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Thursday, December 19, 2002

QAD hooks up with IBM

Manufacturing Systems reports on QAD's deal with IBM to standardize QAD's eQ supply chain management product on IBM's database, middleware, and Web services products. According to QAD's press release, QAD's eQ applications will now be pre-integrated with IBM's WebSphere Application Server and WebSphere MQ, and DB2 database software." (It should be noted that the deal does not involve QAD's flagship ERP system, MFG/PRO, which is built on the Progress development platform and therefore not easily wrapped around IBM's technology.)

Although Manufacturing Systems treats this as a ground-breaking alliance, J.D. Edwards (JDE) announced a similar deal with IBM in September, which I outlined in my post on Sep. 22. The contrast between IBM's strategy for enterprise applications and Microsoft's is striking. Microsoft is moving directly into the enterprise systems space, with its Microsoft Business Solutions group, whereas IBM is taking the partnership route, bundling its offerings with those of its ISV partners, such as QAD and JD Edwards.

by Frank Scavo, 12/19/2002 09:00:00 AM | permalink | e-mail this!

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Wednesday, December 18, 2002

The first time buyer’s mistake

I had an interesting discussion today with a software sales representative who described her efforts to sell a new enterprise system to a small company. Because the company is relatively unsophisticated, its best choice would be a simple system that meets its key needs -- but not too much more -- along with a local value-added reseller (VAR) that can provide support. But the prospect refuses to consider anything other than price. As a result, the prospect is considering a bargain basement system that does not have certain key features and offers only Web-based support. Furthermore, because the prospect views all software vendors as “used car salesmen,” the sales rep cannot convince him that he is heading for trouble.

Selecting a system solely on price is the classic first-time buyer’s mistake. First-time buyers often forget that price is only one factor in success. An enterprise system must meet key functional requirements of the business. It must be able to scale to support the anticipated number of users and transaction volume. It must not be too complicated for employees to learn or use. It must come with adequate support. It must operate with a certain level of reliability. When buyers ignore these other factors, they risk failure and end up spending more than if they had made a sensible choice to begin with. This lesson is so simple that it is almost common sense. But too often, common sense is not so common.

by Frank Scavo, 12/18/2002 05:36:00 PM | permalink | e-mail this!

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Tuesday, December 17, 2002

Microsoft-sponsored study on Win2K vs Linux is NOT all good news for Microsoft

Earlier this month, the press gave wide coverage to an IDC white paper, sponsored by Microsoft, which found that (surprise!) Microsoft Windows 2000 (Win2K) is generally less expensive on the basis of total cost of ownership (TCO) than Linux.

The study of 104 U.S. companies analyzed spending trends between Linux and Win2K server environments. IDC found that Win2K is cheaper in four categories of use: networking, file serving, print serving, and security services. But the study did find that Linux has a cost advantage when used for Web hosting.

Microsoft's sponsorship of this white paper may be part of a larger PR campaign, since it comes on the heels of a recently leaked internal memo that indicates Microsoft is changing its tactics from denouncing open source software, such as Linux, to emphasizing the benefits of its own products. In light of Microsoft’s PR strategy, it’s tempting to discount the white paper as just an ad campaign for Win2K. Unfortunately, most reporters aided in that effort by simply repeating the conclusions of the study, as released by Microsoft, without examining the full report itself. So, I decided to get a copy of the full white paper.

Not that Microsoft or IDC makes it easy. Neither party is publishing the full report on its Web site. But eventually I was able to get a copy from Microsoft’s PR firm. [Update, 6/18/2003: I have been informed that the full report is available here on Microsoft's Web site.] After reading the lengthy document, it became clear why Microsoft’s strategy is to focus on the report’s conclusions — because in the body of the white paper, IDC makes at least three observations that are not favorable to Microsoft.
  1. Microsoft's advantage in administrative staffing costs is temporary. IDC observes, rightly, that the greatest cost category is people. The authors conclude that Microsoft has the advantage because Win2K is a "mature computing platform," for which there are more IT professionals and system management tools available, leading to lower people-costs. But the authors balance this conclusion with a note that Linux is an "emerging platform" and as Linux gains wider acceptance this gap will close:
    …as Linux matures and more packaged software becomes available in the Linux server market, IT professionals will be come more skilled in the efficient installation, deployment, and maintenance of Linux server environments (p. 4)....It is reasonable to expect Linux to support a more mature computing environment over the next few years, gaining better ISV support for commercial applications and packaged database products. System management tools are emerging and can be expected to expand rapidly over the next year or two in capability and installed base. It is also reasonable to expect less customization and scripting to be required for Linux computing over time, as Linux tools mature and become easier to use, thus reducing the TCO for the server environment (p.19).
  2. Linux is more reliable. In its analysis of file server TCO, IDC points out that W2K users experience considerably more downtime than Linux users, which drives up the cost of downtime in the TCO calculation.
    Taking a closer look at the data, IDC can state that, despite the vast improvements of Windows 2000 over Windows NT, the downtime associated with Linux servers is considerably less—often well less than half the downtime that users experience with Windows 2000 (p. 13).
    IDC explains that this may be partially attributed to the fact that Win2K servers typically carry larger workloads and that the interaction of multiple applications may cause the increase in downtime. Of course, one could argue that the free cost of Linux software enables IT departments to run as many copies as desired, cost-effectively spreading the workload across a greater number of servers. Furthermore, the free nature of Linux encourages its deployment in fail-over clusters, which shields users from drops in availability, as IDC itself points out in its analysis of the cost of downtime (p. 6).

  3. Linux is already cheaper for Web hosting. This is the one point in favor of Linux that did reach the conclusions disseminated by the trade press, although most reporters seem to view it more as a consolation prize for Linux. Nevertheless, Web hosting is the one area where Linux already enjoys a market share advantage over Microsoft, with the open source Apache Web server currently used on about 65% of the active Web sites, to about 25% for Microsoft’s IIS, according to a survey conducted by Netcraft. The fact that Linux has a TCO advantage over Microsoft in the segment where it has the most market penetration does not bode well for Microsoft in segments where Linux holds a smaller but growing share of the market.

    In explaining why Linux is cheaper than Win2K for Web hosting, IDC postulates that the cost of other Microsoft components, such as Microsoft SQL Server and Active Directory, are probably being lumped in with the cost of IIS even though those components can be leveraged for use outside of Web hosting (p. 17). This is a plausible explanation, although it inadvertently makes the case for Linux, since when an organization makes the decision to deploy a Microsoft platform for one purpose it tends to adopt Microsoft in other areas because of the tight integration with "common components." IT decision makers know this, and this could be a significant part of the business case for why Linux/Apache is so attractive for Web hosting.
Reading between the lines of the IDC white paper, nearly all the TCO advantages of Win2K over Linux are because Win2K is more established, with more system administrators trained in it and more system management tools supporting it. In other words, Win2K costs less to use because more people use it. At best, this is a temporary advantage, because as IDC notes in several places, Linux has been gaining market share at the low end, or as IDC puts it, on "one or two processor systems that perform relatively simple tasks on the edge of networks" (p. 6).

IDC acknowledges that, at some point, Linux will narrow the gap in trained system administrators and system management tools. This is consistent with Linux being a disruptive technology, as described by Clayton Christensen of the Harvard Business School. According to Christensen, a disruptive technology is one that is intrinsically lower-cost and simpler, but currently inferior to that of the market leader. It first gains market share among the least demanding customers or applications, those who are over-served by the dominant technology. As the functionality and performance of the disruptive technology improves, it moves up-market, gaining market share among more demanding users, eventually displacing the dominant technology. Without saying so, IDC identifies Linux as a disruptive technology, in the same way that mini-computers displaced a segment of the mainframe market, and networks of personal computers running Microsoft operating systems displaced a large portion of the mini-computer market.

Interestingly, in promoting TCO as a positive benefit for its Win2K operating system, Microsoft is making the same argument against Linux that IBM likes to make in favor of its AS/400 (iSeries) platform against Microsoft. A study conducted in 1998 by IDC, showed that users of IBM’s AS/400 enjoyed a lower TCO compared to both Microsoft and Unix platforms, due mainly to IBM’s significantly lower staffing requirements. Now the same argument is being made on behalf of Microsoft over Linux. But, just as the AS/400’s lower TCO did not slow the advance of Microsoft, it is unlikely that Microsoft’s lower TCO, if true, will slow the advance of Linux.

Linux is likely to continue to gain ground as a mainstream alternative to Microsoft operating systems. IT decision makers should evaluate Linux and Microsoft on a case-by-case basis, considering not only TCO but the specific workload requirements, existing and future staffing needs, and the organization’s strategic direction for IT infrastructure.

by Frank Scavo, 12/17/2002 01:19:00 PM | permalink | e-mail this!

Wednesday, December 11, 2002

Possible solution for FDA electronic record audit trail compliance

Earlier today I participated in a Web presentation by DataMirror (NASDAQ: DMCX) regarding their LiveAudit product. The product is aimed at FDA-regulated companies, such as pharmaceutical and medical device manufacturers, which have requirements for electronic record audit trails [21 CFR Part 11.10(e)]. Although I have not yet done a direct evaluation, I can see the appeal of LiveAudit. It works at the database level in real time, allowing selective auditing of specific database files, records, and fields. It supports a variety of database and operating system platforms. Few legacy ERP systems have audit trail capabilities to the extent required by Part 11, and without a tool such as LiveAudit, it is difficult to retrofit an existing system to provide this capability or to jury-rig database logs to do this. Furthermore, because many companies operate in a heterogeneous IT environment, with multiple systems touching regulatory compliance, there is something appealing about having the audit trail operate at the database level and keeping all required audit trails in one place.

A cautionary note, however, is in order. LiveAudit is not a complete solution for 21 CFR Part 11. It only addresses the audit trail requirements. For example, it does not pretend to address requirements for electronic signatures. Part 11 requires that regulated entities enact a set of technical, procedural, and administrative controls over the use of electronic records and electronic signatures. DataMirror’s LiveAudit only addresses one of several technical requirements, and, of course, it cannot address the procedural or administrative controls required by Part 11. Therefore, companies regulated by FDA should do a comprehensive Part 11 audit and develop an action plan to address all significant gaps in compliance. DataMirror’s LiveAudit may then be considered as part of the solution.

For more discussion on Part 11 compliance, see my posts on Oct. 16 and Nov 16.

by Frank Scavo, 12/11/2002 12:30:00 PM | permalink | e-mail this!

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Monday, December 09, 2002

The IBM/Rational acquisition from Rational's perspective

Following up on my post last week, IBM's offer to buy Rational Software is attractive also from Rational's perspective. Along with many other technology vendors these days, Rational has a "partnership problem" with Microsoft. Although Rational has long been providing tools for application development on Microsoft platforms, it has found itself more and more in competition with Microsoft as Microsoft is strongly promoting its own toolset, Microsoft Visual Studio.NET. With Microsoft looking to take more of the tools business for itself, Rational needs to pair up with someone on the same scale, someone with a large corporate client base, in order to regain market share. IBM fills the bill.

Since the deal was announced last week, the trade press has been overwhelmingly positive about it. BusinessWeek has additional analysis.

by Frank Scavo, 12/09/2002 04:34:00 PM | permalink | e-mail this!

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Sunday, December 08, 2002

On a personal note

Starting this week, I will be contributing as a research analyst to Computer Economics, a research firm well-regarded for its annual survey of information systems and e-business spending as well as its analysis of ROI and total cost of ownership. The organization is over 20 years old, and it claims over 80% of the Fortune 500 as clients. I will be writing on trends and management issues in the use of enterprise systems--in other words, pretty much the same focus as this web log.

One reason that I like Computer Economics is that its independent perspective is the same as that of my consulting firm, Strativa. As indicated on their web site,

"Unlike most research organizations, Computer Economics takes pride in being totally unbiased and rejecting any association, sponsorship, or joint-venture with vendor organizations. This allows us to assist our clients in maximizing their purchasing power with their vendors, making the best e-business strategy decisions, and effectively planning for online market opportunities."

by Frank Scavo, 12/08/2002 10:49:00 AM | permalink | e-mail this!

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Friday, December 06, 2002

IBM’s strategy in acquiring Rational Software

IBM announced today that it is buying Rational Software, one of the leading developers of software engineering tools, for approximately $2.1 billion in cash. Rational has annual sales of about $650 million, with over 3,400 employees, and customers in 89 countries. According to IBM's press release, IBM intends to merge Rational into the IBM Software Group as a new division, joining IBM's WebSphere, Lotus, Tivoli, and DB2 products.

Rational is well-regarded as the originator of the Unified Modeling Language (UML), designed by Rational's Grady Booch, Ivar Jacobson, and James Rumbauch, that is used for object-oriented analysis and design (OOAD). UML is now an open Object Management Group (OMG) standard, and it has been adopted by many software developers and tool vendors. One incredible statistic: Rational claims that 98 of the Fortune 100 use its products, which have grown to include a variety of tools for system modeling, analysis, design, coding, and testing, such as Rational XDE, Rational ClearCase, Rational RequisitePro, Rational Unified Process, Rational Rose, Rational Purifyplus, and Rational Suite TestStudio.

So why is IBM buying Rational Software? I see four reasons.
  1. The price is right. The Rational acquisition continues what appears to be IBM's campaign to use the current slump in technology asset valuation to assemble an impressive collection of tools for application development and integration. The Rational acquisition follows on the heels of IBM's acquisition earlier this year of Crossworlds and Holosofx, which I discussed in my Sep. 16 post.

  2. It increases revenue and earnings. On the surface, IBM would appear to be interested in going after a larger share of the development tools market, which according to IDC will grow at 11.5% through 2006. On the other hand, Rational's $650 million in sales seems like a drop in the bucket when compared to IBM's $80 billion. So there must be more to it than IBM’s simply buying market share.

  3. It leverages services. I suspect that a more strategic reason is IBM’s interest in the application development services that can be pulled through after sales of tools. IBM already uses sales of Websphere to pull through significant work for the IBM Global Services unit. The addition of Crossworlds, Holosofx, and now Rational just continues this strategy.

  4. It strengthens IBM's position with software developers in its battle against Microsoft. Software developers are a key constituency that must be won in order for IBM to ensure that its other technologies, such as Websphere and DB2, gain market share. But 60-70% of software developers currently use Microsoft tools, giving Microsoft a natural advantage in promoting its .NET platform. IBM's acquisition of Rational is probably the best thing it could do in this regard, acquiring one of the premier names in software development tools. Interestingly, Rational is agnostic when it comes to platforms, with tools that support with J2EE, Microsoft, Linux, and other platforms. So, IBM gets additional points by supporting openness and freedom of choice for developers.

by Frank Scavo, 12/06/2002 09:55:00 AM | permalink | e-mail this!

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Thursday, December 05, 2002

Winners in the trend to consolidate enterprise software spending

BusinessWeek is running a long article with good case studies on the trend for companies to use fewer vendors and fewer packages as a way to cut overall costs. It points to a Giga Information Group forecast, which says that sales of core ERP software will grow 4.8% annually through 2006, but that sales will be driven not so much by a desire for new technology but by the trend for customers to consolidate to fewer software vendors. Among larger companies, the winners will be the Tier I vendors such as SAP, Oracle, and Peoplesoft, at the expense of point solutions such as i2 and E.piphany.

However, among mid-size companies BusinessWeek indicates that the likely winner will be a single vendor: Microsoft. In my opinion, this latter conclusion is a bit more speculative in that Microsoft does not yet dominate the mid-tier in the same way the Tier I ERP vendors dominate the Fortune 500. In the $13 billion ERP market, Microsoft Business Solutions will only have about $500-600M of it this year. And, each of the Tier I vendors have explicit strategies to target the mid-market. For example, earlier this year SAP introduced its SAP Business One offering, a separate product which allows it to sell into smaller companies. And for years here in southern California, I have seen Oracle selling its full suite to companies with fewer than 100 users. In addition, Oracle offers a hosted version of its full suite as well as its Oracle Small Business Suite (formerly, Netledger), which are both aimed at the start-up or small business market.

by Frank Scavo, 12/05/2002 08:47:00 AM | permalink | e-mail this!

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Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

About the Enterprise System Spectator.

Frank Scavo Send tips, rumors, gossip, and feedback to Frank Scavo, at .

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision. My consulting firm, Strativa, offers assistance that is independent and unbiased. For information on how we can help your organization make and carry out these decisions, write to me.

My IT research firm, Computer Economics provides metrics for IT management, such as IT spending and staffing benchmarks, technology adoption and investment trends, IT management best practices, IT salaries, outsourcing statistics, and more.

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