Made2Manage acquiring ETO vendor Encompix

Made2Manage Systems, a Tier III ERP vendor, is acquiring Encompix, an even smaller player focused on engineer-to-order manufacturers. The deal shows once again how difficult it is for small enterprise system vendors to remain independent these days.

I've had the opportunity to evaluate Encompix a couple of times in the past. It is not a big name in the ERP space, but it has carved out a nice niche for itself among engineer-to-order manufacturers. Most ERP systems require inventory items to be defined before a purchase order, sales order, or manufacturing order can be created. For companies that build products based on customer specifications, such an approach simply does not work. The sale may be made, but material must be purchased, and some production activities must take place before the product design has been completed. The approach that's really needed is to treat the customer order as a project, and to tie all design and production activities to activities in the project plan. There also needs to be a tight integration between engineering functionality (e.g. product data management) and the production system.

There are only a few ERP systems that do this well. Baan (now owned by SSA and renamed ERP LN) is one. Glovia is another. Oracle can do it, but its functionality in this area is relatively new and evolving. Encompix is another, and one of the smallest. As I understand it, it originated in the early 1990s as a joint venture of several ETO manufacturers in the Midwest that were unhappy with the lack of attention being given to their requirements.

Made2Manage has been turning out to be an aggregator of small niche vendors over the past two years. What all of its acquisitions have in common is that they serve very narrow industry segments. The acquisitions include DTR Software (ERP for plastics manufacturers), ADS (a former M2M reseller and developer of M2M extensions), Cimnet (ERP for PCB manufacturers), and AXIS (ERP for manufacturers of "rolled products," such as cable and wire).

I like the narrow industry focus of M2M's strategy, but I'm not sure how easily it will make money doing it. Some of these acquisitions are on entirely different technology platforms: M2M's original system is Microsoft .NET-based, while Encompix and AXIS are Progress-based. This limits the economies of scale that can be achieved in product development. Operating each of these products as separate business units also limits sharing of administration, management, and sales resources.

Update, Apr. 13: For an extended discussion and clarification on the strategy of M2M, see my post on April 13, "Making money in software with a niche-industry strategy."

A press release on the Encompix deal is on the M2M website. Managing Automation has an article discussing M2M's previous acquisition of AXIS, with more details on who is putting the money behind M2M's acquisition program.

Microsoft pushes out the goal line for business apps convergence

Microsoft Dynamics (formerly Microsoft Business Solutions, or MBS) is holding its annual Convergence conference this week in Dallas, and it is now shooting for a 2009 date to introduce the successor product to its five enterprise applications products.

Four of the existing Dynamics products--formerly known as Great Plains, Axapta, Navision, Solomon--came through acquisitions Microsoft made over the past five years. The fifth, Microsoft CRM, was built from scratch by Microsoft.

Microsoft's convergence plan, once known as "Project Green," has suffered a series of setbacks and redefinitions over the past two years. The most recent definition was that the converged product would be introduced in waves, the first wave being the introduction of "role-based user interfaces" to the existing products, which Microsoft is now introducing incrementally.

But the goal line for migration to a single code base is moving farther away. According to an article in Managing Automation,

Specifically, [MBS] officials said this week, they no longer feel it is feasible to build a converged product line on top of a single, common data model.

It may be necessary, according to Mike Ehrenberg, architect for Microsoft's MBS products, for the software giant to use different data models and different tools for different implementations of the converged enterprise application product to suit customers at different-sized companies with different levels of experience.

Five "differents"--sounds like different products to me, which is what Microsoft has today--not a converged product.

The article continues.

Also, Ehrenberg said, prior to the release of a converged enterprise application product, Microsoft has decided not to spend time and resources on tightly integrating its Microsoft CRM product with the current Dynamics AX (Axapta) and Dynamics NV (Navision) ERP suites. Those products, Ehrenberg noted during a general session, already have built-in CRM functionality. Forcing current customers to switch, he said, "would be seen as a take-away."

Microsoft is still determined to get to a single, converged ERP product operating on a converged code base. "But," Ehrenberg said, "we have a significant amount of work to do."

One associate of mine, commenting in an email regarding Microsoft's announcement, had this to say:

1. Microsoft finally realized and admitted they have a problem with not understanding how enterprise applications (and data models) are designed, purchased and used. It is much different then shrink wrapped apps.
   
   
2. Microsoft has little experience in major upgrades to enterprise apps, so they have no migration experience. Anyone buying Dynamics now will be faced with a traumatic and complete new implementation ahead, in about 3-5 years.
   
   
3. Microsoft is not focusing on improving the functionality of the current product line. They are just doing the minimum to look like they care.
   
   
4. To shift focus from the above three points, Microsoft is aiming the marketing and product plan at “productivity” instead of “functionality,” pushing “mashed up“ applications that have lots of stuff (email, video, etc.) integrated. Nice marketing plan for the Tier 1’s but don’t think it will sell to the majority of the SMB’s. I'm waiting to see the first RFP that requests a RSS feed into accounting or manufacturing.

To be fair, I think my associate's assessment is a bit harsh. The four products that Microsoft acquired were good systems in the past, and they continue to be good choices backed by the deep pockets of Microsoft. They aren't going away, in contrast to some other small vendors whose viability is questionable.

Nevertheless, organizations that are considering these systems should be buying them based on the functionality that they offer today and not pinning hopes on some set of features or functions planned for the future. As seen this week in Dallas, the goal line keeps moving out farther and farther.

Related posts
Microsoft: Project Green to appear in waves
Microsoft fuzzes up the definition of Project Green
Microsoft to put enterprise applications on the auction block?
Is Microsoft dying?
Microsoft eats more humble pie in enterprise software business
Microsoft slowing down Project Green
Microsoft: selling enterprise software is a "humbling experience"

Software vendor growth not in software

The ever-provocative Josh Greenbaum takes a cynical view of enterprise software vendors' push towards software on-demand (software-as-a-service) and service-oriented architectures (SOA).

Josh points to a Merrill-Lynch study that puts the market for enterprise applications at only $21-23 billion a year, while the market for consulting and services is "a whopping $550 billion." He argues that with IT spending growing weakly, enterprise software vendors are looking to expand beyond software. This, he explains, is what's really behind vendors' interest in software-as-a-service and SOA.

In an article in Managing Automation, he writes,

With overall growth shrinking, applications companies like SAP and Oracle have to fund their double-digit growth plans by grabbing IT dollars from the consultants. From the applications vendors' perspective, companies are wasting a tremendous amount of IT budget on custom integration and applications development services, money that could be more effectively spent on packaged applications that deliver out-of-the-box innovation without requiring a hefty service fee.

The services companies are taking one of two possible tacks. Some are postulating that the perpetual license model for applications software, and the requirement to staff an IT department with systems and applications administrators, is vulnerable to a potentially more cost-effective model such as on-demand and software as a service. Others -- IBM Global Services in particular -- are saying that innovation can no longer come from a packaged software solution, and that custom consulting is the way to go.

Our research at Computer Economics confirms the slow growth in IT spending. We find that the median IT budget in the U.S. and Canada has only risen at a 1.5% average annual percentage rate over the past three years. Furthermore, corporate revenues are rising faster than IT spending, meaning that on a percentage-of-revenue basis, IT budgets are actually shrinking, slightly, at least over the past three years (although the 10 year trend is up).

Furthermore, application software currently consumes less than 10% of the typical IT budget, according to our 2005/2006 IT Spending Study. Therefore, as Josh points out, if software vendors want to grow, they either have to buy other vendors or do something besides sell software.

To be sure, software-as-a-service and SOA are hot topics--among software vendors. But preliminary results from our next year's survey, currently in progress, show that nearly half of IT organizations report "no activity" in either of these hot topics--they're not even researching them.

Software-as-a-service and SOA may still be the path to growth for software vendors. But the slow uptake of these technologies by end-user organizations means that significant growth is still at least several years away.

Software industry increases bounty for license non-compliance tips

Get ready for more calls from the software police. The Business Software Alliance (BSA) is increasing its maximum finders-fee for software piracy leads to $200,000.

The BSA is a software industry association (i.e. a special interest group) whose mission is to promote the business of commercial software vendors. One key objective is to cut down on software piracy, which it accomplishes by following up on tips about companies that are running non-licensed commercial software. According to its website, BSA members include Adobe, Apple, Autodesk, Borland, Internet Security Systems, Microsoft, McAfee, SolidWorks, Sybase, Symantec, and VERITAS Software.

In an interview with Computerworld, attorney Robert Scott said that BSA is upping the finders-fee in order to drive more fines against software users, which it keeps for itself.

I think the basic problem is that in order to generate revenue for its own operations, BSA is driving more enforcement money.... BSA keeps all of the money it generates from enforcement. None of the money goes back to the members.

Few would disagree that software piracy is wrong. But according to Scott, the increased bounty money will probably result in a greater number of false reports to BSA.

Basic economics suggest that when you put these types of incentives in place, a rise in legitimate and illegitimate leads will increase. For the salaries that these IT folks make, $200,000 is a lot of money.

That’s why I think there’s a huge potential for abuse. My clients tell me that the very people they thought were handling compliance for them were the same people they’re sure turned them in.

Scott predicts that the Software & Information Industry Association (SIIA), the other major software special-interest group, will probably follow BSA's lead and increase its own finders-fee.

So, how should IT organizations respond to the increased risk of being caught in a BSA enforcement action? A periodic desktop audit program for software license compliance is now more important than ever.

Unfortunately, according to our research at Computer Economics, 67% of companies do not conduct such periodic software audits. Many companies, therefore, are probably over-buying software licenses to ensure that they are compliant.

The business case for a comprehensive software asset-management program just got better.

SAP's Apotheker trying to out-Ellison Ellison

What is it about software executives that encourages verbal abuse of competitors? Oracle's CEO, Larry Ellison, has always been known for his outspokedness. Not far behind are Salesforce.com's Marc Benioff, and former PeopleSoft CEO Craig Conway. Scott McNealy at Sun is also be a contender. The list goes on.

Lately SAP's COO, Leo Apotheker has entered the ring. At the Reuters Global Technology, Media and Telecoms Summit, he was asked whether SAP might try to acquire Salesforce.com.

According to Line56,

Apotheker specifically denied any rumor that SAP might acquire Salesforce.com. "If the question is are we going to buy someone that begins with 'S' and has a big mouth...the answer is no," was his comment.

It wasn't clear whether, in referring to Salesforce.com's "big mouth," Apotheker was referring to the CRM company's ongoing "No Software" marketing push or, more personally, to outspoken CEO Marc Benioff, who has never been shy about criticizing the licensed model that is SAP's bread and butter.

Apotheker also dismissed Oracle's propects for overtaking SAP in the enterprise software market.

When asked to weigh the competitive prospects against Oracle, Apotheker said that "I believe China has more potent competitive potential than Oracle." Despite the admitted fact that there is currently no e-business software company of truly global scope to come from China, Apotheker gave that country more of a chance to incubate and field such a company ("in five years") than he did to Oracle.

Read more at Line56.

Related posts
Brawl continues between Oracle and SAP

Biometric ID systems face hurdles

Ziff-Davis has a long article on the difficulties that biometric identification systems are having, especially in the retail industry. The article starts with a particularly interesting anecodote on the problems that Piggly Wiggly has encountered with getting grocery customers to sign up for its Pay-by-Touch fingerprint checkout system.

Bolt [an IT executive at Piggy Wiggly] said she didn't appreciate how emotionally intense some of the opposition was until she visited a store and saw a 70-year-old woman literally throw a Bible at an employee trying to enroll people in the program.

"She told him that God was going to rain hellfire on him and that he was promoting the devil's work," Bolt said, adding that she took that to mean the customer was not interested in enrolling....

The 70-year-old customer was reacting to the concern of some in the religious community that RFID (radio-frequency identification) and biometric programs are similar to a Bible story known as "the mark of the beast." The story from Revelation speaks of limits to sales or purchases "save he that had the mark, or the name of the beast, or the number of his name."

Apart from religious objections, biometrics systems are not the panacea that some technophiles believe they are.

Read the whole article to get a view of some of the more significant problems with biometrics.

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Drawbacks of biometrics
The real problem with password security