Major ERP vendors battle Salesforce.com for SaaS mindshare

eWeek has a good overview of the ongoing battle between the major traditional vendors of enterprise applications and Salesforce.com for the hearts and minds of enterprise system buyers.

Salesforce.com, of course, has put all its eggs in the software-as-a-service (SaaS) basket, going so far as to proclaim "the end of software." While Oracle defends the value of its on-premise offerings, it continues to build up its on-demand offerings, which range from simple hosting of its E-Business Suite to the multi-tenant CRM on-demand offering that it inherited from Siebel.

"You'll see us ramp up quite a bit—more advertising, more marketing, more sales," [Juergen Rottler, Oracle's executive vice president of Oracle On Demand and Oracle Support Services]. said. "We've incorporated Siebel CRM OnDemand and [developed] three new releases. We've rearchitected our entire underlying architecture to scale the business a lot faster. We've made core investments … that require a pretty heavy investment in R&D and services that a lot of niche players can't really make."

This leads, of course, to the argument over who has more customers and users:

On the heels of Salesforce.com's announcement of its $500,000 revenue mark in November, Oracle released a statement that it has surpassed a milestone of more than 1.7 million on-demand users, representing more than 2,200 customers buying Oracle's subscription-based solutions, managed applications or software managed services (compared with Salesforce.com's 27,100 customers and 556,000 users).

Another battleground is over ease of integration. Major vendors such as Oracle and SAP contend that on-demand offerings do not easily integrate with on-premise applications, such as ERP. It's still a strong argument in favor of on-premise software, but Salesforce.com is firing back with its ApexConnect offering, a set of tools that allow interfaces to be built with third-party applications, including pre-built interfaces for Oracle and SAP.

As with many trends in information technology, there is no one right answer to the on-demand vs. on-premise argument. Organizations will need to evaluate their needs along with the advantages and drawbacks of each approach. My own view is that the economics of the on-demand model are too strong for it not to succeed. It may not be suitable for many applications within many organizations today, but the barriers -- such as the integration challenge -- are slowly breaking down. Although on-demand applications are unlikely to completely replace on-premise offerings, over time they will increase their share of the enterprise applications market. The only question is how much.

Related posts
Salesforce.com's AppExchange proving its viability for developers
Computer Economics: The Business Case for Software as a Service
SAP and Salesforce.com: opposing application platforms

Microsoft threatens Linux users

It didn't take long for Microsoft to make clear its intention in forming an alliance with Novell to support Linux earlier this month: legal intimidation of Linux users.

Microsoft CEO Steve Ballmer said yesterday that Microsoft signed the deal with Novell because, in Microsoft's opinion, Linux infringes on Microsoft's intellectual property rights and Microsoft wanted to "get the appropriate economic return for our shareholders from our innovation."

According to Computerworld,

A key element of the agreement now appears to be Novell's $40 million payment to Microsoft in exchange for the latter company's pledge not to sue SUSE Linux users over possible patent violations. Also protected are individuals and noncommercial open-source developers who create code and contribute to the SUSE Linux distribution, as well as developers who are paid to create code that goes into the distribution.

It also quotes Ballmer, threatening,

"Novell pays us some money for the right to tell customers that anybody who uses SUSE Linux is appropriately covered," Ballmer said. This "is important to us, because [otherwise] we believe every Linux customer basically has an undisclosed balance-sheet liability."

Continuing the sabre-rattling,

"Only customers that use SUSE have paid properly for intellectual property from Microsoft," he said. "We are willing to do a deal with Red Hat and other Linux distributors." The deal with SUSE Linux "is not exclusive," Ballmer added.

With SCO's lawsuit going nowhere against IBM and other Linux providers, Microsoft apparently thinks it needs to do more to discourage organizations from adopting Linux. Or, as an alternative, only deal with Microsoft-approved distributions.

Ballmer, of course, provided no substantiation that Linux infringes on Microsoft patents. SCO has tried and has so far failed to prove similar allegations relative to Linux infringement on Unix IP rights.

Our research shows that in corporate data centers, Linux's share of workload processing is tiny compared to Microsoft's. Ballmer's disclosure shows, however, that Microsoft considers Linux a major threat. In forming its alliance with Novell, Microsoft is on the one hand embracing Linux, and on the other hand attempting to instill fear in corporate decision makers concerning Linux.

Update, Nov. 18: Jason Matusow, Microsoft's Director of Corporate Standards, posted to his blog asking for feedback from the open source community on the Microsoft/Novell patent covenant "not to sue." Read Matusow's post with all the comments to understand that the majority of open source developers do not trust Microsoft's intentions here.

Update, Nov. 18: The Seattle Intelligencer has a full transcript of Ballmer's original remarks. He says much more than the original Computerworld article quoted. And there are a ton of good comments attached to the article as well.

Update, Nov. 21: Now Novell is publicly distancing itself from Ballmer's remarks. In an open letter published on Novell's website, Novell's CEO Ron Hovsepian says,

We disagree with the recent statements made by Microsoft on the topic of Linux and patents. Importantly, our agreement with Microsoft is in no way an acknowledgment that Linux infringes upon any Microsoft intellectual property. When we entered the patent cooperation agreement with Microsoft, Novell did not agree or admit that Linux or any other Novell offering violates Microsoft patents.

In related news, Dave Kaefer, Microsoft's GM for IP licensing, says that Microsoft will not identify what Microsoft patents are being misappropriated in Linux. Quoted in Computerworld, Kaefer says,

"Patents are hard to understand. You have to have a certain level of expertise to understand the scope. And there are legitimate questions about patent quality," he said. "The reality is that you'd have to look at thousands of patents and thousands of products. To focus on every single one would be prohibitive."

Busted.

Update, Nov. 29. Via Computerworld, Novell CEO Ron Hovsepian gives a behind-the-scenes look at what triggered the original deal with Microsoft. Most interesting are the things that the two parties discussed but did not agree to, such as allowing Linux to run as a guest OS under Windows but not Windows under Linux, and allowing Microsoft Office and Visual Studios to run under Linux.

Related posts
Windows Rules the Data Center
Strange bedfellows: Microsoft and Novell in Linux deal

Dave Duffield debuts new on-demand ERP

It's been almost two years since David Duffield resigned from PeopleSoft, the firm he founded, in the middle of its hostile takeover by Oracle. Since that time, in addition to building a home bigger than the White House, Duffield has been working with a small startup, Workday, more or less in stealth mode. The buzz was that it had something to do with HR, and something to do with on-demand and open source thrown in the mix.

Well, the firm has finally announced its product line: Workday Enterprise Business Services, which it calls an on-demand ERP solution, although its roadmap falls far short of comprehensive ERP functionality. The first offering is Workday Human Capital Management, which is now in general availability, after successful implementation at Biosite, a medical device firm, and Kana Software, a software development firm. Future offerings will include Financial Management, Resource Management and Revenue Management, scheduled for release beginning in 2007.

Workday's press release points out the technical architecture of its on-demand services, which includes a multi-tenant architecture, built-in auditing to comply with increasing government regulations, and web services integration. According to Computerworld, the product makes heavy use of Asynchronous JavaScript and XML (AJAX), a web development approach for creating interactive web applications.

There are competitors to Workday, such as NetSuite, that come closer to offering complete ERP functionality. But with Duffield's involvement, the 65-employee Workday is getting a lot more publicity right now. Major technology product and service providers, such as Accenture and ADP, have already formed partnerships with Workday, and Microsoft is working with Workday to provide integration with Microsoft's Outlook, SharePoint Server and Exchange Server products.

So, will Workday be a serious competitor in the enterprise systems marketplace? If it is, Duffield says it will be because of Oracle's hostile takeover of PeopleSoft. According to Computerworld,

Toward the end of the 18-month hostile takeover bid that Oracle waged to acquire PeopleSoft, Duffield came out of retirement to rejoin PeopleSoft. "We worked like crazy for several months to keep PeopleSoft from the clutches of Oracle," he said. "When Oracle prevailed, it inadvertently opened a door for us." Duffield and former PeopleSoft colleague Aneel Bhusri founded Workday in March 2005.

Duffield gets a lot of sympathetic press because of the people-friendly culture he built at PeopleSoft and his charitable activities, such as his fund to help unemployed PeopleSoft workers after the Oracle takeover and his pet rescue foundation.

Everyone wants to see Dave succeed. Whether that translates into market share for Workday remains to be seen.

Computerworld has more on Workday's debut.

Related posts
Dave Duffield's next thing: bigger than the White House
Duffield comes to aid of former PeopleSoft employees
The ax begins to fall at PeopleSoft

Strange bedfellows: Microsoft and Novell in Linux deal

It continues to amaze me how technology vendors can be competitors and partners at the same time. The latest example is Microsoft and Novell, which have announced a deal to promote interoperation of Microsoft Windows and Linux and -- the strange part -- promote each other's products.

According to CNET, the deal has many components--let me try to itemize them:

1. The parties will work to make Windows and Linux interoperate more effectively.
2. Microsoft will promote Novell's SuSE Linux and Novell will promote Windows.
   
3. Microsoft and Novell will provide each other's customers with patent coverage for each other's products, and Microsoft will not take patent enforcement action against individual non-commercial Linux developers.
4. Microsoft and Novell will create a joint research facility to develop new products for virtualization, web services for server management, and MS Office/OpenOffice compatibility.
5. Microsoft will optimize its virtualization technology for Novell's SuSE Linux, and Novell will do the same with its virtualization technology for Windows.
   
6. Microsoft will recommend SuSE Linux in cases where Microsoft customers want to run Linux and will promote Novell's maintenance and support offerings.
   
7. Microsoft and Novell will share help desk resources for each other's products.

It's not hard to imagine why Novell might want this deal, but why would Microsoft want to do anything to make it easier for data centers to run Linux? Based on our most recent technology trends survey at Computer Economics, we estimate that Linux averages just 5-7% of the processing workload in North American data centers. Microsoft, on the other hand, averages over 50% of the workload.

Once again, Slashdot has interesting insights (if you can get past the one-liners such as "Hell called, they want their ice back"). Here are some of the more plausible theories by Slashdot contributors on why Microsoft did this deal:

• Open source applications, such as SugarCRM, are gaining ground, and they tend to run better on Linux than Windows. Microsoft wants to have an opportunity to get those apps running on Windows.
  
  
• Microsoft is concerned about anti-trust actions and wants to appear more open to competing operating systems. The recent trouble with the EU over Vista is a case in point.
  
  
• Microsoft needs a low-cost OS offering for overseas markets (where it can't charge its usual price for Windows), so that it can gain ground in those markets and sell its applications.
  
  
• Microsoft wants access to and influence over Mono, Novell's project to develop an open-source .NET-compliant set of tools. (.NET is Microsoft's framework for web services.) Promotion of Mono is promotion of Microsoft's .NET framework, which is a platform for Microsoft's applications.
  
  
• Microsoft is trying to force consolidation of the Linux distribution market so that it has one larger competitor to deal with instead of a fragmented, decentralized enemy.
  

But the most interesting insight is this one, where the writer ties the deal to Microsoft's need to be able to control digital rights management (DRM) as it plans to do in the next generation of Windows:

Remember the recent MSoft/Xen collaboration? MS is making a version of Windows that can serve as the hypervisor that other OS's run on top of. Microsoft's interest here is to make sure Windows is at the bottom layer so they can enforce DRM, "trusted computing" and ultimate control of the box, and collect fees when everyone is using virtual Linux etc. What they want to prevent is a future where free software is at the bottom of the stack and virtual Windows instances are brought up when needed.

All these theories are plausible, and Microsoft is no doubt pursuing multiple objectives in this deal. But ultimately, I think it's all about control. For example, both Microsoft and Linux have virtualization technologies--but which will be the host and which will be the guest? Microsoft realizes that although Linux's share in the data center is small, it is growing. If Linux is not going away, then it's better for Microsoft to be the host than the guest. And where it must be the guest, Microsoft wants to ensure that it's a business partner (Novell) that is the host, not someone else.

Furthermore, Microsoft recognizes that Linux is threatening to make the bottom layer of the software stack a commodity, just as Intel has made the hardware layer a commodity. Although much of Microsoft's profitability in the past has come from Windows, Microsoft is positioning itself to derive even more value from its Office products and other applications, especially in overseas markets where Linux adoption is taking place even faster than in the U.S.

As I mentioned earlier, Microsoft already averages over half of the workload processing in data centers. Microsoft really doesn't need to increase that share, but it does need to maintain it. By interoperating with Linux it ensures that it maintains its position in the data center.

Update: The ink is barely dry on the Novell deal and now Microsoft CEO Steve Ballmer is suggesting that other Linux distributors form similar patent deals with Microsoft. Strange. Why all the talk suddenly about patent infringement? Is this a threat or an attempt to spread fear, uncertainty, and doubt? eWeek has the story.

Steven J. Vaughan-Nichols, writing for Linux Watch has good insights:

I used to think that Microsoft wouldn't dare use its patents against the Linux companies. My logic was that if Microsoft started really throwing its patent weight around, IBM or Novell could retaliate in kind. Thus, if any one company tried to smash Linux with an overly aggressive patent enforcement, they would be blasted by the pro-Linux companies with large patent portfolios. It was the old geopolitical idea of MAD (Mutually Assured Destruction) . brought into the PC age.

Well, now Novell and Microsoft have a non-aggression treaty. Yes, the Novell/Microsoft deal also frees individual, non-profit open-source developers, and programmers who work on openSUSE, from any Microsoft patent danger. But what about programmers who work on, say, Red Hat Linux?

I hope I'm wrong. I hope that in the next few weeks, I'm not writing about Microsoft suing Red Hat. That Linux company has had more than enough trouble recently with Oracle. Or, maybe it won't be Red Hat. Maybe Ubuntu would be the target.

Why do I fear Microsoft might try this? I fear it because Microsoft's proxy war on Linux via SCO is finally coming to its endgame. And no one, probably not even in SCO's own offices, believes that SCO will win.

So, what can Microsoft do? It can bend, ever so slowly, to the simple fact that Linux is here to stay -- but at the same time, it can free itself to attack individual Linux companies in the court room.

Cynical? Yes. But after covering Microsoft for almost two-decades, I trust Microsoft the least when it looks like they're co-operating with others the most.

Related posts
Oracle plays hardball with Linux support
Microsoft to support Linux, virtually
Linux vs. Windows survey results
Microsoft-sponsored study on Win2K vs Linux is NOT all good news for Microsoft