Vendor pricing practices stuck in 2000

Tom Smith, writing for InternetWeek, has a nice rant on enterprise system vendor pricing pratices. Here's a sample: "Vendors like to say the economy is the root of their problems, practically the root of all evil. What an easy, self-serving excuse. They should drop the self-pity and focus on what can help their business: software quality, customer care, realistic ROI promises and-most important-simpler, better, and more transparent pricing."

I also discussed vendor pricing in a post on Sep. 7.

All criticism aside, I generally appreciate Forrester's research

I especially like their quarterly survey of e-procurement adoption, which they do in conjunction with the Institute for Supply Management (ISM). The latest one is from July, and there's a summary on the ISM Web site.

Memo to Forrester

Last month, Forrester Research published a research brief, entitled "Memo to VCs: Invest Apps Dollars Here." I didn't want to spend the $295 for the report, so I took a look at iSource's summary of it. Forrester sees an increase in technology spending in the second half of 2002. So far, so good. But I'm puzzled when the authors list five "solutions to specific business pains," where they see increased demand for IT spending. Here are three of them that I question, specifically.

1. "First, the analysts highlight event-driven adaptive software that can help alert companies to problems in their supply chains, like machinery failure at a supplier or a change order from a customer. Solution providers such as Exemplary and Factory Logic offer solutions that tie ongoing 'execution events' back into supply chain plans, allowing companies to modify their operations in real time as events unfold."
   
   Memo to Forrester: most of the companies I know are still trying to implement the supply chain management software they already have. Heck, a few of them would even consider it a breakthrough if they could get MRP implemented!
   
   
2. "...Forrester's analysts suggest that companies will look to augment their enterprise resource planning systems with 'organic applications,' Web services libraries combined with intelligent agent technologies..."
   
   Memo to Forrester: I evaluate enterprise systems for a living and I have no clue what you are talking about. And, I would wager that 99% of CIO's don't, either. Really now, which companies are asking for this?
   
   
3. "...in light of the Enron and WorldCom debacles, companies will look to applications that use smart data-mining and exception-based alert technologies to detect possible financial irregularities. Providers like PaceMetrics and Searchspace are offering solutions that can model strategic decision risk or detect aberrations that could indicate fraud...."
   
   Memo to Forrester: "smart data-mining" wouldn't have done anything to uncover the problems at Enron and Worldcom. The problem was with the top guys, the guys that are going to be looking at all those "exception-based alerts" you are advocating. Sadly, there's no technology that will make a CFO or CEO honest.
   

Unfortunately for enterprise system vendors, most companies are still trying to digest the software investments they made over the past 5-7 years. Yes, many companies will probably increase spending on information technology over the next 6-12 months, but it will not be in the areas that Forrester suggests. It will be largely in the areas of application integration, implementation, upgrades, and incremental enhancements that deliver additional value from the systems that they already have.

J.D. Edwards now firmly in IBM’s camp

If it already wasn’t clear, JDEdwards is now firmly aligned with IBM with its announcement that it will standardize all of its offerings on IBM middleware and infrastructure technology. According to the press release, "J.D. Edwards 5 applications will be pre-integrated with IBM’s WebSphere Application Server and Portal with embedded security, Lotus collaboration tools, and DB2 Universal Database (DB2 UDB)." The technical integration should be complete by the end of 2002, with client roll-out starting in 2003.

It is tempting to say that JD Edwards is just going further down the path it is already walking. After all, the overwhelming majority of JDE’s installed base is already using IBM AS/400 (iSeries) servers (although that’s because many of them have still not upgraded from the older host-based version of JDE, known as "World Software"). Furthermore, a few months ago, JDE already designated IBM DB2 as its preferred database platform. But this announcement goes a lot farther. JDE is actually bundling IBM products into its own offerings. You buy JDE, and you’re getting DB2, Websphere, and Lotus. Sure, JDE says you can still run Oracle or MS SQL Server for the database, but how many prospects are going to want to pay twice for database infrastructure? Sure, JDE says that you can still use webMethods for application integration, by why bother when IBM’s Websphere is already in the bundle? You can even use MS Exchange for messaging, but why not take advantage of the Lotus tools included in JDE’s offerings?

A casual observer might think that JDE is at risk in the mid-market by losing out on deals where prospects want to build on Microsoft technology. But that’s really not the case. Microsoft itself is moving aggressively into the enterprise systems space, with its acquisition of Great Plains and Navision. JDE probably felt that conflict with Microsoft is unavoidable. In the mid-market today, I already see Great Plains and JDE competing in the same deals. It can only get worse for JDE, especially as Navision’s Axapta product--with manufacturing functionality stronger than Great Plains--starts to get traction in the U.S. If a prospect wants Microsoft technology in its enterprise systems, its going to be tough to not consider buying straight from Microsoft. So, all things considered, there’s something to be said for JDE staking out a clear, unambiguous position. JDE is now true-blue, Big Blue. It has nothing to lose and everything to gain by letting IBM give it a bear hug.

JDE on Linux—you heard it here first

The only thing missing from JDE’s latest announcement is a clear statement of direction regarding Linux. Back in June, JDE did announce that it would offer its CRM product on Linux. But to my knowledge it has made no such announcement regarding the rest of its products. Offering its entire suite on Linux would be a next logical move for JDE, further aligning its strategic direction with that of IBM. Since in JDE's traditional market, use of Linux is still somewhat limited to niche services (Web servers, file/print, messaging, etc.), such a general statement from JDE might still be premature. But I think it’s coming, at some point.

Killer app for Web services?

InternetWeek has an article on Nobilis Software, a 40 person software start up that is offering what just may be the first "killer app" for Web services. The company has just launched a tool that allows power users to create simple enterprise-wide web services applications that use nothing more than the Microsoft Office applications that most users already have on their desktop.

In the real world, many internal business processes such as budgeting, forecasting, and expense reporting are performed by users creating Excel worksheets and emailing them back and forth to each other and eventually rolling them up into a master worksheet. These are the sort of informal, cumbersome processes that consultants try to automate with ERP systems.

However, the Nobilis tools essentially allow such informal processes to be formalized and integrated by means of Web services. Users keep on working with Excel worksheets (or whatever other MS Office document is needed), but Web services are used to define the business rules and to handle the workflow and data integration. It's an idea that resonates with a number of principles: it is simple, it is cost effective ($99 per user desktop), it uses technology that businesses already have, and it doesn't ask users to change the way they are already doing things. If Nobilis's idea catches on, we might see a significant jump in the adoption of Web services.

As a side note, don't think that Nobilis's innovation is a potential breakthrough for Microsoft's .NET framework--Nobilis has built its Web services platform using J2EE. A CRN article has the details.

What exactly is AS2?

A couple of weeks ago, Walmart announced that it will mandate that its entire supplier base move from traditional EDI over value-added networks (VAN) to Internet-based EDI using a standard known as AS2. After I wrote a short post on the implications for B2B adoption, the Spectator began to get a significant number of search engine hits on the keywords “Walmart” and “AS2,” indicating that a lot of people would like to know more.

So, what is AS2? AS2 is short-hand for EDIINT AS2 (Electronic Data Interchange-Internet Integration Applicability Statement 2). The AS2 standard, developed from work by the Internet Engineering Task Force (IETF), provides a reliable and secure Internet messaging protocol, using public key encryption (PKI). Although AS2 can be applied to any Internet messaging format, Wal-mart is using it at this point for electronic data interchange (EDI). Wal-Mart is currently testing AS2-based EDI with several of its primary suppliers, but it is moving rapidly to spread the standard to the rest of its suppliers. The impact of this directive is enormous, with more than 14,000 Wal-mart suppliers transacting over $200 billion in sales this year. Many of them are no doubt scrambling to learn about AS2 and to decide how to comply with Walmart’s heavy stick.

Fortunately, there are several vendors offering AS2 solutions. First, iSoft's Commerce Suite Software uses the AS2 standard to provide trading partner management, public key infrastructure (PKI), and an infrastructure for IP-based secure communications. This allows data transmitted to be digitally signed, secure and non-repudiated. Walmart itself is using iSoft’s products in building out its AS2 infrastructure and it is also promoting iSoft as its vendor of choice. For Wal-mart suppliers, iSoft is offering a canned solution with no license fee, starting at $300 per year for support. I would expect to see many Wal-mart suppliers simply take this offer as an easy choice. However, because AS2 is a public standard, other vendor solutions should work equally well. Suppliers can continue to use their current EDI vendor, if it supports AS2—or another vendor such as IPNet or Cyclone Commerce, which also provide AS2 solutions for Wal-Mart suppliers.

Even though these solutions appear to be cost effective, some smaller suppliers may be reluctant to implement AS2 if Walmart so far is their only customer accepting it. In this case, smaller suppliers may want to check whether their current VAN provides an AS2 gateway to connect to Walmart. With Wal-mart’s clout, I would not be surprised to see most of the VANs eager to provide this capability, rather than lose traffic.

By the way, I expect other major retailers such as Kmart, JCPenney, and Sears to follow Wal-mart’s example. When compared to the cost of traditional VAN-based EDI, the cost savings of Internet-based EDI are simply too attractive.

IBM acquires Holosofx to enhance its integration offerings

IBM has announced acquisition of Holosofx, a business process modeling products firm, which it will use to enhance the business process management capabilities of its Websphere product.

I've used Holosofx products in the past. The products--BPM Workbench, BPM Server, and BPM Monitor--go beyond simple process mapping to full-blown process modeling and simulation. Earlier this year, IBM acquired Crossworlds, one of the first Enterprise Application Integration (EAI) vendors. By combining Crossworlds and Holosofx with Websphere and its MQSeries messaging platform, IBM is creating an extended platform for enterprise integration.

The direction is timely. Over the past year, companies have been shrinking back from fork-lift replacements of legacy systems, in favor of a more piece-meal approach. Because of this, the need for integration has never been greater. As the Holosofx press release points out, companies already spend about 40% of their IT budgets on integration. EAI solutions, such as Websphere/Crossworlds/Holosofx provide an integration infrastructure, sitting as a layer above individual application systems, to provide both the integration as well as business process management functionality that cuts across multiple applications and organizational units.

Holosofx was founded in 1990, with headquarters in southern California and a development lab in Cairo, Egypt. Holosofx was used by RosettaNet in developing specifications for their Partner Interface Processes (PIP), so it already has strong ties to the high tech and IT industries. In addition, it is currently in use at big name clients such as Morgan Stanley Dean Witter, AETNA, SBC, First Union, Toyota, and Telstra. Beyond, IBM its partnerships include Rational and Filenet.

More information can be found at Holosofx's web site.

2002 ROI leaders and laggards

A new study by Nucleus Research, a vendor-neutral research firm, indicates which IT initiatives have the highest and lowest ROI, based on thousands of ROI studies that the firm has done worldwide. The study found that the highest ROI is currently coming from the following:

1. E-business integration platforms, using EAI solutions such as BEA Weblogic and Microsoft Biztalk. Other EAI vendors include NEON, SeeBeyond, TIBCO, Vitria, webMethods (Active Software), Peregrine (Extricity), Iona (Netfish), and IBM (Crossworlds). Although the study did not clearly indicate, I would expect both internal application integration as well as external integration with trading partners to be high ROI opportunities, as indicated by the high degree of interest in this subject among CIOs in the trenches. (See my post on August 22).
   
   
2. E-learning solutions, due to "reduced costs for travel, human resources overhead, regulatory compliance and customer support costs," along with second tier benefits, such as increased employee performance that directly impacts profitability. The study found that most companies could gain significant returns from even modest investments in e-learning technology. I wrote about this point in terms of web-conferencing and listed some vendor solutions back in June.
   

In contrast, the study found that the lowest return came from three types of initiatives:

1. E-commerce and B2B marketplaces. The study found that companies are currently off better by investing in specific integration strategies with key partners.
   
   
2. Monolithic CRM. The study found that companies investing in large CRM projects are unlikely to achieve a positive ROI, because consulting and software costs often outweigh returns and a long deployment process slows payback. Most companies are better off investing in smaller CRM initiatives and expanding them as warranted.
   
   
3. Standalone content management. The study found that the high cost of content management solutions are not warranted for most companies. Those companies that do acheive positive ROI on content management projects are doing so as part of a broader strategy with tight integration.
   

Additional details on the study can be found in the firm's press release.

The dark side of reverse auctions. Reverse auctions, where the buyer posts a requirement and sellers compete for the business, are becoming more popular for two reasons: Internet technology allows reverse auctions to be conducted without regard to geographic location of the participants, and software or services are now widely available to facilitate reverse auctions. Leading software solutions include Moai, Emptoris, eBreviate, Ariba, Commerce One, and Procuri. Examples of online marketplaces that support reverse auctions include Covisint, Elemica, Forest Express, Quadrem, World Wide Retail Exchange (WWRE), E2Open, and Transora.

Nevertheless, there is a dark side to reverse auctions. The main objection is that reverse auctions focus on a single dimension of the trading relationship: price. Unless the buyer takes specific actions to account for differences in supplier quality, lead times, flexibility, or service, suppliers are forced to sacrifice everything for the sake of lowest price. This seems like a step backward in an enlightened supplier relationship, and it reinforces the worst tendencies in some industries that have traditionally fostered adversarial relationships between trading partners. The second objection is that in many reverse auctions, suppliers can see each other’s bids but not their identities. This makes it possible for an unscrupulous buyer to game the system by inviting unqualified suppliers into the auction, thus driving prices unreasonably lower.

Although in some supply chains, reverse auctions can be a wake-up call to a complacent supplier base, the negative effects on supplier relationships should not be ignored. Therefore, buyers should limit the use of reverse auctions to purchase of commodity products, where there is less emphasis on the relationship and more on minimizing cost of the transaction. In cases where buyers really want to use reverse auctions in the context of strategic supplier relationships, it is essential that they take explicit steps to address dimensions other than price. HBS Working Knowledge has a good article on the subject.

Analyzing the analysts. Here's a new twist. A group called ResearchRate is conducting a customer satisfaction survey of IT analyst firms, such as Gartner, Aberdeen, Cahners, Giga, Meta Group, and Ovum. Of course, the analyst firms are usually the ones who are conducting surveys on others. Although it's nice to see the analysts on the receiving end, I have my doubts about the reliability of the survey. The survey instrument is accessible publicly on the Web, allowing anyone and every one to fill it out. What's to prevent an analyst firm from lining up its friends, relatives, and neighbors to stuff the ballot box? As far as I can tell, one person could even fill it out multiple times, using different email addresses. Nevertheless, if you use analyst research and you have about 15 minutes, you might want to participate in the survey. There's even a drawing for five $100 cash prizes.

Is this for real? Oracle moving to simplify and clarify its pricing schemes. Those of us who evaluate software vendors for a living know that one of the most difficult questions to get answered from a vendor is, what will it cost? The problem is that major software contracts usually bundle or unbundle a number of elements, such as the software license itself, maintenance, implementation consulting, training, and outsourcing services, each with its own price basis and formula. Add in various terms and conditions as well as deadline-specific discounts or promotions, and it can be extremely difficult to compare one vendor with another. It often takes a detailed analysis to “normalize” proposals from two vendors so that an apples-to-apples comparison can be performed.

Now, in what we hope will start a trend among vendors, Oracle has published a complete guide to its software pricing and licensing schemes. Although most or all of the information was already available in one form or another, the 55 page Software Investment Guide pulls it all together and makes it available on the Web. Furthermore, the Guide is under the management of a new Global Pricing and Licensing Group within Oracle that is chartered to establish “uniform corporate policies for Oracle's customers and partners, with overall objectives of implementing Oracle's pricing and licensing strategies worldwide.” If this is for real, it would indicate that Oracle's pricing schemes may be rationalized and simplified in the future. Of course, the whole effort means little in situations where the sale includes deal-specific discounts, terms, or conditions. But Oracle is moving in the right direction, toward rationalizing, simplifying, and make transparent its pricing structures. We hope that other vendors follow.