Salesforce.com's credibility suffering from service outages

This week, Salesforce.com--everyone's favorite example of software on-demand--suffered an outage of something like three to six hours, knocking out service for possibly thousands of customers. According to the vendor,

On Tuesday December 20th, some salesforce.com users experienced intermittent access (between approximately 9:30 am and 12:41 pm ET & 2:00 pm and 4:45 pm ET) on one of the companyÂ?s four global nodes. The root cause of the intermittent access was an error in the database cluster. Salesforce.com addressed the issue with the database vendor. By Tuesday afternoon EST, the system was running normally for all users.

What concerns me though, is not this single outage. It's that this is just the worst case incident in what is apparently a less-than-rare occurance for Salesforce.com customers. According to CNet:

Salesforce touts an "uptime" rate of greater than 99 percent. Outages are "a rare occasion," according to [Salesforce.com spokesperson Bruce] Francis. He said Salesforce's systems are as reliable or more reliable than other comparable systems, including the type that companies run on their own servers.

Yet several Salesforce customers that contacted CNET News.com about Tuesday's glitch said outages happen more frequently than they had expected. About once a month, Mission Research experiences Salesforce outages that typically last an hour or so, [Charlie] Crystle, [CEO of Salesforce.com customer Mission Research] said. Another customer, an East Coast consulting firm, has been struck by outages about a half a dozen times over the past year, according to the firm's vice president, who requested anonymity. Frustration levels are rising.

"I'm really, really angry about this because (Salesforce is) out there marketing themselves as something they're just not living up to," Crystle said.

It doesn't need to be this way. A large part of what Google and Yahoo provide is really software on-demand--little applications. When was the last time you went to Google or Yahoo and found service unavailable for more than a few seconds?

Readers of the Spectator know that I'm actually a proponent of the trend toward software on-demand. I like its promise to simplify system implementation and maintenance, especially for small and mid-size businesses, relieving the customer of having to worry about things like backups, recovery, disaster planning, and service level maintenance.

But the trend toward software on-demand is going to be set back several years if on-demand vendors can't maintain the service levels they promise and that customers expect.

Are the problems of Salesforce.com typical of other software on-demand vendors, or is Salesforce.com an anomaly? If you have insights, post a comment to this post or email me.

Update, Dec. 22. There's further discussion going on in the comments section for this post.

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JDE users want Oracle's Fusion to support IBM technology

A recent survey conducted by Quest, the J.D. Edwards user group, highlights the a strategic problem for Oracle relative to its JDE installed base.

The survey, which polled 300 JDE user companies, indicates that a significant number of them will not take Oracle's Project Fusion upgrade path if that path does not provide support for IBM technologies. The bulk of JDE users--and all of them running JDE's World Software product--are running on IBM's iSeries (formerly AS/400) hardware, and IBM's DB2 database.

According to Computerworld,

Keeping the iSeries as a platform of choice for Fusion was more important than pricing or functionality, Quest said, citing its survey. If support for the server is dropped, 29% of those surveyed wouldn't migrate to the Fusion architecture, while 50% said they weren't sure if they'd upgrade under those conditions. Moreover, 35% of the World customers surveyed said they'd stick with their existing applications. Software could also be a key element -- 85% said they use IBM's DB2 database, and 67% use it exclusively.

The results are not surprising, and it does put Oracle in a difficult position. If it puts iSeries and DB2 support into Project Fusion, it risks not getting the operational efficiencies and simplicity of supporting a single technology stack. It also risks losing the cross-sell of its database and tools. But, as the survey shows, if it does not support IBM technologies, it risks losing a significant number of JDE users for the long run.

I'll go out on a limb and suggest, as I have in the past, that Oracle will and should go with a single technology stack--its own--for Project Fusion. It will continue to provide strong incentives for JDE users to make the migration from IBM technologies. Ultimately, it will then sell off the JDE World product to someone else--maybe SSA, maybe Lawson, maybe even Infor--realizing some value for those customers that refuse to upgrade.

Update, Dec. 23. Be sure to check the discussion on this post in the Comments.

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Microsoft lags in offering CRM on-demand

Last week, Microsoft announced delivery of version 3.0 of its Dynamics CRM 3.0. It also announced a change in its licensing to allow partners to offer the CRM package on a hosted subscription basis.

Microsoft's move with CRM is consistent with its recent push into software as a service, but its announcements show how difficult it will be for Microsoft to make the transition to services. Microsoft's whole business model is built around selling software licenses.

The first problem is that Microsoft CRM has not been, to this point, a strong offering. Earlier versions had limited functionality, and Microsoft was slow to enhance the product. Computerworld describes the problems that one company faced with the product:

Door maker Designer Doors Inc. bought and deployed Microsoft CRM several years ago but put the software back on the shelf after running into a host of problems. The most painful were synchronization glitches that kept the software's features from being available to remote workers.

"We had put a lot of effort into making this our centerpiece for sales and marketing," said Michael Kruger, information systems manager at the River Falls, Wis.-based company. "It's been expensive for us to find work-arounds."

Not a great foundation for Microsoft's push into business software delivered as a service.

The second problem is that Microsoft does not host its CRM system, as on-demand leaders Salesforce.com and RightNow do. Consistent with its business model generally, Microsoft depends on partners to sell and host its CRM offering. But its hard to see how Microsoft will be able to scale its on-demand services if it has to depend on partners, most of which are small regional players.

Third, Microsoft's partners appear to be pricing the CRM offering at over $100 per user per month. The last time I checked, Salesforce.com was offering seats for well under $100. On that basis alone, Microsoft's offering is a non-starter.

The reason that Microsoft's offering is not price competitive is that it is built with a single tenant architecture. Each new customer needs a separate installation of the system, on a separate server, with a separate database, adding significantly to the cost. A multi-tenant architecture, as offered by the most successful on-demand providers, has a radically lower cost structure, allowing the vendor to on-board new customers quickly.

Furthermore, its hard to see how a Microsoft partner can afford to sell CRM on-demand to under 10 users, if it has to build a separate server for each sale. Microsoft's natural sweet spot is small businesses. But if partners can't afford to sell to the smallest prospects, how will they be successful? In contrast, Salesforce.com and RightNow can sell a five user deal as cost-effectively as they can sell as 50 or 100 user deal.

Microsoft does plan to rebuild its CRM offering around a multi-tenant architecture, but its projected ship date is sometime in 2007. Microsoft is already late to the software on-demand dance, and its product development schedule shows just how far behind it is.

Computerworld has more.

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Salesforce.com offers development sandbox

As part of its AppExchange service, Salesforce.com is now offering users the ability to run test, development, or training copies of their applications, including any custom or third-party applications that the user is running on top of Salesforce.com. CNET has a summary.

Of course, in-house application development organizations have been maintaining testing environments since the early days of corporate computing in the 1950s. But for software on-demand, this is an important step in increasing adoption of hosted applications. Software on-demand is often hamstrung by difficulty in creating custom modifications or generally doing anything outside of running the production environment.

On-demand providers such as Oracle that install a separate instance of the application for each customer can offer multiple environments without much difficulty. But, to my knowledge, Salesforce.com is the first provider operating under a multi-tenant architecture--once system instance supporting multiple customers--to offer such a capability.

If you can read past the marketing fluff, there's more info on the Salesforce.com website.

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How is your IT compensation shaping up?

We've put up a new quickpoll up on the Computer Economics website.

How will your total IT compensation in 2005
compare with last year?

Hop over to Computer Economics, and take the poll now, in the righthand column. We'll write up our analysis of the results next month, after the poll is closed.

SAP responds to Oracle's move into pricing optimization

Retail industry systems have been one of the latest battlegrounds between Oracle and SAP. Earlier this year, Oracle outbid SAP for Retek, a specialist vendor of retail management software. Then in June, Oracle added to its retail functionality by acquiring ProfitLogic, a niche vendor of pricing and profit optimization software. At the time, I predicted that Oracle's bid for ProfitLogic might lead to other acquisitions in this space.

Sure enough, late last month SAP announced its acquisition of Khimetrics, one of the other key vendors generally lumped together with ProfitLogic. The area of pricing, profit, and demand optimization is highly fragmented, with various players focusing on different aspects of the problem, in different industries. For example, ProfitLogic has strength in specialty goods and apparel, whereas Khimetrics has special expertise in grocery and general merchandise and has recently been pushing into financial services.

DemandTec, Manugistics, Spotlight, Connect3, and Vendavo are other vendors offering solutions in this space. Expect further consolidation as Oracle and SAP look to fill out their offerings in this area.

Update, 7:00 p.m. Read Jason Wood's comment on this post, which raises some insightful questions on this deal and why SAP didn't choose DemandTec over Khimetrics. Also, on his own blog, he writes,

Khimetrics is, by most accounts, a fine company [it's my understanding they are running at approximately $30mm annually and growing], but as an investor I have to wonder what this means for DemandTec? DemandTec has been SAP's partner in demand-driven price optimization and its solutions are already integrated into NetWeaver [unlike KhiDEMAND]. Furthermore, DemandTec is considered the market leader both in terms of revenue market share and technology footprint. So what led to SAP acquiring Khimetrics instead? Was DemandTec unwilling to sell? Was their asking price too high? Were there issues with the partnership that are beyond our purview?

I'm thinking maybe the story isn't over yet.

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i2 kills off its SRM business

In a move to strengthen its financial position, i2 is selling its Content and Data Services (CDS) unit for about $30M U.S. to IHS, Inc. The sale is a sad end to i2's supplier relationship management (SRM) business, which it initiated through its acquisition of Aspect Development in 2000.

I've been corresponding with some former employees of i2 and Aspect Development about this deal, and most of what appears in this post reflects their insights. They tell me that the deal with IHS has been a long time coming as i2 employees in the CDS unit have been migrating to IHS over the last 12 months or so. IHS is now acquiring all remaining personnel.

i2 originally bought Aspect Development an all-stock deal of over $9.3B (that's billion), making it at the time one of the largest--if not the largest--deals in the software industry. Aspect was a leader in component and supplier management (CSM) software and services. CSM services help companies, such as electronics and automotive manufacturers, maintain critical data on parts and vendors. Aspect's clients also included some of the largest energy companies in the world, such as Shell and Exxon. i2 is now selling what's left of that business now for a mere $30M.

Over the years, Aspect's products and services were lost in the swelling portfolio of i2's applications. Based on feedback from former Aspect employees, it appears i2 never really knew how to manage and grow Aspect's business.

• On the software side, i2 didn't make it easy enough for clients to upgrade. It didn't invest in the technology from the client perspective. Today, most if not all of the clients have migrated or are in process of migrating to competing products, such as product lifecycle management tools from vendors such as Agile, which hired many former Aspect employees. A telling sign of how badly i2 served this market: i2 hasn't sold a new SRM license in over two years.
  
  
• On the content side--providing data concerning vendors, parts, and product attributes--i2 made similar mistakes. The content side was the only profitable part of the business that was left. The databases and schema are valuable assets, but i2 never fully understood or embraced the business. Services account for roughly 10% of this business, but it is difficult to manage. The money is in the proprietary content, not the services. But the services are required in order to make the sale and keep clients buying the content. The sale of i2's content services effectively kills its SRM business, since content was the only real thing that differentiated i2's SRM offerings.

One former Aspect/i2 employee confirmed that i2's sale of the CDS unit effectively kills what's left of Aspect's business for i2:

Content services are crucial to a successful component and supplier management (CSM) application because they set up the database. In other words, the content services were necessary to clean up and classify the commodity hierarchies and technical attributes for parts so that procurement and engineering users could effectively search them. If i2 is selling the content services, it is giving up on all of CSM.

Compounding i2's problems is the fact that large players have entered this market, such as IRI, which was founded by Romesh Wadhwani, the original founder of Aspect Development. Verisign also competes here, with its Supply Chain Team selling RFID services and POS data stream subscriptions along with Verisign's infrastructure. Both IRI and Verisign are strongly industry-focused and tough competitors, with substantially more resources than i2.

i2 also faced increasing competition from the major ERP players, such as Oracle and SAP, both of whom have taken a huge bite out of i2's business. All of the SCM players have had difficulty competing against SAP and Oracle, but i2 got hit harder than the rest.

In related news, Click Commerce has just acquired Requisite Technology. Requisite's Bugseye is a competitor to the content services that i2 is selling to IHS. Click's press release mentions that Requisite's software is embedded in "one of the world's largest Enterprise Resource Planning (ERP) provider's solutions." It doesn't mention who the ERP provider is, but my sources tell me it's SAP.

Update, 6:00 p.m. Jason Wood, a hedge fund manager, alerts me to his post yesterday on i2's sale of its CDS unit to IHS. He said that he considers it, "the final nail in the coffin of the B2B bubble in supply chain." He also writes,

Last time I checked...$30 million < $9.3 billion, right? That's 0.32% of the price paid for Aspect some five years ago. I guess it's better than writing the thing down to zero, but not by much.

Good point.

Update, Nov. 23. Another former i2/Aspect employee responds.

Amazing how fast a blog can focus insights to events quickly. The "$30M" still stuns me. Aspect actually sold their applications/services deals before the i2 acquisition for $5-10M (about 60-70% software). Siemens deal was in excess of $20M. Wow.

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Burgum pushed aside as head of Microsoft Business Solutions

The other shoe has fallen at Microsoft. Doug Burgum--former CEO of Great Plains, who remained in the top spot when the Microsoft Business Solutions group was formed from Microsoft's acquisition of Great Plains--is being replaced.

Microsoft is dressing up the change as a promotion of Burgum to a newly created "Chairman" position. But make no mistake: the new position is a figurehead. Burgum will continue to report to Jeff Raikes, head of the new Microsoft Business Division. But they will now be recruiting or identifying a new head of MBS who will be responsible for the performance of the unit going forward.

Microsoft reorganized itself last month into four divisions, and Burgum moved to report to Raikes. He had been reporting directly to Microsoft's CEO Steve Ballmer. At the time I said that there was no way to interpret the move except as a demotion for Burgum. Today's move reinforces that interpretation.

In an interview on Microsoft's website, Burgum was asked whether he was satisfied with the performance of MBS over the past five years. He replied,

From a current year standpoint, we are absolutely pleased. From an overall growth perspective, at US$181 million this quarter, Microsoft Business Solutions is up 16 percent compared to where we were last year. In terms of software revenue during the quarter, we are up 18 percent thanks to our solid, dynamic line of enterprise resource planning (ERP) and CRM solutions and services. License growth is up 21 percent and enhancement revenue has jumped by 16 percent compared to last year.

Note that Burgum talks revenue, not profit. In a market where Oracle and SAP--even smaller players like Lawson, SSA, and QAD--are profitable, MBS has never shown a profit in the five years since its inception.

Here's some free advice for Raikes. Don't consider anyone you know from your past life selling shrink-wrapped Microsoft products. And don't stop with replacing Burgum. Go outside to recruit some of the best talent that has been displaced by Oracle's acquisitions. Look at some of the former PeopleSoft and J.D. Edwards executives. Sure, the best of them already have new jobs, but they'll still be open to your offer. Don't forget the Siebel guys. Find some that know how to develop and sell enterprise business software. Find some that know how to build a VAR channel for enterprise systems that have long sales cycles and complex implementation requirements.

CNet has more on the story.

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Oracle/Siebel bid: U.S. DoJ throws in towel

The U.S. Department of Justice has indicated it will not fight Oracle's plan to acquire Siebel. The DoJ lost the last battle with Oracle, to stop its hostile bid for PeopleSoft. The Siebel deal, being a friendly takeover, would be even more difficult for DoJ to oppose.

The acquisition still needs to be approved by the European Union. But the EU is unlikely to oppose it. Oracle and Siebel believe the transaction will close in Q1 2006.

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ERP Graveyard

Ned Lilly, the main man behind the quasi-open source OpenMFG ERP system, has started a blog, ERP Graveyard, in which he tracks ERP vendor mergers and acquisitions. The thought behind it, of course, is that if you go with open source, you don't have to worry as much about your vendor going out of business.

What's best, however, is that Ned has put together a map of ERP vendor acquisitions over the past several years. I took a quick look and it appears complete.

Ned calls it the ERP Graveyard Scorecard, which is a mixed metaphor, but you get the point.

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Open source: turning software sales and marketing upside down

It doesn't take a PhD these days to figure out that it's getting harder and harder for the majority of enterprise software to make money. Now Larry Augustin points out that the traditional model of selling software licenses really means that the vendor charges the customer to sell to him.

The problem is that the traditional enterprise software business model is broken. A rabid search for new customers and revenue growth has caused sales and marketing costs to spiral out of control. In fact, Rick Sherlund at Goldman Sachs estimates that in 2005 software companies will spend 82 percent of new license revenue on marketing and sales efforts. That's up from 66 percent in 2000.

This quest for additional revenue has created an untenable cost structure for the industry - one that doesn't serve vendors or their customers. In essence, vendors spend a lot of money to convince customers to buy, and then charge them a lot of money for the license which covers the sales and marketing costs. We're charging the customer just to sell to them.

Augustin is the creator of SourceForge.net, the world's largest open source software development community. He also serves on the boards of directors of open source vendors JBoss, SugarCRM, Pentaho, Medsphere, and the Open Source Development Lab, which is the keeper of the keys for Linux.

So, as you can imagine, Augustin's solution for this problem involves the open source model. But whether you agree that open source is the answer, it's hard to argue with Augustin's depiction of the problem.

Read the whole essay on Sandhill.com.

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Bill Gates pushing Microsoft toward software-as-a-service

The Wall Street Journal has released excerpts from internal Microsoft correspondence in which Bill Gates is calling on Microsoft to jump with both feet into the trend toward software applications being delivered as a service over the Internet.

Whether referred to as Internet services, software-as-a-service (SaaS), or software on-demand, the idea is the same: instead of buying and installing software applications, users simply access such apps over a network. There's no software to buy. Instead, the application is either paid for on a subscription basis or supported by a third party, such as advertisers.

Analysts are comparing Gates's memo to his call in the 1990's for Microsoft to embrace the Internet (leading to Microsoft's Internet Explorer browser and MSN online services), and to his call earlier this decade to embrace web services (leading to Microsoft's .NET framework).

Interestingly, Gates quotes heavily from an internal memo by Ray Ozzie, Microsoft's CTO, who has been on board only a few months. Ozzie is a big name in information technology. He is best known as the inventor of Lotus Notes, which was later acquired by IBM. Microsoft's catch of Ozzie was a big scoop, and Gates's memo shows how influential he is within Microsoft in a short time.

Whether Microsoft can make this transition will be interesting. Microsoft's core business--make no mistake, Windows and Office--is the antithesis of software as a service. The previous two "call to arms" by Gates were easily layered on top of that core business. But to truly embrace Internet services will require a willingness to cannibalize sales of Windows and Office--not something that is going to come easily to Microsoft shareholders, or to Microsoft decision makers whose compensation is tied to Microsoft earnings.

The technology press is all over this story. So rather than cover it further, I'll just point to the Wall Street Journal article (free access this week) and this Computerworld article that gives a good summary.

Update, Nov. 11. Bob Cringley thinks that Gates' email and Ozzie's memo were written as PR documents, and planned to be leaked. The fact that at least three news organizations all received them at the same moment is suspicious.

While ostensibly written solely for internal discussion, the documents from Bill Gates and new Microsoft CTO Ray Ozzie were clearly supposed to be leaked. These are external marketing documents -- the equivalent of those ubiquitous white papers -- only Microsoft is pretending they aren't. We won't see any witch hunt at Microsoft trying to find the leaker, because I'm sure he or she was just following orders.

Here is a copy of Bill Gate's full email. And here is a full copy of Ray Ozzie's memo.

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Infor to swallow half of Geac

There seems to be no let up in the ERP vendor consolidation trend. The latest target is Geac Computer Corp., a software provider, based in Canada, with a broad portfolio of applications, including its SmartStream financials system, which it picked up in 1996 from Dun & Bradstreet, and its System21 ERP suite, a well-regarded (at the time) process industry system, which Geac picked up in its acquisition of JBA in 1999.

Geac is now being acquired in a friendly transaction by Golden Gate Capital, the investor firm behind Infor, which has been on its own acquisition binge for several years. Golden Gate will pull Geac's ERP offerings, such as System21, Runtime, RatioPlan, Streamline, and Management Data, and will move them to Infor as part of Infor's application portfolio.

What happens to the rest of Geac? Golden Gate plans to create a new company--separate from Infor--to manage these products, including Geac's Enterprise Server, SmartStream, Anael, Extensity and Comshare products. The CEO of the new company will be named prior to closing the transaction.

After picking up a string of acquisitions, most recently Lilly Software Associates and MAPICS, it's hard to know what to think about Infor's roll up program. I'm hoping to get some more information later this week.

There's a long press release on the deal--which is quite complicated--on Infor's web site.

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Vote for me!

The second annual Blog-X awards are open for nomination over at Techweb. This blog was one of 10 finalists last year, when the award was known as the 2004 Readers Choice Awards. I've got a limited advertising budget, so the publicity is nice.

If you think the Spectator is worth reading, please hop over to http://www.techweb.com/blogawards and nominate the Spectator as follows:

Title: The Enterprise System Spectator
URL: http://fscavo.blogspot.com
Covers: Software

Thanks in advance!

Sainsbury pulls the plug on Accenture outsourcing deal

I've been following the outsourcing problems at major UK retailer Sainsbury for some time, and it looks like the firm has finally decided to call it quits.

It's tempting to say that Sainsbury's action is a sign of a trend away from outsourcing (backsourcing, as some call it). After all, over the past 12 months, Sears ended its outsourcing agreement with CSC, and JP Morgan Chase gave the boot to IBM. But, as I reported previously, Sainsbury's experience is a case study in how NOT to outsource IT. Although Accenture has to bear part of the blame, Sainsbury no doubt bears more.

Ziff Davis has the story on Sainsbury's latest move.

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Oracle plans free version of database

Here's a good move by Oracle. It plans to release, by year end, a free version of its 10g database. Dubbed Oracle 10g Express Edition, the free version will run on 32 bit Windows and Linux systems. Use of the free version is limited to 4GB of data, 1GB of memory, and one processor servers.

No, Oracle hasn't suddenly gotten generous. It needed to do this to counter Microsoft's similar program for its Sequel Server database, and especially to counter the open source MySQL database, which is widely used by developers at the low end of the market--and increasingly is moving up into higher end applications.

Furthermore, developers tend to stay with tools they learn when they are young, and there's no doubt that many students, hobbyists, and small development firms are getting to know MySQL a lot better than Oracle these days.

As I noted last month, Oracle is also countering MySQL's popularity by acquiring Innobase, a tiny firm that is the primary developer of the open source InnoDB, which is used as a storage engine by MySQL to provide higher end features such row-level locking. It's still not quite clear what Oracle plans to do with InnoDB.

Computerworld has more on Oracle's freebee.

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Oracle CFO out the revolving door

Oracle tri-President and CFO, Gregory Maffei, resigned today after only four months on the job. He is reportedly looking to take a job as CEO of another company, not yet named.

Maffei claims his departure doesn't have anything to do with Oracle. In a press release, he says, "My resignation from Oracle is not a reflection on the company, its executives or employees."

Still, after only four months? The Wall Street Journal, in an email alert, points to conflict at the top at Oracle.

The people close to Mr. Maffei say his new job offer may be appealing because it gives him a chance to run a company -- something he now believes may not be possible at Oracle. When Mr. Maffei joined the Redwood Shores, Calif., software maker, he became one of three "co-presidents" working for Mr. Ellison.

The other executives are Charles Phillips, a former Wall Street research analyst, and Ms. Catz, a former investment banker to whom Mr. Ellison is believed to be very loyal. People familiar with the matter say Mr. Maffei and Ms. Catz clashed over some issues during his short tenure.

Not a moment that inspires confidence in Oracle.

Update, Nov. 4. Maffei's departure is looking more and more like a simple personality clash in the executive suite. According to Marketwatch,

At Piper Jaffray, analyst David Rudow echoed other analysts' views that the CFO's departure doesn't signal "any fundamental issue at the company or any potential negative accounting issue."

"We think Mr. Maffei's departure was more of a cultural or personality fit with other management team members," Rudow said, based on his conversations with software industry insiders.

"The culture at Oracle appears to be intense, to say the very least," the Piper Jaffray analyst commented in a research brief. He rates the stock outperform.

Interestingly, Oracle's stock is up today on the news.

Update, Nov. 4. Today's Wall Street Journal online has more:

Some analysts said the high rate of executive turnover at the company lately -- and the fact that its top managers were being recruited from the outside, instead of from within -- raised questions.

"It makes you wonder a little bit about what the whole succession strategy is, and what it says about an organization that isn't able to promote somebody to the top and have them stay," said Drew Brosseau, an SG Cowen analyst.

Red Herring has an article with lots of analyst comments on the interpersonal issues.

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Bad idea: Microsoft bid for Siebel

Forrester has an interesting angle on Oracle's bid for Siebel. The research firm thinks that Microsoft should step in and make a counter offer. Interesting, but wrong. I think that a Microsoft acquisition of Siebel would be a disaster for both parties.

But first, Forrester's idea. The article is entitled, "Memo to Microsoft: Why Not Buy Siebel?" The abstract reads:

Microsoft: You have a unique opportunity to change the dynamic in the enterprise applications market. With Siebel's strong enterprise customer base, domain expertise in verticals, integration with existing Microsoft technologies, and interoperability with .NET and J2EE, this is a unique opportunity to bring much-needed CRM credibility to the Microsoft Business Solutions Group. If Microsoft does not make the offer to purchase Siebel, you will lose a unique opportunity to Oracle, leave only two tier one players in the applications market, and make a later entry into the market more costly and more risky.

A Microsoft acquisition of Siebel would be foolish because Siebel's client base requires a significant amount of professional services, something that is foreign to Microsoft's business model.

Interestingly, a Spectator reader and I had some correspondence on this very subject last week. He wrote,

IBM/HP-like consulting does not fit the Microsoft model. Microsoft is more about delivering packaged software to a customer through a product management process (exaggerating -- in its worst incarnation -- throwing a half ready app to the customer). In a consulting business you need to listen to the customer and understand the problem in order to find a solution--if necessary, pushing it through as a side product, and enhancing the product over time.

What is meant by consulting at Microsoft is way different from the definition at IBM.

Microsoft's foray into business applications, with its purchase of Great Plains and Navision, has already been a humbling experience (Microsoft's words, not mine). Its business applications are sold entirely through VARs and resellers. Siebel's products are sold largely through a direct sales force, something Microsoft Business Solutions has never really done. So, even though Siebel's technology is Microsoft-friendly, I think that Siebel is a bad fit for Microsoft's business model.

Now, on the other hand, if IBM, HP, CSC, or any other number of large service organizations wanted to step in and make a counter-offer for Siebel--now that would be an interesting proposition.

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Latest JDE service pack spells trouble for Oracle

Today a Spectator reader has emailed me with news about the latest service pack for J.D. Edwards EnterpriseOne, 8.11 (SP1), indicating that there are serious problems with it, and that the problems are so severe that it represents a significant setback in the company's implementation schedule.

JDE customers have been waiting to see whether Oracle can deliver on its promise of "lifetime support" for JDE customers. If the service pack problems are as serious as my reader indicates, Oracle needs to take corrective action immediately. Otherwise, Oracle's relationship with the JDE installed base is in trouble.

If you have better, or different, or confirming information about this latest service pack, please email me, or leave a comment on this post.

Update, Oct. 31. Word from this new JDE customer in the field indicates that the Enterprise One 8.11 SP1 problems are finally getting some attention at the senior executive level at Oracle and that there is a SWAT team of three people dedicated to fixing them. That's good news. But, one has to ask, why did it take Oracle so long to get on top of this, and why was the service pack released in the first place if it wasn't adequately tested?

Update, Nov. 4. Oracle is working on the service pack problems, but they are not yet out of the woods. The customer's system is still unusable, hence the JDE implementation has ground to a halt.

Update, Nov. 28. Oracle appears to be making progress resolving problems with 8.11 SP1. Also, there are indications that the service pack has not been widely distributed, which may explain why I have been unable to locate anyone else that has implemented it or is reporting problems with it.

Update, Dec. 9. The customer's problems are getting high level attention within Oracle. Oracle has resolved a number of the outstanding issues and is making good progress on the rest.

Update, Mar. 8, 2006. For the sake of those that come across this post from search engines, I want to close the loop and report the final outcome of this case study. The client went live on JDE earlier this week.

The go-live went flawlessly with very few post-implementation problems. The implementation was a "large footprint" (i.e. quite a bit of functionality), and it took 11 months, four of which were due to the problems with service pack 1 (SP1) outlined earlier in this post. Implementation costs exceeded budget, but to the credit of Oracle and the implementation partner, much of the expense for correcting the problems was covered under Oracle's maintenance agreement.

Bottom line: the ultimate outcome of this implementation for the client is a success, and it is evidence that Oracle intends to make JDE a successful and viable choice for companies going forward.

Another false start for Microsoft's business apps

Microsoft just can't seem to finish anything related to business applications these days.

The latest case in point is the Microsoft Business Framework (MBF). Microsoft appears to have all but given up on building the MBF, sending half of the 200-plus development team back to Microsoft Business Solutions (MBS), the unit responsible for business applications, and half remaining with the Platform and Tools division, where they've been working for the past two years.

MBF was to be a set of lower level software application components to provide core business functionality upon which higher level applications and systems could be constructed. The original plan was for MBF to be the underlayer for Project Green, the successor to Microsoft's current disparate business applications, such as Great Plains, Axapta, Solomon, and Navision. MBF would be an open platform that would also allow third-party developers to build industry specific applications that would easily interoperate with Microsoft's own business apps.

Microsoft, of course, is claiming that the break up of the MBF development team really doesn't mean anything, and that MBF will still be delivered, but just in a different way, with bits and pieces showing up in other products, etc., etc. Mary Jo Foley at Microsoft Watch has a good summary of the history of fits and starts with MBF.

One Spectator reader has given me some interesting insights into the history of MBF and the current situation with Microsoft Business Solutions. Note that my editorial comments are in [brackets].

The pre-history of MBF originates from then independent Great Plains where they worked on the next generation Business Apps Platform. One of the reasons that Microsoft bought Great Plains was some promising ideas from the Great Plains R&D team.

However, the release of even bits of the new generation technology was characterized by constant delays and problems. At Stampede 2002 the MBS people even joked that every year since 1999 a new and better thing was promised but either was not delivered or when it was launched the result was a failure. Mostly it was related to portal technology and it was more related to Solomon than Great Plains.

The first working commercial piece [for MBF] was Business Portal 1.0 - now in C# sitting on top of MS Portal technologies....

Surprisingly, the [MBF] development environment for the entity persistence model was Rational Rose. Microsoft distributed a MBS Great Plains branded Rational Rose trial as THE development environment for MBF, but alas, IBM bought Rational Rose. Then the big issue was to tweak MS Visual Studio to accommodate all that was lost when they had to abandon use of Rational Rose.

There was a big undertaking by the MBF team and the Navision team in Denmark to port Axapta to .NET-MBF, but that effort was soon abandoned.

Part of delay for MBF may be associated with the delays and stripped down functionality for Longhorn [the next generation of MS operating systems], but I do not believe that this is the core reason. The most important reason for the delay of MBF is the delay of WinFS [the next generation Windows file system]. In the entity persistence model, the integrated security model is actually the core function related to MBF.

My source goes on to provide some insights into MBS product development in general.

In the meanwhile in 2002-2003, project Magellan was started....The outcome was MS Office Small Business Accounting, which was a total re-write in C# and MSDE. The database layer for this product is very heavy, with hundreds of stored procedures, functions, and triggers. It is really more like Great Plains, not like Axapta and Navision. The database layer is so heavy and the database normalization structure is so far thinking that it makes me think that this is the way the next generation unified business applications will be developed.

The packaged software thinking of Microsoft was reflected in many product policies over time. Now they have finally switched back to developing all products independently and trying to rescue Project Green by releasing it in waves.

Surprisingly, Navision is not a friend of MS SQL Server at all. There is big degradation at 30 users and a plateau at approximately 100 users. Furthermore, Axapta scales better on Oracle than on MS SQL Server, and it does not support SQL Server 2005 up till 4.0 or even later.

He also speculates on potential acquisitions and the situation among the MBS VARs.

It is possible that Microsoft will start buying market share. Epicor may be the prime candidate, but there may be others.

Just as there are problems with MBS being profitable, the MBS VARs also have been in trouble, especially the large ones. Some have been running at huge losses for several years before being bought by someone. At least so far this has not resulted in Microsoft buying some of its big VARs--that would definitely upset the community. But watch out for hidden support measures, such as more discriminatory margin structures or industry builder initiative financing.

Although this entire post paints a pretty bleak picture concerning Microsoft's development efforts in business software, I am not by any means suggesting that software buyers stay away from Microsoft's offerings. I continue to short list Microsoft's business solutions where they appear to be a good functional fit. Microsoft may be having difficulties, but it has the resources to deliver--something that can't be said for many of its competitors in the small and mid-sized business market these days. But first, it needs to get its act together and start delivering stuff.

If you have different information, or an opinion on anything in this post, please feel free to email me or use the comments section of this post.

Related posts
Reorg highlights troubles at Microsoft Business Solutions
Microsoft to put enterprise applications on the auction block?
Is Microsoft dying?
Microsoft wants PeopleSoft customers but doesn't have much to offer
Microsoft eats more humble pie in enterprise software business
Microsoft: selling enterprise software is a "humbling experience"

Salesforce.com set to strike out with AppExchange?

Josh Greenbaum thinks that Salesforce.com is going to fail with its strategy of allowing software developers to use Salesforce.com as a platform to sell add-on components. Josh takes issue in particular with CEO Marc Benioff's analogy of AppExchange as the "eBay for enterprise applications" that will be "as easy as buying music on iTunes and playing it on your iPod."

Josh writes,

eBay is many things, but a secure and safe place to buy reliable products it isn’t...Even more significantly, as Marc most certainly knows, enterprise software is not like a three-minute song, however well-produced it may be, and an iPod is no enterprise software platform, however high-tech they now are.

Although Salesforce.com certainly has its work cut out for it, I think Josh is being a bit harsh. I agree that the eBay analogy is not the best, but no analogy is perfect. What Salesforce.com is attempting with AppExchange--allowing customers to build and share extensions on top of an on-demand offering--has never been done before. If this works, it breaks one of the major objections to software on-demand: the inability to customize and extend it.

But if AppExchange works, it would be a powerful example of how commercial software might be built and deployed in the future--sort of a combination of software on-demand and open source that is extremely scaleable.

My main concern at this point is whether there will be any sort of quality control over the extensions written for AppExchange. If the first apps deployed are junk, it will sour users toward the whole idea, and AppExchange might not recover. I suspect that Salesforce.com is aware of this problem and will be working hard to ensure that early adopters are satisfied.

Josh concludes,

Ironically, Marc is finding himself in the same situation that Tom Siebel found himself in: Too focused on standalone CRM functionality in a market that is increasingly interested in linking CRM to everything else in the enterprise. It was this requirement, Siebel acknowledged in his concession speech, that prompted his retreat from the field and into the arms of his rival, Oracle. And this is a requirement that Salesforce.com has even less ability to meet than Siebel did.

I don't agree that Salesforce.com is another Siebel. Yes, both are focused on standalone CRM functionality. But Siebel was competing with Oracle and SAP on the same turf--big deals for traditional license sales. As SAP and Oracle filled out their CRM functionality, Siebel was unable to compete effectively. Its functionality might still be marginally better, but it didn't make up for the need to integrate it with the rest of the enterprise.

Salesforce.com, for the most part, is competing on different turf. It offers an a low-cost, quick-to-implement, alternative to the traditional license model of SAP and Oracle. For small or mid-sized firms, or for large companies that have two to three years of projects backed up in their IT department, it's an attractive alternative.

It's too early to say whether Salesforce.com will be successful with its AppExchange program. But at least it has a strategy.

Computerworld has a summary of AppExchange.

Related posts
Salesforce.com looks to hook Siebel staff
Salesforce.com struggling at Cisco
Software on demand: attacking the cost structure of business systems

Oracle bid for Innobase a threat to MySQL?

Reader Alan Rein has called my attention to Oracle's recent acquisition of Innobase Oy, an open source developer in Finland. Why is this a big deal? Because Innobase is the primary development organization for InnoDB, which is used as a free component for the open source MySQL database by users that want high concurrency, row-level locking, and transactions in MySQL.

In other words, if you are running MySQL--an increasingly popular choice for database applications--and you need it for higher end applications, you use InnoDB as the storage engine.

And Oracle, which has been watching MySQL move up the food chain over the past few years, just bought InnoDB.

The open source community is not quite sure how to interpret Oracle's move. Is it a further endorsement of the open source movement? Oracle has been a huge supporter of Linux, an open source operating system. But Oracle doesn't sell operating systems. Oracle sells databases, among other things. And InnoDB is at the heart of the open source database movement.

The more cynical view is that Oracle is buying InnoDB in order to divert its five (yes, just five) developers away from supporting open source development and the MySQL relationship. The InnoDB/MySQL agreement is up for renewal next year, and Oracle's press release says they expect to see it continue. But who knows?

Jeremy Zawodny has a good summary of the situation on his blog. ZDNet also has a good analysis of Oracle's move. As expected, there's a (ahem) lively debate over on Slashdot as well.

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Software buyers turn cheap

U.S. Department of Justice visits the Spectator

No, I'm not in trouble--at least I don't think so.

I just noticed that a visitor from the US DoJ hit this website today and read five articles, the first of which was "SOX insanity takes hold in the IT department," and the last of which was "Sarbanes-Oxley compliance too often a wasted effort."

Hopefully, this is a good sign that someone at DoJ is paying attention to the enormous waste of time, money, and effort going on in the U.S. economy under the name of Sarbanes-Oxley.

The secondary market for computer hardware

We've put up a new quickpoll up on the Computer Economics website:

How often does your company purchase computer equipment on the secondary (used) hardware market?

Hop over to the Computer Economics home page (right column) and take the poll now. It will take about five seconds.

After the poll closes at the end of the month, we'll use the data as part of our analysis of trends in this market.

Business brightens for Lawson

Things are looking up for Lawson lately. A week or so ago it announced quarterly results that were better than expected, with revenue rising over six percent from a year earlier.

Then today, Lawson announced that it closed a big deal with Mervyns, a major U.S. department store chain. Mervyns will implement Lawson Financials, Procurement, Budgeting and Planning, and Reporting suites to replace business applications that it was using prior to being spin off as an independent firm. Mervyns plans to complete its implementation of Lawson by August 2006--a pretty aggressive timeframe, for a company with 250 locations in 13 U.S. states.

Lawson has been targeting the retail industry for many years. According to its press release, its customers include "five of the top 10 U.S.-based retailers, eight of the top 20 apparel retailers, seven of the top 25 grocery chains, 23 of the top 100 restaurant chains, and 20 of the top 100 specialty chains."

Lawson's win at Mervyns shows that a strategy of intense industry focus can be successful in competing against larger vendors, namely SAP and Oracle, that are increasingly dominating the ERP market.

What other vendors are executing such a strategy? Mincom is an example in the mining industry, as seen in its win over SAP at Newmont Mines, which I mentioned in the previous post. QAD's success among automotive suppliers is another example. IFS has success in aerospace, transportation, and others. And Intentia, which Lawson is acquiring, has a similar track record in the apparel industry as well as food and beverage.

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SAP loses big deal to...Mincom?
Lawson acquiring Intentia

SAP loses big deal to...Mincom?

The deal is Newmont Mines in Australia, and the winner is Mincom. Both SAP and Mincom were incumbent vendors, with Mincom installed at Newmont, and SAP installed at Normandy Gold, which Newmont recently acquired.

Mincom, which is a vendor of enterprise asset management (EAM) systems, is not usually thought of as a competitor to SAP. But in capital intensive industries, such as mining, EAM systems are effectively the equivalent of ERP systems.

The mining industry in Australia, which is undergoing an economic boom, is currently a battleground for SAP and other vendors. Although SAP lost the deal at Mincom, it is gaining additional sales at BHP Billiton, another natural resources firm with market capitalization of $90 billion U.S.

Mincom's win at Newmont shows that there is still plenty of competition for Tier I vendors such as SAP and Oracle, even at the top end of large enterprises. The key is for vendors to pick the verticals in which they can win.

Dave Duffield's next thing: bigger than the White House

Apparently, after helping stray cats and dogs and unemployed ex-PeopleSoft employees, David Duffield still has money left over from Oracle's buy-out of PeopleSoft.

The Contra Costa Times is reporting that Duffield is planning to build a new home in Alamo, CA that will comprise a 72,000 square foot main house, plus 25,000 square feet of outbuildings that include a stable, swimming pool, and 20-car underground garage.

According to the Times, Duffield's main house alone will be bigger than the Notre Dame Cathedral in Paris (64,108 square feet), Hearst Castle (60,645), and the White House (55,000).

By comparison, Oracle CEO Larry Ellison looks positively thrifty. His house in Atherton is only 8,000 square feet.

Update, Jan. 23, 2006: It appears that in December, Duffield scaled back his footage by 70%. He's now planning to build a home of only 21,461 square feet.

Related posts
Duffield comes to aid of former PeopleSoft employees

Salesforce.com looks to hook Siebel staff

John Paczkowski at the San Jose Mercury News is reporting that Salesforce.com is offering Siebel employees a $5,000 signing bonus if they jump ship to Salesforce.com before the end of the year.

"Following the proposed acquisition of Siebel by Oracle, many existing Siebel employees may be concerned about their career prospects. We want to offer them an alternative to an environment of declining commissions, confused customers and uncertainty around career viability," Salesforce CEO Marc Benioff wrote in a company memo leaked to the tech media. "We would be delighted to hear from any Siebel employee that would like to join our company that meets our rigorous standard for excellence and dedication to customer success."

At the time Oracle announced the Siebel deal, it indicated that Siebel's product offerings would form the core of its future CRM roadmap. If enough of the best Siebel people accept Benioff's offer, it won't be good news for Oracle.

Related posts
Oracle faces threat to Siebel maintenance fees
Big eyes, big stomach: Oracle buying Siebel

Oracle claiming ultra-fast installs in SMB market

Several months ago I got an informal briefing on Oracle's special bundle for small and mid-sized businesses, dubbed "E-Business Suite Special Edition." Although the pricing on the applications and database looked great, what really interested me was Oracle's claim to be able to do ultra-fast implementations based on some system configuration tools ("Oracle Accelerators") that Oracle is making available to its resellers. I was waiting to see whether Oracle's approach would work.

Now it looks like some results are in, and they do look good. I'm hearing of a local install here in Southern California that was accomplished in a few weeks. This is consistent with an Oracle press release that has business partners claiming installs in seven weeks. It's not clear whether these installs are for the full suite or just financials, but other discussions indicate that a three month implementation for the full E-Business Suite is a reasonable expectation for projects taking this approach.

The Accelerators
The key to the rapid implementation is Oracle's Accelerator tool. The tool presents a series of 100+ questions to the client (e.g. how many future periods do you want to see in the GL?). The tool uses the answers to these questions to configure the application specifically for the client's business and explode the test scripts that the client will use to test the system. This approach essentially automates the design phase of the implementation, which formerly could take several weeks.

With design and configuration out of the way, the implementation effort then becomes largely a training exercise--to train the client's personnel in using the system exactly as it is configured for the client's business. Traditional ERP training is often done on a demo version of the system that may not look similar to the system that they ultimately use. So, user project team members become frustrated by seeing one version of the system in training, and another version when they begin testing. Oracle's approach solves this problem by configuring the system before training, making the training more effective.

R&D for Implementation
Oracle clearly seems to recognize that ERP implementations take too long and cost too much. The problem with most ERP vendors today, including Oracle, is not that their systems lack functionality--it's that they're too hard to implement. Most customers only implement a fraction of the functionality available to them. So why do vendors spend so much time and effort adding more functionality?

I've long felt that vendors should spend more of their software engineering budget on making their systems easier to implement. Prior to being acquired by Oracle, PeopleSoft had been working hard on improving what it called the "total ownership experience," and it was making good progress. Now it looks like Oracle is doing the same thing.

Of course, the next question is, if it works for small and mid-sized businesses, why not apply the same approach in larger companies? My guess is that Oracle is already working on that.

Related posts
ERP implementation: putting processes and people first
Four problems with ERP
Solving the four problems with ERP
Big three vendors target small companies

Reorg highlights troubles at Microsoft Business Solutions

If you haven't heard, Microsoft had a major reorganization last week, creating three major divisions out of what were formerly six business units. The new organizational structure once again calls into question Microsoft's efforts to increase its share of the enterprise system market.

The reorganization
First, let's look at the three new Microsoft divisions:

• The Microsoft Platform Products & Services Division, which will include the existing Windows Client, Server and Tools division along with the MSN division.



• The Microsoft Entertainment & Devices Division, which will head up Microsoft's development of entertainment and digital devices, such as IP television, Xbox, and other consumer devices.



• The Microsoft Business Division, comprising the existing Microsoft Information Worker group, including Microsoft Office, and Microsoft Business Solutions (MBS), the unit that manages Microsoft's ERP, CRM, and other business applications.

The reorganization puts Doug Burgum, head of MBS, reporting to Jeff Raikes, the new President of the Business Division. Interestingly, Doug Burgum used to report to Raikes until last year, when Microsoft moved him to report directly to CEO Steve Ballmer. It's hard to view the latest move for Burgum as anything but a demotion.

Furthermore, one has to question Raikes' experience in developing and selling enterprise systems. Basically, he doesn't have any. Raikes is a long-time Microsoft executive, coming up through the ranks from the MS Office line of products. But developing and selling major business applications is not at all like selling shrink wrapped software, which is Raikes' frame of reference.

How MBS got here
Clearly, Microsoft needs to do something with its ERP and CRM business, which has not done well since Microsoft created it out of its acquisitions of Great Plains and Navision several years ago. Burgum was CEO of Great Plains when it was acquired by Microsoft, and he has stayed on to lead MBS since its inception.

When Microsoft got into enterprise systems, many observers predicted that Microsoft would quickly dominate the market, especially the small and mid-tier. I recall many comments to the effect of, "Microsoft dominates any market that it chooses to enter. Look what happened to Novell and Netscape." There were even predictions that Microsoft posed a major threat to SAP.

None of those predictions have even remotely come to pass. SAP is going gangbusters, while MBS has languished. The unit has not shown a profit since inception. Its vision for a unified product, Project Green, has faltered, with Microsoft eventually redefining it as an evolution of its existing offerings (i.e. Great Plains, Navision, Axapta, Solomon, and Microsoft CRM). Earlier this month it renamed those offerings as Microsoft Dynamics--nothing more than a branding exercise.

MBS's problems are not limited to its own organization. Its reseller channel is still inadequate. Great Plains has had a decent channel program for many years, as long as a prospect is interested primarily in its financial modules. But it's hard to find very many implementation consultants that can work with the full range of Great Plains functionality outside of accounting. The problem is even worse for Axapta, which is Microsoft's higher end ERP offering. With roots in Europe, Axapta still has few trained implementers in North America, and with few new sales here it is unlikely that the population will grow quickly.

Grumbling in the ranks
None of these problems are hidden from employees working within MBS, and complaints are starting to pop up on message boards and blogs. It's easy to write off such complaints as coming from disgruntled employees. But the tone of many of the comments that I've read don't sound like sour grapes.

For example, this one:

Some have opinioned that fixing the problems in MBS/Dynamics is as simple as reducing the offerings from 4 to 1. That won't work. These products are not like Office but more like Windows. Each of the 4 products has a large eco-system of ISVs building on the respective platforms. To simply pull the rug from the ISVs and the customers all at once will do nothing but disrupt existing customers and prospects even more. People buy ERP systems for the long run. The mindset of most buyers in this market is "if it ain't broke don't fix it". Once they have an ERP system in place that they have spent upwards of 1 million dollars implementing, they will NOT simply switch. And anything less than a clear direction for moving forward will only push prospects to competitors.

I would like to see MBS succeed. The systems that MBS acquired are good products. Small and mid-sized businesses need a strong provider that can offer cost-effective, easy to implement solutions backed up by a strong, stable network of VARs and resellers.

Fortunately, Microsoft has pretty deep products, and it's unlikely that it would give up on the enterprise systems market. But I don't see anything in the latest reorganization that points toward a turnaround for MBS.

Related posts
Microsoft to put enterprise applications on the auction block?
Is Microsoft dying?
Microsoft wants PeopleSoft customers but doesn't have much to offer
Microsoft eats more humble pie in enterprise software business
Microsoft: selling enterprise software is a "humbling experience"
First look at Microsoft's Axapta ERP system
MBS is setting the stage for big-time channel conflict among resellers

Using Economic Value Added (EVA) to justify IT investments

We've posted a new article posted on the Computer Economics website on the use of Economic Value Added (EVA) as a tool for justifying IT investments.

Investments in information technology often involve major investments in capital. In fact, in some industries, IT accounts for over half of all capital expenditures. Therefore, if information systems executives want new systems to be approved, they need to understand how executive management expects large capital expenditures to be justified.

Historically, many IS organizations have not used formal ROI calculations to justify technology investments. There are two main reasons for this. First, in the past, business executives often did not ask for formal justification. It was often good enough for a CIO to quote one or two case histories, or to make general statements about industry best practices. During the run-up to Y2K in the late 1990s and the dot-com boom that followed shortly thereafter, many IT projects were approved with little financial justification at all.

The second reason is that, for many IT investments, the exact correlation between an IT investment and its benefits is not always explicit....

In spite of the difficulties in quantifying the benefits of IT investments, senior executives are now asking IS leaders much tougher questions about how a proposed technology investment will improve key business and financial metrics.

In order to answer such questions, CIOs must be able to “think like the CEO.” To that end, this article is intended to familiarize the reader with the way in which many large companies think about business performance and to show how it can be used to justify IT investments.

Read the whole article on the Computer Economics website.

Ellison comments on acquisition plans

Some interesting news coming out of Oracle's OpenWorld conference this week in San Francisco. The San Jose Mercury News is reporting on comments made there by Larry Ellison to reporters after his keynote address.

• Most of Siebel's workforce will not be laid off. Ellison says that Siebel has already cut enough staff. This is consistent with Oracle's previous indications that Siebel's products will be the basis for CRM in Project Fusion. However, I wouldn't take that to mean there will be no layoffs as a result of the Siebel takeover. I wouldn't want to be an Oracle CRM developer right now.



• Oracle has no plans for any more big acquisitions, for at least the next year. Specifically, BEA is not on Oracle's radar screen, having fallen from the number two spot for application servers to number three.



• Ellison does not see less competition in the applications marketplace as a result of vendor consolidation. He pointed specifically to Microsoft and software on-demand vendors such as Salesforce.com and NetSuite as growing competitors.

Interestingly, Ellison noted that he is an investor in both NetSuite and Salesforce.com, but he would like to see his investment go to zero.

Related posts
Big eyes, big stomach: Oracle buying Siebel
Oracle faces threat to Siebel maintenance fees
Software vendor consolidation and buyer concerns
Oracle mulls support for competitor databases

Oracle mulls support for competitor databases

Prior to Oracle's acquisition binge, one key aspect of its strategy was to use sales of its business applications to pull through sales of its database and tools, which represent 80% of Oracle's revenue. Oracle spoke convincingly of the benefits of owning the entire technology stack from applications down to development tools and database management systems.

But now Oracle is facing a major conflict between its acquisition strategy and its technology stack strategy. In buying PeopleSoft and J.D. Edwards, Oracle acquired a large customer base running IBM's DB2 and Microsoft's SQL Server databases. Its acquisition of Siebel adds a significant number of customers running IBM and Microsoft's databases.

Charles Phillips, an Oracle tri-President, acknowledged the problem at Oracle's OpenWorld user conference this week. He indicated that Oracle will decide March of next year whether its Project Fusion--its product roadmap for combining its many acquisitions--will include support for rival databases.

Since the PeopleSoft acquisition, I've been wondering what Oracle would do with this problem. Oracle is really caught in a no-win situation. On the one hand, supporting a single database will alienate a significant percentage of customers that don't see any benefit from migrating from their current database. On the other hand, supporting multiple databases will leave money on the table and allow IBM and Microsoft to maintain market share of their database sales.

Phillips did announce that Oracle will offer "lifetime support" to customers that want to stay on their existing systems, such as PeopleSoft, JDE, or Siebel, and not move to Project Fusion. That should help with customer retention, but not for those customers that want more than bug fixes and help desk support. Lifetime support for what will eventually be legacy systems seems to me to be a weak compromise, not a solution.

As I've said in the past, Oracle is aggressive, but its not stupid. I'm eager to see how it will resolve this conflict.

CNET has more.

Related posts
Oracle, IBM, Microsoft battle for technology infrastructure of PeopleSoft customers
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Software vendor consolidation and buyer concerns

Oracle's aggressive acquisition strategy is just the latest evidence of a consolidation trend underway in the software industry. In the enterprise applications space, players such as SSA Global have also been primary consolidators.

One might think, therefore, that the software marketplace will ultimately consolidate around a handful of large vendors, which will enjoy economies of scale and offer long-term stability and one-stop shopping.

But M.R. Rangaswami of the Sand Hill Group argues that the enterprise software market is still open for other players.

The perception that customers want to buy everything from a single vendor--however warranted--is idealistic. Once a single software vendor manages everything, the customer is beholden to that vendor. Smart CIOs know this--and are hedging their bets. They are balancing the right amount of business they give one vendor with the need to keep that vendor honest and serving them well. This fact ensures that small and mid-sized best-of-breed vendors will always have a place in the enterprise technology lineup.

Rangaswami is touching a point that I feel strongly about: the balance of power between sellers and buyers of commercial software. (I'll let the reader guess where my sympathies lie).

Vendor power over the customer is especially troublesome in the enterprise software market, where customers are making a decision that will tie them to the vendor for many, many years. Once a customer implements an enterprise system, it is extremely difficult to undo that decision. Vendors know this, and some of them act like they own the customer, treating them like a captive audience. This explains, in part, the overall low level of customer satisfaction in the applications software industry. In most other industries, satisfaction levels like this would put a supplier out of business.

Yes, CIOs want fewer vendors to manage, and they want the stability and continuity of service that a larger vendor can offer. But they don't want to give up too much power in the relationship. As much as possible, they want to control their own destiny and preserve their freedom to choose.

In my opinion, the need to maintain freedom is driving several trends in the enterprise software industry that seemingly have nothing to do with one another. It is behind the popularity of Linux and open source. It is behind the trend toward open standards and service-oriented architecture, which should allow buyers to mix and match software components from different vendors. It is behind the rise of third-party maintenance organizations that provide an alternative to the vendor's own support services. One could even argue it is one factor behind software on-demand (or, software as a service), where the buyer does not need to make a huge up-front commitment to the vendor.

The vendor consolidation trend will no doubt continue, and it needs to continue. There are still too many weak performers. But that doesn't mean that the door is closed to new entrants, especially those that offer new and innovative solutions to real problems and commit themselves to customer service.

Related posts
Executives hesitate to recommend their ERP vendors
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Oracle faces threat to Siebel maintenance fees

The Oracle/Siebel deal hasn't even closed yet, and a third party is already eyeing the lucrative Siebel maintenance revenue stream.

The company, Rimini Street, is so new that the its website hasn't even been spotted yet by Google. But it was the subject of a Wall Street Journal article this morning, which will no doubt give it a huge publicity boost.

Third party support organizations are not unusual. But this one is interesting because it is headed by Seth Ravin, who was already a thorn in Oracle's side when he was running TomorrowNow, a third-party PeopleSoft support organization. Ravin left TomorrowNow in March when it was purchased by SAP, prompting a veiled threat from Larry Ellison. Prior to starting TomorrowNow, Ravin was an executive at PeopleSoft.

It's a pretty good bet that SAP's buyout terms included a non-compete clause for Ravin, to prohibit him from setting up another PeopleSoft support organization. But that wouldn't stop him from taking SAP's money and setting up a third-party maintenance group for Siebel customers. Who knows, maybe he'll build up Rimini Street to the point where he can do another deal with SAP.

Ravin says he will offer support at 50% of the cost of Siebel's current fees, which is similar to what he did for PeopleSoft. Finding engineers to provide Siebel customer support shouldn't be difficult. Oracle is expected to quickly cut staff as part of the deal to integrate Siebel. That should put a number of skilled Siebel resources on the street. In addition, there may be a certain number of Siebel engineers that would prefer to work for someone like Rimini Street than become part of Oracle.

In terms of absolute dollars, it's doubtful that Ravin will take a large amount of business away from Oracle. To illustrate, TomorrowNow only reached a total of 30 people before Ravine sold out to SAP. Furthermore, most customers are not going to want to give up the rights to Oracle's product roadmap, code-named Fusion. Rimini Street will appeal primarily to customers that have heavily modified Siebel's program code and don't particularly need or want access to future releases.

But the mere availability of maintenance support from Ramini Street will be a check on Oracle's ability to dictate terms to Siebel customers. Maintenance fees accounted for $469M in revenue to Siebel last year, over one third of its revenue. With competition for new license sales extremely competitive these days, software vendors increasingly count on maintenance fees to stay profitable. In the case of Siebel, which has a particularly tough time on the revenue front, those maintenance fees certainly count for a lot in Oracle's arithmetic.

My prediction? Oracle will downplay the existence of Rimini Street for now. But if Ravin's new firm starts to get traction, it wouldn't surprise me if Oracle threatens legal action.

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Big eyes, big stomach: Oracle buying Siebel

Oracle and Siebel announced the deal this morning, ending months of speculation on the future of Siebel and whether it was next on Oracle's target list. Oracle is paying a net of $3.61B (excluding Siebel's cash on hand), making the deal about a third of what Oracle paid for PeopleSoft last year.

In a conference call this morning, Oracle CEO Larry Ellison indicated that assimilation of Siebel should prove much less daunting than the takeover of PeopleSoft. One reason is that Siebel is welcoming the deal, another is that PeopleSoft had just acquired J.D. Edwards, making the integration more complex. It doesn't hurt either, that Siebel's technology platform is closer to Oracle's.

Interestingly, during the conference call, Ellison gave quite a bit of weight to Siebel's on-demand offering as justification for the deal, even though it represents a fraction of Siebel's business today. He even said that he expects to see all of Siebel's functionality to ultimately be included in the on-demand offerings.

As I've indicated in the past, Oracle's own on-demand offerings are simply a hosted deployment of its licensed software. Each customer still requires its own license and its own installation in Oracle's data center. Siebel's on-demand offering, however, is the so-called "multi-tenant model," which allows a single instance of the system to host multiple customers--a much more cost-effective architecture. Ellison's embrace of Siebel's on-demand offering most likely indicates that Oracle realizes its need to move to the multi-tenant model for its hosted offerings.

The Oracle/Siebel deal ups the ante once again in the battle between Oracle and SAP. The combination of Oracle and Siebel vaults Oracle ahead of SAP in terms of worldwide CRM position and closer to SAP in terms of total application revenue.

"In a single step, Oracle becomes the number one CRM applications company in the world," said CEO Larry Ellison. "Siebel's 4,000 applications customers and 3,400,000 CRM users strengthen our number one position in applications in North America and move us closer to the number one position in applications globally."

The announcement is on the Oracle website. Computerworld has more.

Update, 10:30 a.m.: Several Wall Street analysts, such as Prudential's Brent Thill, are questioning the deal, based on "Siebel's deteriorating fundamentals." I disagree. As I've pointed out in the past, Siebel's main problem is that it is stuck in the middle. At the high end, it faces competition from Oracle and SAP, which offer CRM functionality integrated with their ERP suites. At the low end, it faces competition from on-demand vendors, such as Salesforce.com and Rightnow, which offer easy-to-implement CRM functionality at a much lower price point. Siebel's own on-demand offering is as good a solution, but it only represents a fraction of Siebel's revenue. So the Oracle deal, in my opinion, represents the best approach for addressing Siebel's "deteriorating fundamentals," by pairing Siebel's best-of-breed CRM functionality with one of the two leading enterprise suite vendors.

Update, 12:05 p.m.: ComputerWorld’s editor-in-chief, Don Tennant, is quite negative on the deal, questioning whether the deal is really customer-driven, as Oracle's tri-President Charles Phillips claims it is. Tennant writes,

Certainly, Oracle will trot out reference customers who will toe the company line (typically reference customers get some sort of break from vendors when they do that). But I wonder how pervasive that sentiment really is. In the course of our reporting this week we may find that it is, indeed, what those joint customers are saying. But I'd be very surprised.

Stay tuned.

Update, 12:50 p.m.: Well, here's some bad news for current Oracle customers. The Wall Street Journal is reporting that, after the deal closes, Oracle will promote Siebel's CRM system rather than the current CRM offerings of Oracle or PeopleSoft. The language on the Oracle "Welcome Siebel" page says, "we plan to make the features of [Siebel's CRM] products the centerpiece of our Project Fusion CRM products." I interpret that to mean that it's the Oracle and PeopleSoft CRM users that will be the ones facing the greater migration as Oracle executes its Fusion strategy going forward.

Has anyone at Oracle thought about what this means for Oracle CRM deals currently in the pipeline? Not good news for Oracle sales in the short run.

Update 2:50 p.m.: Here's another problem for Oracle: to get Siebel where it wants in terms of profitability, it's going to have to cut very deep. Quoted in the WSJ, Needham analyst Richard Davis says,

Oracle stated on this morning's conference call that it plans to run Siebel at a 40% operating margin. We estimate that Oracle will have to cut 100% of Siebel's G&A [general and administrative] and 80% of Siebel's sales force to get there.

If Davis's arithmetic is right, I wouldn't want to be a member of the Oracle CRM sales staff right now, because if Oracle plans to focus its CRM offerings around Siebel's offerings its more likely to keep the Siebel guys and take it out of the Oracle and PeopleSoft presales staff.

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