Tuesday, November 22, 2005

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.
Related posts
i2 fires 300, struggles to refocus
i2 founder gives up top spot to new CEO
Click Commerce buys Xelus, continuing acquisition strategy

Thursday, November 17, 2005

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.
Doug Burgum
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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Wednesday, November 16, 2005

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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U.S. Department of Justice visits the Spectator
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Tuesday, November 15, 2005

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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Monday, November 14, 2005

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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Key advantage of open source is NOT cost savings

Wednesday, November 09, 2005

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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Monday, November 07, 2005

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.

Related posts
Intentia, MAPICS, SSA, and Geac--what's the deal?
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Agilisys acquires Infor

Sunday, November 06, 2005

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!

Friday, November 04, 2005

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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Thursday, November 03, 2005

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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