandani brings up an interesting point: outside of the manufacturing industry, the major ERP vendors have a much more difficult time breaking into core operational functions.
Upon returning last week from SAP's Sapphire conference, he writes:
I asked two SAP executives - Jim Hagemann Snabe and Bob Stutz - at Sapphire about such verticals [such as banking, utilities, insurance, and health care]. Jim acknowledged that legacy, typically custom-developed vertical applications, have been tough to displace particularly in the US. In a few deals where I have seen SAP vertical proposals, I can tell you the "displacement" is tough because SAP's [total cost of ownership] (particularly those of its SI partners) has not been compelling. You could custom develop that functionality again for cheaper. Just maintaining the legacy apps is even cheaper.
True ERP is found almost uniquely in manufacturing firms Vinnie hints at a point that is not widely recognized. In big companies, ERP--real ERP that forms the core transactional processing platform for cross-functional business processes of an organization--is still largely a manufacturing industry phenomena. Outside of the manufacturing sector what you generally have is custom-developed systems, or commercial software for specific business functions, interfaced (at best) with the "horizontal" (cross-industry) modules (e.g. accounting, HR) of the major vendors.
So, when a major vendor speaks of having a strong presence in healthcare, banking, or insurance, what they mean is that they sell a lot of their accounting, HR, business intelligence, or CRM modules into that industry. What they are not doing is replacing all the industry-specific systems for those customers.
Now, to be fair, Oracle is an exception in certain industries. In 2005, Oracle acquired I-flex, a vendor of core banking systems. Earlier that year, Oracle acquired Retek, a leading provider of retail systems. But still, it would be really, really interesting to find out how many of Oracle's customers are running all Oracle software, now three years later. I'm sure there are some, but I doubt there are many.
The reason is that the manufacturing industry has had over 30 years to figure out how cross-functional business functions should look in an integrated system. Starting with the so-called MRP revolution of the 1970s and continuing with MRP II systems of the 1980s, and ultimately ERP in the 1990s, there is now pretty much widespread agreement on the logical architecture of an integrated system for a manufacturing enterprise.
Business case often weak for replacing legacy systems Today it is rare to find a manufacturing company writing its own material planning or shop floor control systems. Perhaps in some very specialized niches, but it's rare. Not so in banking, or insurance, or retail. Those industries are loaded with examples of companies that continue to run the core of their businesses with custom-developed software. The business case for replacing those systems--especially with those of a vendor that wants to charge 22% of the net license fee, annually, for maintenance (i.e. Oracle and now SAP). Maybe for HR, or financials, where I can justify the cost in terms of not being responsible for regulatory changes. But for my core systems? No way.
Again, for smaller companies, I think packaged software makes a better business case for non-manufacturing sectors. Many have far less investment in legacy systems and have far fewer resources to develop or maintain custom systems. But for large multi-national organizations in, say, banking, insurance, energy, transportation, or utilities, it's hard for me to imagine them standardizing all of their core operational systems on a single vendor such as SAP or Oracle.
I would love to be offered some evidence to the contrary. If you know of any, let me know.
An alternative to ERP Where does this leave organizations that do not see the value in replacing core custom systems? The answer is to make an investment in refreshing such systems. For a fraction of the cost of ripping out and replacing legacy software, an organization can make a concerted effort to invest in modernization, training, documenting, and even redeveloping these critical operational systems.
Such an approach has its own drawbacks, of course, in terms of an organization's ability sustain a professional software development team. But in terms of overall cost and risk of disruption, refreshing a legacy system can be an attractive alternative.
Update, May 13:Sigurd Rinde writes in the comments section that ERP has not taken hold in certain non-manufacturing sectors because business in those sectors is largely non-transactional:
...the core for health, government, education and consulting is mainly Barely Repeatable Processes where each event/task can lead to many user chosen changes to the workflow path (a physician with an Xray in hand..)
I disagree. Core processes in healthcare, for example, are highly transactional: appointments, patient visits, diagnoses, treatments, patient charges, prescriptions, insurance claims, reimbursements--these are all transactions. The fact that EDI is such a big part of healthcare confirms the transactional nature of the business.
Rather, I think the problem goes back to the history of application development in each industry. I may be not as familiar with the evolution of business systems in non-manufacturing sectors, but I don't believe there has been the same concerted effort in such sectors to establish a standard view of core business processes as there has been in manufacturing. APICS played a big role in this effort, and I don't know of a corollary in other industries. Again, my knowledge may be limited, so I welcome correction on this point. More discussion between Sig and me in the comments section.
There are indications that SAP is not having an easy time with its new ownership of Business Objects. According to a note late last month on DM Review, Business Objects emailed its customers to apologize for "issues related to poor service including delayed deliveries of the company’s technology."
The email originally sent to customers and forwarded to DM Review was signed by Pascal Clement, VP of Enterprise Information Management at SAP/Business Objects. It stated in part, “As we look back at the past several weeks, it is painfully obvious that our internal system issues have brought challenges and unwanted distractions to your ongoing operation of Business Objects software solutions. To be specific, many customers have not been able to receive our technologies in a timely manner. You have our most sincere apology for these issues and also our total dedication toward immediate resolution.”
Responding to DM Review's report, Franz Aman, VP of Business Intelligence Platform Marketing at SAP/Business Objects, then issued a statement:
“Recently a small number of SAP/Business Objects data quality customers have had difficulty receiving technology support in a timely manner. We acknowledge the situation and sincerely apologize for this temporary inconvenience. Issues with migration are currently being resolved and we have put additional resources and staff to address the issues immediately. Customer support managers have all been apprised of these measures and we did not hesitate to contact our customers directly as well.”
It's hard to tell whether these problems are related to the SAP acquisition of Business Objects last year, or whether they would have happened anyway. Nevertheless, they take some of the wind out of SAP's sails, which was recently boasting that Business Objects was taking deals away from Oracle for business intelligence solutions.
We know that IT spending is not immune to an economic downturn. Our current research at Computer Economics shows a definite softening of IT executive expectations for spending growth in 2008. "Anemic growth" is how we described the IT spending outlook back in December. Preliminary results from our IT spending survey currently underway seems to be confirming that forecast.
Nevertheless, anecdotal reports seem to indicate that enterprise software sales--or at least buyer activity--seem to be continuing at a fairly strong pace. I know of several new deals in the early stages of evaluation here in Southern California, and vendor personnel in this area are reporting quite a bit of activity and interest. It certainly doesn't sound or feel like the early part of this decade, when things came to a screeching halt.
On the other hand, several vendors are reporting quarterly numbers beneath expectations. Oracle, SAP, Epicor, and others missed or came in at the low end of their forecasts. Even Infor, which is privately held, has reportedly told its investors that new license deals are slowing or being deferred to future periods. None of this is surprising in light of economic uncertainty. What is notable, however, is that the misses are not big, and certainly not what we'd expect in a major downturn.
Confirming this view, Josh Greenbaum reports from SAP's Sapphire conference in Orlando that enterprise software sales are better than they appear.
If you look at SAP’s last quarter, and believe the formal and informal guidance they’re making about the current quarter, and catch the buzz on the conference show floor, then the possibility that SAP, and much of the enterprise software market it represents, are relatively recession-proof starts gaining real credence.
He concludes by crediting the shift in vendor attention to how to deliver real business value to customers:
The bottom line is that years of pushing the value of enterprise software in terms of its contribution to productivity and cost-savings is paying off once again. And years of honing a marketing message that focuses on delivering business value to line of business managers — the men and women who are stealing the prerogative of software spending from the CIO — is paying off in real spending on enterprise software. Especially in recessionary times, this spend to save message works well, even if it takes a little more time to make the sale and a few more layers of management to give the approval. SAP is not alone in this trend, but their example is a particularly strong one. It may be that 2008 will be a year of relative abundance for enterprise software vendors, even as belts are tightening at the very customers who are making this abundance possible.
Josh might be overstating the case a bit. I think credit also goes to IT executives that have been operating under quite a bit of spending restraint over the past five years, in spite of economic good times. With fewer excesses in good times there is less pressure for drastic cuts in bad times.
The uneven nature of the current downturn is also a factor. Financial services, consumer goods, and home building sectors are the industries that are hardest hit and where IT spending is under greatest pressure. U.S. companies that have significant export business are actually benefiting from the weaker dollar. Those firms may be actually increasing their investment in IT to support their international markets.
Whatever the reason, signs that enterprise software sales are holding up is good news, for vendors and customers alike.
by Frank Scavo, 5/07/2008 03:53:00 PM | permalink | e-mail this!
Rimini Street to provide third-party support for SAP
As if it didn't have enough on its plate providing third-party support contracts for Oracle customers, Rimini Street is getting ready to do the same thing for the SAP installed base.
So says a press release from Rimini Street this morning from SAP's Sapphire conference in Orlando. (The release is not yet posted on the firm's website.) Rimini Street claims much interest from SAP's installed base in having an alternative to SAP's support contracts.
Vendors' money grab One major driver in the interest from SAP clients is SAP's increase in maintenance fees. Formerly an annual charge of 17% of the client's software license cost, software maintenance pricing now risen to 22%, which just happens to match Oracle's pricing.
From SAP's perspective, I suppose it felt it was leaving money on the table. From the client's perspective, however, it's hard to understand why it is necessary, in essence, to completely repay for their system every four years.
The ability of Oracle and SAP to get away with charging 22% for software maintenance shows how much pricing power is in the hands of the major vendors. They may do whatever it takes in terms of initial license fees to win the deal, knowing that once they are the incumbent, the 22% is a recurring revenue stream. More and more, for these two players, ERP is all about maintenance revenues. I don't know of any customers that feel this level of pricing is justified.
The business case for third-party support Rimini Street, which claims its revenue quadrupled in 2007, is taking advantage of this gap between the vendors' price and value delivered. Ironically, SAP itself tried to exploit the same situation by buying TomorrowNow, which offers third-party support for Oracle products. (In another twist, TomorrowNow was co-founded by Seth Ravin, the founder of Rimini Street). But Oracle was able to, essentially, shut down TomorrowNow's business by suing SAP and TomorrowNow last year for "massive theft" of Oracle's intellectual property. That case is still in the discovery phase.
How long can Rimini Street avoid being in the cross-hairs of Oracle (and now SAP)? I have no doubt that the firm has plenty of legal advice and all the necessary policies, procedures, and practices in place to defend itself in the event of a lawsuit similar to that brought by Oracle against TomorrowNow. At the same time, you can't stop someone from suing you.
I regret that Oracle's legal action against TomorrowNow is probably scaring away other potential new entrants into the third-party maintenance business for SAP and Oracle. That's too bad. A thriving third-party support industry would go a long way toward keeping the vendor's money grab in check.
Over at Computer Economics, we've finished the analysis of our survey results on ERP support staffing ratios. Thanks to Spectator readers who helped with the survey.
From the report abstract:
ERP systems can be major investments requiring a substantial effort in implementation. Yet many organizations do not realize that the total cost of ownership of an ERP system is composed largely of ongoing support. In this report, we analyze ERP support staffing levels by size of the installation, the scope of functionality implemented, class of software vendor (Oracle and SAP vs. all others), the extent of system modification, the number of ERP versions and instances in production, and the age of the system. In addition, we analyze the allocation of ERP support staff to specific job functions. Based on these statistics, we conclude with recommendations for optimizing ERP staffing levels to better manage costs and improve user satisfaction.
The full report, ERP Support Staffing Ratios, is available for purchase. There is also a free executive summary if you follow the link.
by Frank Scavo, 4/15/2008 02:49:00 PM | permalink | e-mail this!
Rimini Street says no thanks to SAP and TomorrowNow
Rimini Street has decided to pass on the opportunity buy TomorrowNow, SAP's third-party support business for Oracle. Rimini Street offers similar third-party maintenance services to Oracle customers running PeopleSoft, J.D. Edwards, and Siebel products. Such services reportedly can save customers as much as 50% compared to the vendor's maintenance fees.
Why did Rimini Street pass on the opportunity? Apparently, many TomorrowNow clients are already jumping ship to Rimini Street anyway, as the result of Oracle's lawsuit against SAP and TomorrowNow alleging theft of intellectual property.
"We see no need to pay for what we are already receiving, without any legal, structural or operational baggage related to TomorrowNow," said David Rowe, in an email message to me this morning. "For example, if you look at SAP's most recent Annual Report, the TomorrowNow subsidiary had an operating loss of about US $35 million in 2007. Our resources are better focused on the success of our existing and new clients."
The shift of TomorrowNow clients to Rimini Street contributed to the latter's reported 100% growth in first quarter bookings and revenue, according to Rowe.
A press release on Rimini Street's website has more on this subject.
xTuple: a hybrid open-source ERP development model
Open source ERP products have made good progress in the past few years in gaining customers. But their challenge has always been to leverage their "developer community" to fill out the functionality of their products.
Developer community is key There's a little bit of a chicken-and-egg problem here. To encourage contributor code submissions, the owner's development organization needs to have adequate resources to foster relationships with the community as well as to evaluate and incorporate the contributions. But to afford those resources, the product needs a large enough installed base to support the contributors.
Large open source infrastructure software projects such as Linux and Apache don't have this problem. Those products are used to support all sorts of applications, giving them tremendous scale and major service providers take it upon themselves to hire and subsidize the efforts of the project's key leaders. The scale of these projects also leads to a large pool of contributors eager to see their improvements adopted into the core product.
Open source ERP products, on the other hand, are much more narrow in their market focus and therefore have a more limited pool of contributors available. Which is why we do not see an open source ERP project of the scale of Linux, Apache, or MySQL.
A hybrid model I've been aware of this problem for some time. So, I took note of an announcement from xTuple (formerly OpenMFG) regarding 13 major enhancements contributed by customers over the past few years (which they dub "greatest hits").
A quick read through of the enhancements shows they are not small changes. They include an EDI engine, a complete project management subsystem, multi-currency functionality, an MPS module, and a shop floor subsystem that employs lean manufacturing and theory of constraints concepts. One contribution is from a consortium of five customers who put together a CRM module.
To understand how xTuple has gotten this level of cooperation from its customers, I called Ned Lilly, the firm's CEO.
According to Lilly, xTuple is an open source hybrid. It develops its product in three versions: a completely free and open source Postbooks edition, which it positions as suitable for small businesses; a Standard edition, which is its intermediate offering; and its OpenMFG edition, which is the premium offering.
The Postbooks version is freely available for download from xTuple, at no charge. The latter two versions are sold under a traditional license, through authorized partners, who pay an annual fee to xTuple. Source code is available to customers, and the partners are encouraged to develop enhancements for specific customer requirements. Under their agreement, the partners are then obligated to return those enhancements to xTuple, which evaluates them for applicability to the core product.
Customer contributions are included in all three editions, even the open source Postbooks version, but the really sophisticated stuff, of course, is saved for the higher end versions. According to Lilly, about one third of the source code across the three editions was contributed directly by customers, and another 60% or so was developed by xTuple under customer sponsorship. The CRM module mentioned earlier was a customer-sponsored development.
Open source purists might balk at this hybrid model--why isn't it all free, why do partners have to pay to be partners, etc.? Nevertheless, it's hard to argue with success. Although all ERP vendors claim that customers drive new features and enhancements, few can actually point to code that their customers have directly contributed. xTuple is making good progress in the key success factor of open source projects: getting users to actively contribute to development.
If we have to compromise a little with the open source model to make that happen, so what?
Cloud computing: can Microsoft turn from servers to services?
As everyone knows, Microsoft rose to its dominant position as a software provider. Today, however, it faces threats of disruption from players such as Google, which delivers software functionality as a service, over the Internet.
The new approach is dubbed "cloud computing," because the software that provides the service does not reside on a specifically-identified computer but is deployed over the Internet (which is often depicted graphically as a cloud) from any number of networked computers. The user has no idea of where the host computer is or what operating system it is running. The application is just out there "in the cloud," as so to speak.
A threat to Microsoft Market leaders spend a lot of time thinking about how they can lose their market position. As Andy Grove, founder of Intel said, "Only the paranoid survive." The trend toward cloud computing, or software as a service, certainly is a threat to a company that depends on organizations buying servers and installing software. So Microsoft's current strategy, at least the one it offers publicly, is "software plus services." That is, it continues to sell software, but it is also offering hosted versions of its popular Exchange messaging system and Sharepoint collaboration system.
Which brings us to Phil Wainewright's view of Microsoft's strategy: "bunkum." In a Feb. 1 post, he wrote:
The attempt to define software as somehow separate and parallel to services is what exposes Microsoft’s software-plus-services notion as bunkum. Software is the stuff that powers services. Before the Web existed, the easiest way to get those services was to install a software package. Now that the Web exists, the easiest way to get those services is to click a link and let someone else run the software. That’s what Google does. That’s what Yahoo! has always done. These companies aren't doing away with software; they’re huge consumers of it. When Salesforce.com talks about ‘No Software’ what it really means is ‘Lots more software, but we’ll take care of it for you.’ The software becomes part of the service provider’s infrastructure.
Now, in a new post, Wainewright says that Microsoft may already be realizing that software-plus-services will not be enough to counter the threat of cloud computing. He points to recent comments by Microsoft's chief strategy officer Ray Ozzie, which suggest that, "despite the public bluster, Microsoft’s top brass already secretly realize that they must put services, not software, at the center of their world view." Read Wainewright's whole post for Ozzie's comments that reflect his view of Microsoft's need to make a more complete turn to services.
Dynamics a laggard in cloud computing Where does this leave Microsoft in terms of its enterprise applications, Dynamics? Microsoft is way behind the curve in deploying these products in the cloud. It is just now getting ready to release CRM Live, the software-as-a-service (SaaS) version of its Dynamics CRM product. As far as its other Dynamics products, such as Axapta (AX) and Great Plains (GP), the only SaaS deployments are hosted versions offered by some Microsoft business partners.
The slow progress in moving its Dynamics applications to the cloud is not a big deal right now, as most small and mid-size businesses are still thinking in terms of on-premise deployments of software. (CRM is the one area where the SaaS model has taken hold, where its ubiquitous access characteristics are an advantage in serving sales users that have no fixed work location.) But as cloud computing becomes a more accepted way of delivering enterprise system functionality, providers that do not have a credible solution are going to be at a disadvantage.
Both Oracle and SAP are making major investments in the new model. SAP in particular is developing its new SMB offering, BusinessByDesign, from scratch to run in the cloud. As for Microsoft, it's no doubt difficult to embrace a business model that undermines the way it got to be an industry leader. But if it does not do so, it's likely to lose its position, not just in enterprise applications but the whole nine yards.
Update, Mar. 18. In the comments section, Michael Sheehan notes that cloud computing and SaaS are really not the same thing. I agree, and I was a bit sloppy in using the terms somewhat interchangeably. In my mind, SaaS is any software functionality delivered as a service, whether it be a dedicated system hosted by the service provider, a multi-tenant system providing services to multiple customers, or a system deployed in the cloud. I suppose in some organizations, the cloud could be used to deploy a system that is used by the organization itself. So, although cloud computing is often used as a way of deploying SaaS, they are not synonyms.
On his own blog, Sheehan points to this post by Paul Wallis that goes into much more detail on the evolution and relationship of supercomputing to grid computing to utility computing to cloud computing.
Microsoft Dynamics revenue growth less than stellar
Josh Greenbaum has put together some revenue numbers for Microsoft Business Solutions, the group that develops Microsoft's enterprise applications, and finds that the group has been growing at a rate less than half of that shown by SAP and Oracle.
The numbers are not easy to get at, since Microsoft stopped reporting revenue for the group in 2006. But Josh made note of a mention by Kirill Tatarinov, head of Dynamics, that revenue was now at $1 billion. Comparing that number to the $919 million reported in 2006, it appears that Dynamics has only been growing at an annual rate of 8.8%.
But instead of something to crow about, $1 billion – a growth rate of 8.8 percent – represents a pretty lousy number for a group that was growing in double digits only a year earlier. It’s even worse when you consider that during roughly the same period SAP grew 18 percent and Oracle grew 30 percent if you include its acquisitions, and an estimated 8.8 percent if you look at pure organic, non-acquisition-based growth. And don’t forget, that 8.8 percent growth includes what everyone at Dynamics calls the hockey puck growth curve for CRM, which, I was told, has been growing at 100 percent per year for the last two years. Which means if you want to understand how non-CRM growth is at Dynamics, it’s safe to either knock a few points off the overall number (7 percent? 6 percent?) or discount the heavy growth in CRM as a largely revenue neutral.
As Josh points out, this less-than-stellar revenue picture could explain the revolving door of top management personnel at Microsoft Dynamics.
So, what to make of the slow growth of Microsoft's enterprise system products? I don't think the blame can be placed on the products themselves, which comprise the Axapta (AX), Great Plains (GP), Navision (NAV), and Solomon (SL) ERP systems. Microsoft obtained these products in its acquisition of Great Plains and Navision in 2001 and 2002 respectively. These were good products prior to Microsoft's acquisition, and Microsoft has continued to develop them. Customers I speak to are generally happy with them. (Microsoft developed its CRM product from scratch, subsequent to those acquisitions.)
I think the problem is that Microsoft is just getting outsold, especially by Oracle and SAP. Microsoft's sales model is 100% through business partners, a model that is more difficult to manage than that of Oracle and SAP, which rely primarily on their direct sales force and supplement it with resellers. Resellers tend to get busy in implementation with a few good accounts and are apt to slack off new sales efforts. Microsoft can't lean on resellers at the end of the quarter in the same way that Oracle, for example, can lean on its own direct sales force.
Furthermore, few resellers have the scale to compete effectively in larger deals. With the rise of globalization, many small and mid-size companies today are truly international businesses, with production and distribution operations throughout the world. A small reseller in Chicago, for example, cannot deploy resources as easily as SAP or Oracle in supporting a customer with operations in Europe and the Far East. If they try to compete, they simply get outsold by the big guys.
Microsoft is apparently having some success in signing up larger organizations as resellers. Witness the announcement this week that Microsoft is expanding its relationship with EDS to sell Dynamics CRM. Such relationships certainly address the scale issue, but I still question how much EDS is going to jump when Microsoft starts pushing at the end of the quarter.
Now we have Steve Ballmer claiming that Microsoft is now the "leading provider of enterprise software" in terms of "total dollar volume" -- a claim that is ludicrous on its face. Apparently, Ballmer is lumping in Microsoft's database (SQL Server) and its collaboration system (Sharepoint) with Dynamics -- clearly apples and oranges.
Microsoft has ambitions to compete in business applications with Oracle and SAP, but it is trying to do so with a sales model inherited with their acquisitions. The revenue picture reflects the reality that in some fashion Microsoft needs to think about having some role in direct sales for larger deals.
Update, 5:00 p.m. A source at a Microsoft reseller points out that Microsoft's direct enterprise sales people do in fact get recognized when a Dynamics sale goes through for one of their customers. However, the sale must be done through a reseller, and the Dynamics products are not included in Microsoft's volume license agreements. But since Microsoft's direct sales people are measured on enterprise license sales revenue, Dynamics is not top of mind for these folks. In other words, I don't believe they have a quota for Dynamics.
I don't have a lot of time for "product briefings," but I did take time this morning to speak with Randy Flamm (President) and Glenn Nowak (Vice President) at IQMS.
IQMS is a small (80 person) enterprise system vendor, based in Paso Robles, CA. It is one of those ERP providers that the vendor consolidation wave seems to have passed by. So, I was interested to know how they had managed to stay in business, with so many of their peers being swallowed up by larger vendors.
According to Flamm, IQMS has not only survived but thrived by serving a few targeted industries with a full-function system that fills most if not all of customer needs, and providing good technical performance. It also helps that the firm is privately held and not beholden to the demands of private equity firms, venture funds, or public shareholders.
Target industry focus The firm started in 1989, catering to plastics manufacturers. Since then they have expanded their focus to small and mid-size automotive suppliers, packaging manufacturers, and medical device makers, in particular.
I'm a fan of the niche approach to enterprise systems. It allows the developers to focus deeply on the requirements of the niche and really gain subject-matter expertise on the problems and issues of those customers.
IQMS's niche focus has driven them to try to address as many needs of its customers as it can. As a result, it has a pretty wide footprint of functionality for such a small vendor, providing extended enterprise applications such as asset management, EDI, warehouse management, and even shop-floor equipment monitoring--functionality that you don't even see in vendors that are much, much larger. They have even introduced mesh networking into some of their asset management, WMS, and shop floor systems.
Now, having said that, I'm sure there are major gaps in IQMS functionality for some clients, especially once you get outside of its target niche. But that's the beauty of a niche strategy. IQMS doesn't have to be all things to all customers. It only needs to be all things (or most things) to a few customers.
IQMS's big footprint of functionality means that it generally doesn't have to reach out to partners to provide complementary products, though it does use Crystal Reports for end-user reporting. Nevertheless, functionality such as EDI, where many larger vendors rely on third-party providers, is offered as part of IQMS core product set. This allows a much greater degree of integration with the rest of IQMS, for processes such as outsourcing management, where product may move through multiple levels of supply chain management. IQMS provides visibility to this material in the supply chain, relying on advanced shipment notices (ASN) in its EDI capabilities to track the movement.
Another point of functionality that is quite interesting, if true. IQMS claims support for multiple facilities, multiple languages, and multiple currencies that I find unusual for such a small vendor. I drilled down a bit on each of these and heard all the right noises (facility-specific planning on a single database instance, double-byte for support of Chinese, ability to specify language by user in a single system, etc.). Again, this level of sophistication is customer driven, as even small manufacturers in this age need to operate parts of a global supply chain.
Technical architecture Flamm spent quite a bit of time describing IQMS's technical performance, which he sees as important part of his value proposition. The product was originally written in Delphi (from the client server days) over an Oracle database, in a two-tier architecture, with all business logic residing on the server. The product is now largely rewritten in Visual Studios .NET, which gives it a Microsoft development framework, while still using Oracle on the back end. He claims this configuration results in transaction processing that is very fast, much faster than if IQMS had adopted a service-oriented architecture (SOA), and that processing speed is an important criterion in customers selecting IQMS.
Does the reliance on Oracle cost IQMS sales to prospects, especially smaller companies that are standardizing on MS SQL Server? Flamm thinks prospects are more focused on the solution than on the technology, and that the database system doesn't matter. (However, later in the discussion he indicated that he doesn't see Microsoft Dynamics competing in many deals, which tells me he may not be getting to the table where the prospect has a decided preference for MS SQL Server.)
Can IQMS Compete? IQMS shows that it is still possible to successfully own and operate a small ERP development and sales organization. It claims about 500 customers in its installed base, with about 50 new deals last year, and a 98% customer retention rate. I believe the math works out that they would double in seven years at that pace.
All sales and professional services are delivered direct in North America, and through resellers/partners in Europe and the Far East. The target market is manufacturers in its niche industries between $20 million and $500 million in annual revenue. I would have doubted the upper end of that range, but with the claimed "multi-multi" support, I am more likely to believe it.
Nowak says that he sees Epicor, Syspro, and Plexus in deals, along with Oracle and SAP of course. He is particularly happy with a win against SAP in a 10-day demo shoot out for a $500 million automotive manufacturer last year. Consona (Made2Manage) has not been seen as much as a year or two ago. QAD is seen more in the medical device sector than in automotive, which surprises me. (I'm sure each of these vendors will have a different perspective, of course. I'm just reporting here, not endorsing).
How has IQMS avoided being swallowed by larger vendors? The firm is privately held, so they can simply say no to offers. Not that they haven't had any. Flamm says he gets hit up two or three times a month by private equity and venture capitalist firms that would like to invest in IQMS.
I haven't had a chance to review IQMS's product, nor have I seen them in a competitive situation. But for a small to mid-size manufacturer in the automotive, medical products, or plastics industries, I'd definitely put them on the short list for consideration.
If you've got first-hand experience with IQMS, please drop me a message or leave a comment on this post (link to comments is below).
SAP is now claiming that it is gaining customers at the expense of Oracle and Oracle's new business intelligence acquisition, Hyperion.
SAP reports that over the past several months more than 100 customers worldwide have chosen SAP for enterprise performance management with the intention to replace Hyperion solutions. It lists a number of wins specifically in its press release linked above.
Josh Greenbaum has some interesting commentary on SAP's claim. He thinks that it reflects a shift in tactics on the part of SAP, to more aggressively counter Oracle and its attempts to dislodge SAP from its position as the leading provider of enterprise systems worldwide.
He also points out that SAP may have even more success in winning business intelligence customers from Oracle in the future:
What’s interesting about SAP’s Hyperion wins is that they had nothing to do with Business Objects technology — all of them were recorded before the acquisition was complete. So the folks at SAP are promising an even stronger position vis-a-vis Oracle as the BO product line starts to make its way into the hands of SAP’s sales force.
How this will all end with respect to Oracle’s and SAP’s market position is anyone’s guess at this point. But I think it’s healthy to see a little balance restored in the marketplace of ideas: the onus is now on Oracle to prove that it’s gaining ground on SAP, and I can’t wait to see what they come up with. Not just because it provides fodder for this and many other blogs, but because it charges the companies’ respective customer bases with a little skepticism and some healthy doubt about how one-sided any part of the enterprise software market is at any given time. The rivalry between SAP and Oracle is complex, nuanced, and constantly evolving. Today we saw another example of how this statement becomes more true with every day.
Business intelligence is an interesting battleground for SAP and Oracle. Companies deciding on a new ERP system rarely make business intelligence the primary factor driving the decision. But for large enterprises that have both Oracle and SAP in various parts of the organization, the choice of a unified business intelligence platform could shift the balance of power from one vendor to the other. Ultimately, it could lead to standardizing on one ERP vendor or the other.
Senior executives don't enter purchase orders, process credits and debits, or release shop orders. But they do interact with enterprise performance management applications. Business intelligence is the one enterprise application that senior executives--the ultimate decision makers--use on a day to day basis. Therefore, whether an executive uses a business intelligence solution from Oracle or SAP is a big deal. So, it's no wonder that these two vendors are going after each other for BI mind-share.
I haven't written anything about Microsoft's bid for Yahoo, because it doesn't have an enterprise systems focus. But an article by Randall Stross in the New York Times this morning takes the story down a different path. It argues that if Microsoft wants to do a big deal, a much better target would be SAP.
Stross reasons that if Larry Ellison were running Microsoft, he most certainly would be pursuing SAP instead of Yahoo. The logic: SAP would greatly strengthen Microsoft's relationships with the world's largest corporations, strategically more valuable than picking up Yahoo's millions of free email users.
Stross also quotes me regarding a potential Microsoft-SAP merger:
It's amusing to note that the most Larry-like choice, Microsoft's acquiring of SAP and leaving it alone as an autonomous division to avoid a cross-cultural integration fiasco, is the course that would be most discomfiting to Oracle. Frank Scavo, president of Computer Economics, an information technology research firm, in Irvine, Calif., said that "a Microsoft-SAP combination would be Oracle’s worst nightmare."
However, as I wrote back in December, I still believe that a Microsoft-SAP merger is unlikely, for four reasons.
It is unlikely to pass antitrust scrutiny in the U.S. and especially in the European Union, where SAP is headquartered.
It also represents a clash of cultures even greater than the difference between Microsoft's and Yahoo's. At least Microsoft and Yahoo have historical roots as consumer businesses.
SAP's technical infrastructure (J2EE) is entirely different than Microsoft's (.NET). If Microsoft were to acquire SAP it would either need to completely rewrite SAP's applications (no small feat, even for Microsoft) or allow them to co-exist with its own, undermining its efforts to establish .NET as a dominant platform.
Microsoft's previous foray into selling enterprise applications has already been, in Microsoft's own words, "a humbling experience." This, despite predictions that Microsoft's acquisition of Great Plains and Navision would lead to Microsoft's dominance of the business applications market. Does Microsoft really want to go further down that road?
On Wednesday's post regarding Tom Kelly's move into Epicor's CEO spot, replacing George Klaus, an anonymous commenter points out that Klaus's departure "had been announced for over a year."
A quick search (which I should have done yesterday before posting) does find an Epicor press release from 2005 that refers to long term succession planning and implies the departure of Klaus sometime after 2007:
Epicor...today announced the promotion of three senior executives designed to continue to support the company's successful growth and market expansion and to solidify the long term succession planning for the organization. The company also announced that George Klaus will remain Epicor chairman and chief executive officer through 2007.
The press release doesn't indicate who Klaus's replacement will be, but the clear implication is that it would be one of the three executives newly promoted. One of the three was including Mark Duffell, who moved into the post of President and COO. Duffell's departure from Epicor was announced yesterday, along with Klaus's transition out of the CEO role.
So, the most likely explanation is that Duffell was considered for the CEO role and, for whatever reason, was passed by. That would explain why his departure was announced at the same time as Kelly's move into the CEO position.
It's not possible to confirm my theory at this time. Managing Automation has a more extensive report on the management changes at Epicor, but notes that Epicor is refusing requests for interviews with either Kelly or Klaus. This again would be consistent with a transition that was not entirely happy.
Investors seem to see it the same way, as Epicor's share price fell 2.84% on the news of the management change, to $11.99. Yesterday, two days later, the stock closed at $11.73.
Still the question remains: why the need for fresh leadership? I speculate that reported quality and support problems with Epicor's Vantage product may be part of the equation. I saw first-hand such problems several years ago, and a quick check of Internet chatter shows that the reports continue.
Again, if readers have further insights, I'd love to hear them.
Epicor announced yesterday that Tom Kelly, a member of Epicor's board, is replacing longtime CEO George Klaus. Klaus will remain as Executive Chairman of the board. Although Klaus is quoted in the press release saying that the move is "the culmination of a carefully architected succession plan," I don't know of any prior public indication that this transition was imminent. Normally, when an organization plans to switch CEOs, there is plenty of warning.
Adding to the mystery, in the same press release, the firm revealed that Epicor's President and COO, Mark Duffell, is "leaving to pursue other opportunities." Generally, this is a polite way of saying that an executive was asked to resign, although we have no way to know whether it is true in this case. Kelly will assume Duffell's role of President in addition to Klaus's role of CEO.
It's hard to pin these management changes on poor quarterly performance. Epicor just announced fourth quarter results that were positive. Earnings were up 14%, driven by new license revenue, and profits were in line with Wall Street expectations. In addition, the firm just completed its acquisition of NSB Retail Systems, which should significantly improve its portfolio of offerings for the retail industry, a potentially fertile niche.
So, why the sudden need to replace two top executives at Epicor? If you have a theory, let me know.
NetSuite is probably the second best-known example of a vendor offering enterprise applications under a SaaS model, after Salesforce.com. The company was founded in the late 1990s as NetLedger, but later changed its name to NetSuite to avoid the financials-only connotation of its original name. Larry Ellison is a major shareholder.
Though the company has gotten a lot of media attention in its attempts to disrupt the business applications market, things may not be going as swimmingly as the firm's press releases indicate.
In scanning the company's S-1 filing with the SEC there is a note that the customer base was "over 5,400". That should have caught my eye. It didn't. But today, reading the earnings press release I saw the company added 432 customers during Q4, bringing the customer count to "over 5,600". Interesting. I would not have expected it to be 5,832 as there has to be some churn in this business. But what does it say when your rate of churn is about half of your customer add rate?
So, either NetSuite was (ahem) exaggerating its customer count in 2003, or else it has fewer customers today than it did five years ago.
Jason points out that the apparent drop in customers is a confirmation of customer dissatisfaction, as indicated in two posts on Dennis Howlett's blog. Read the first post and the second one to get an idea of the problems being reported: salespeople over-promising, pricing surprises, and post-sales support problems.
My take Most of the problems sound like a throw-back to the bad old days of ERP in the 1990s. Few of them appear to be unique to the SaaS model. If legitimately reported, they appear to be the result of an organization under a lot of pressure to make its revenue numbers.
On the other hand, small and mid-size businesses--where NetSuite is focuses--are not exactly the most sophisticated buyers of enterprise systems. I suspect there are many false expectations for how easy it will be to implement NetSuite, likely encouraged by a sales force eager to close deals.
NetSuite has responded to Howlett's commentary on the drop in customer counts by pointing out that its most recent press release is talking about "active customers" only. However, that explanation doesn't fly in my book. Whether active, or newly-sold-but-not-implemented, or inactive, the fact remains that NetSuite's reported customer count today is less than it trumpeted five years ago.
I have great long-term hopes in the on-demand model for enterprise applications. But it won't succeed if vendors oversell and under-deliver.
For raw unfiltered commentary, see this feedback on an old Business Week article that is still getting comments. Note: there's no way to verify that comments are actually being written by NetSuite customers. Still, it's a pretty sad commentary.
There's even a website, NetSuite Consumer Fraud, set up for gathering complaints for a class-action suit.
If you have first-hand experience with NetSuite, drop me an email, or post a comment below.
Update, Feb. 16. The first poster in the comments section points out that four comments on the Business Week article are from the same individual, using different names. Probably so. That's why I called the comments "raw, unfiltered commentary." Still, I don't know of another software vendor today, major or minor, where I've seen this much negative feedback displayed in such a public fashion. Click through on all the links above and be sure to read the many comments on those articles.
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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.
