ERP support staffing survey: still time to respond

At Computer Economics, we've received over 100 responses so far to our survey on ERP support staffing. If you would like to participate and receive a free copy of the survey results, take the 10 minute survey at the link below.

Take the survey now.

We will use the results to benchmark typical staffing ratios for ongoing support of ERP systems, based on number of users, extent of modifications, and other factors.

Consultants and vendors should refer this survey to their clients, instead of responding directly.

Oracle's sales surge again

Oracle's Q2 number are in, and once again, it is reporting big gains. Overall, revenue jumped 28%, exceeding its previous forecast of 18-21%. But the really big news is in its new license revenue, which rose a whopping 38%, nearly double Oracle's forecast of 15-25%.

The new licenses number includes all product lines: database, middleware, and application. Looking at the applications licenses only, Oracle enjoyed a huge 63% increase in revenue over the same quarter last year. Although the number represents the effect of Oracle's new acquisitions, such as Hyperion and Agile, by any measure it is an impressive gain.

More information is in Oracle's press release on the quarter.

Ben Worthen, blogging for the Wall Street Journal, however, finds a cloud in Oracle's silver lining:

Oracle’s growth over the last several quarters has largely been due to a buying binge that’s seen the tech giant snap up more than 30 software companies over the last three years. While the acquisitions have been great for Oracle’s shareholders, the benefits have been harder to come by for the businesses that were customers of the acquired companies. Tech execs at these companies – who are now Oracle customers – say working with Oracle has been a mixed bag. Several have told us that they would jump ship if they thought there was an alternative. One of the reasons is that Oracle often charges them more for ongoing product support than the original seller did.

With as many acquisitions as Oracle has done, and as many customers as it now has, it's not hard to find some that are unhappy. Ben's comment regarding the cost of ongoing support is right though, and it is in large measure what's driving the interest in third-party support providers. That alternative is available for some, but certainly not all, of the products that Oracle has acquired.

Still, the fact that Oracle is able to increase sales of the acquired companies shows that it must be making a good case in new deals for those vendors. Recent deals that we have been privy to indicate that Oracle's sales force is executing very well. If Oracle, and its partners, can also follow through in implementation and ongoing support--without getting greedy--Oracle will be hard to beat. SAP's slowing growth in its most recent quarter in the U.S. shows that it may already be losing momentum in its battle with Oracle.

Oracle's strong results in its Q2 also spell relief, at least temporarily, for IT spending generally. The fear has been that turmoil in the credit markets, the resulting slump in the financial sector, and weakness in consumer spending could lead to reduced levels of business investment. Our own forecast at Computer Economics for 2008 IT spending is one of anemic growth.

Although it is a backwards look, Oracle's results show that at least over the last three months, a good number of organizations were continuing to invest in new technology. So it would appear that a spending pull back has not yet taken hold. If IT spending growth does soften, Oracle will have a much more difficult time continuing the surge in sales it is enjoying today.

Update, Dec. 20: Worthen doesn't think Oracle's results spell good news for IT spending next year. Rather, that Oracle (and Accenture) are exceptions to a slowdown in IT spending growth.

Meanwhile, Dennis Howlett agrees that Oracle's increasingly fat margins in its maintenance and support business are unsustainable:

However, despite this one-two for Ellison, we should not be all aglow. Margins at Oracle climbed to 41.3%, up from 38.8% in the same quarter of last year. Part of that is being driven by its high value vertical market applications but part also comes from maintenance charges for years’ old product. Sooner or later customers are going to wake up and declare - enough is enough. I suspect that will be sooner rather than later as the subprime crisis eats into the IT budgets of companies affected by the downturn.

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Epicor expands presence in retail sector

Epicor has just announced its intent to buy NSB Retail Systems PLC, a vendor of application systems for specialty retail stores. The deal is valued at about $287 million.

The deal will add to Epicor's previous acquisition in the retail space, in 2005, when it picked up CRS Retail Technology Group, Inc.

Commenting on the deal, Terry Tillman at SunTrust Robinson Humphrey writes:

Although CRS has some merchandising and CRM capabilities, the company has primarily focused on point-of-sale (POS) software, hardware and services, which we estimate has accounts for 80%-plus of the CRS business. While there are no specific CRS Retail financial metrics provided in 2007, we know the standalone CRS Retail business reported $69.7 million in total revenue in 2006 and our model assumes it likely grows in excess of the overall Epicor business in 2007. Our model assumes the business achieves 11.5% top-line growth in 2007. With the acquisition of NSB, the combined retail business approaches $175 million, according to our assumptions, and Epicor is now adding a strong set of complementary products in key strategic areas like merchandise systems and merchandise planning.

Epicor's expansion in specialty retailing is a good move. With the acquisition of NSB, Epicor will now have over 400 customers in the this important sector. Epicor's traditional market, focused on small and mid-size manufacturers is pretty crowded, with Tier I vendors Oracle and SAP encroaching from the high end, and its "partner" Microsoft coming at it from the side with its Dynamics line of systems.

Not that competition for the retail sector generally is any less fierce. Oracle and SAP are competing in that space as well, along with JDA Software and Lawson. But I suspect that the specialty retailer market in particular may be somewhat under-served at the mid-tier.

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TomorrowNow and the future of third-party support providers

CIO Magazine has a long recap and analysis of the situation with SAP's TomorrowNow unit, which is the target of an Oracle lawsuit for IP theft. The article also looks at the future of the third-party support industry, which includes competitors of TomorrowNow, such as Rimini Street.

The conclusion: major enterprise vendor support business is hugely profitable--up to 90% gross margins--which gives a lot of room for third-party providers to make money doing it for less.

Rimini Street’s Ravin says neither the lawsuit nor the SAP press release has dampened his business. “Our business grew and went through the roof after the lawsuit was filed,” he says. That’s because in the lawsuit Oracle included dozens of companies from TomorrowNow’s customer list, which, he says, made other companies wonder, "Am I the only guy paying full price?"

Vendor such as Oracle and SAP, by charging an arm and a leg for support, have in essence created the business opportunity for third-party providers. If TN goes out of business, or Rimini Street acquires it, expect others to rise up to compete as well. That's the free market.

CIO's Magazine's article has more.

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Rumor mill: Microsoft to acquire SAP

A Spectator reader tipped me off to a rumor in Europe regarding a possible acquisition of SAP by Microsoft. Reuters is reporting the rumor, which sent SAP's share price higher yesterday.

A Microsoft/SAP deal is not out of the question. As I wrote back in 2004, during the Department of Justice lawsuit against Oracle it came out that SAP and Microsoft discussed a possible merger late in 2003. According to Microsoft, the talks were called off because of the complexity of the transaction and subsequent integration. SAP confirmed the story.

I also wrote,

It's not clear that the deal would have passed antitrust scrutiny. But if it had, and the deal had gone through, it would have made Oracle's pitch for PeopleSoft look like a used car offer. A Microsoft/SAP combination would have married the world's largest software developer, with a virtual monopoly on desktop operating systems, with the world's largest provider of enterprise systems to large organizations. The merger would have immediately turned Microsoft's applications group from a provider of business systems to small companies (with its Great Plains and Navision acquisitions) into the premier provider of complex enterprise-wide systems to the Global 1000.

So, has anything changed now that would make a deal more likely? Only that Oracle has been vindicated in its acquisition program, and SAP--though still the industry leader and growing--has not shown the revenue growth that Oracle has.

During the same period, Microsoft's foray into business applications is floundering. Its biggest step has been to rebrand its four acquired products under a single Microsoft Dynamics brand. At the same time, it shuffled its management team and called off Project Green, its program to migrate those products to a single code base.

That said, I don't think these developments make it any more likely that there will be a merger of SAP and Microsoft. The deal would face enormous resistance on antitrust grounds from regulators, especially in Europe, where Microsoft has already lost other antitrust cases. The size of the deal, also, is problematic. Though Microsoft is certainly capable of acquiring SAP, which has a market cap of over $60 billion, it dwarfs the size of Microsoft deals in the past.

Another point arguing against such a deal is the cultural aspect. Both Microsoft and SAP have strong corporate cultures, which would be difficult to integrate. Microsoft's legacy as a vendor of shrink-wrapped products is much different from SAP's history as a provider of solutions that take a huge amount presales effort and post-sales professional services. Microsoft has no experience with these things. Its current business applications are all sold and delivered by partners, and even there it has struggled. If Microsoft found selling Great Plains, Axapta, and Navision was a "humbling experience," it ain't seen nothing compared to what it will see with SAP.

On the other hand, I never thought Oracle would complete its bid for PeopleSoft, so my track record is not good on predicting these sorts of things. Furthermore, a Microsoft-SAP combination would be Oracle's worst nightmare, which is--in the interest of promoting competition--perhaps the best reason to hope the rumor is true.

Mary Hayes Weier, blogging for Information Week, has additional analysis.

Update, Dec. 5: SAP is denying the rumor. This news item points out the distinctly "non-Microsoft" technology platform of SAP (i.e. J2EE) as another reason that a deal is unlikely.

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Dell acquires SaaS platform Everdream

Dell is making an interesting move into services by acquiring an on-demand provider of desktop management services, Everdream.

Everdream's business is aimed at the SMB market, to provide services such as desktop asset management, software distribution, license compliance, antivirus management, backup, remote access, and remote support--all delivered on a hosted, on-demand platform. Everdream has taken a partner-approach. All of the services mentioned above are provided through partners, such as Symantec, Webex, Iron Mountain, and Microsoft. Everdream provides the SaaS (software as a service) platform that allows all of these partner-services to be provided on-demand.

The benefits are clear: small businesses are relieved from having to build and maintain an IT infrastructure and support organization internally. SMBs also are generally too small to outsource desktop support as traditionally provided--most service providers do not even consider a contract for less than 5,000 desktops. Everdream's services, on the other hand, could be set up for a handful of machines.

So why is Dell interested in Everdream? Clearly, acquisition of its SaaS platform moves Dell more strongly into the services business, where margins are higher than in shipping commodity desktops. Dell already offers significant professional services, but more along the lines of traditional outsourcing contracts. Everdream's business model is disruptive to that business and gives Dell a new way to compete with H-P, which has been beating Dell recently in desktop sales.

According to Hoovers, Everdream currently has less than 200 employees--still a small business itself. With the acquisition by Dell, expect this business to grow significantly. As a SaaS provider, it scales easily.

SaaS, in theory, is disruptive to traditional licensed software sales and traditional professional services. Although many companies have deployed SaaS solutions on limited basis, the model has still not taken over in a big way. If Dell is successful in taking Everdream to the next level, it may validate SaaS as an option for a greater number of businesses and really encourage greater adoption.

Dell's press release gives details on the Everdream acquisition.

Josh Greenbaum has an interesting piece outlining why he thinks Everdream's approach using partners is better than that of Salesforce.com.

Update, 10:21 a.m. Greenbaum and Dan Farber, both bloggers on ZDnet, are having now gotten into a bit of a debate about the relative merits of the platforms of Salesforce.com and Everdream. Read Farber's rebuttal to Greenbaum, and Greenbaum's response.

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Reading the fine print on ERP contracts

Josh Greenbaum has a good story on why it's important to read, question, and challenge the terms and conditions in ERP license agreements, or any vendor contract for that matter.

The case involves an IBM customer who, eight or nine years ago, signed a contract for PeopleSoft software running on an IBM mainframe. The problem? A clause in the contract stated that the mainframe computer had been discounted as part of the PeopleSoft deal and that if the customer ever moved PeopleSoft off the mainframe, IBM was entitled to raise maintenance fees on the mainframe.

Recently the customer decided to migrate the PeopleSoft application to Microsoft SQL Server. IBM responded by pointing out the migration clause in the long-forgotten contract.

Josh explains the impact:

This tripling of the mainframe price tag effectively wiped out any possible savings for the database migration, not to mention good will and trust. You can imagine how happy this customer is with its long-term “partner.” And how eager this customer is to do any more business with IBM.

The takeaway is, read those contracts before signing them and don't just count on your corporate attorney to do the contract review. Many lawyers read technology contracts from a purely legal perspective and do not have the subject-matter knowledge to see the implications of what the vendor is asking for.

Furthermore, never accept that line that the vendor's salesperson is unable to get changes to terms and conditions because they are part of the vendor's "standard contract." In reviewing vendor contracts on behalf of clients, I've learned: everything is negotiable.

When you are committing your organization to a system and a relationship that may last ten years or more, you need to know what you are signing.

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SAP considering sale of TomorrowNow

TomorrowNow, which offers third-party support for several of Oracle's products (PeopleSoft, J.D. Edwards, and Siebel) has been under much scrutiny since Oracle sued SAP and TomorrowNow for massive theft of Oracle's intellectual property.

Back in July, as part of its response to the suit, SAP appointed former SAP Americas COO Mark White to oversee TN, with founder and CEO Andrew Nelson reporting to White. The news this week is that Andrew Nelson is leaving TomorrowNow altogether.

In a press release, SAP said that it is "considering several options for the future of the TomorrowNow business, including possible sale."

What's going on? It would appear that SAP is coming to the conclusion that acquisition of TomorrowNow was a mistake in the first place. Taking maintenance and support business away from Oracle, getting involved so closely with Oracle's customers, and handling Oracle's intellectual property--even if all done within the law--is simply too difficult for Oracle's main competitor to manage. Whatever benefits SAP might gain by facilitating customers' migration away from Oracle are probably not worth the difficulty in avoiding the potential legal risk.

It's too bad, because the nascent third-party support model has a lot to offer as an alternative to direct vendor support. It gives customers choices and puts the primary vendor on notice that it cannot take its maintenance and support business for granted. Unfortunately, SAP's misstep with TomorrowNow has been a setback for the model.

Update, Nov. 23. The Financial Times is reporting that Rimini Street may be interested in taking Tomorrownow off the hands of SAP. Rimini Street is the main competitor to Tomorrownow as a third-party support provider to Oracle clients. If a deal materializes, it would be full circle for Seth Ravin, CEO of Rimini Street. Seth was co-founder of Tomorrownow and was with the firm until it was sold to SAP.

Seth is quoted, "We are interested, but we are proceeding cautiously and need to analyse it first." He also declined to say whether he was talking to SAP about a deal.

Update, Nov. 27. Datamation has more on the possibility of Rimini Street taking Tomorrownow off the hands of SAP. It reports that Rimini Street's business has "quadrupled" since Oracle filed suit against SAP, according to Dave Rowe at Rimini Street.

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ERP support staffing ratios

The cost of supporting an ERP system goes far beyond the vendor's maintenance fees. The largest part of ERP total cost of ownership is the cost of internal resources, such as applications folks, DBAs, business analysts, ERP administrative personnel, and help desk. Yet, there is remarkably little data available to benchmark these costs.

Therefore, over at Computer Economics, we've launched a new survey to determine typical staffing levels in various categories required for ongoing support of ERP systems.

If you complete the 10-minute survey, we'll send you a free summary of the results.

Take the survey now.

Layoffs coming at Epicor?

A reader informs me that employees at Epicor are "expecting a layoff at any time." Speculation is that layoffs will come in smaller territories, which would then be serviced from larger metropolitan offices. The reader's source is an insider at Epicor, and the reader--whom I know--has no ax to grind.

I should emphasize that there is no confirmation for a pending layoff at Epicor. However, it would not be surprising in light of the revenue shortfall that Epicor warned about in late October.

Update, Aug. 15, 2008: See the new post on Epicor layoffs.

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IBM buying Cognos

The last large independent vendor of business intelligence solutions is about to fall: Cognos has agreed to be acquired by IBM. The price values Cognos at nearly $5 billion. IBM's move follows similar moves by competitors earlier this year, when SAP's agreed to buy Business Objects for $7 billion and Oracle bought Hyperion for $3.3 billion.

The Wall Street Journal is reporting this morning:

...The head of IBM's software group, Steve Mills, said acquiring Cognos -- which already had a business partnership with IBM -- was not inspired by those previous deals. IBM has been on an acquisition tear in recent years to build out its software portfolio and improve the company's overall profit margins.

"We never do acquisitions on defensive moves or based on what others are doing,'' Mr. Mills said.

Like Hyperion and Business Objects, Cognos is used by organizations with a variety of enterprise systems. In fact, many smaller ERP vendors have partnered with Cognos in the past to provide data warehouse and business intelligence functionality for their solutions. For example, QAD, Epicor, MAPICS (now part of Infor), and ROI (now part of Infor) both use Cognos as part of their total solution. Even SAP has a partnership with Cognos as part of its business warehouse offering.

From this perspective, IBM--which for the most part does not compete with business application software providers0--is a good home for Cognos. IBM is more of an infrastructure and tools provider for other software vendors. I would expect, therefore, that IBM would continue and even expand these partnerships.

[Updated Nov. 14 to correct list of ERP vendors partnering with Cognos.]

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i2 forms committee for possible sellout

i2 announced today that it has formed a committee of independent directors to explore options for increasing shareholder value.

The market is reacting favorably to the news of i2's exploration of a possible sale. Share price is up over 5% from yesterday's close as of this writing. i2 also announced an increase in its Q3 earnings, which may have something to do with the market's reaction.

I would note however, that the earnings increase is from a 9% decline in expenses which more than offset a 7% decline in revenue--not a good sign for i2's business.

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Oracle withdraws offer for BEA Systems

Oracle let its offer for BEA expire over the weekend, effectively kicking the ball over to Carl Icahn and other BEA shareholders that have been pushing for a sale of the company.

Oracle's offer was $17 per share. At first, BEA didn't respond. Then when it did, it said $21 was a fair price. Oracle said no, $17 is more than fair. No one else--such as IBM, H-P, or SAP, stepped in as an alternative bidder. So, Oracle let its offer expire.

David Parker at SunTrust Robinson Humphrey has more insight on what is likely going on behind the scenes at BEA:

What a Mess. Oracle followed through on its resolve and terminated its $17 per share offer for the company on Sunday. Activist shareholder Carl Icahn will likely have to follow through on his threat for a proxy battle as our research for some time has concluded that BEA’s Board of Directors had likely given Alfred Chuang, the company’s CEO, yet another chance to try and right the ship operationally, under the auspices of the company’s latest grand technology play, Project Genesis. Project Genesis is described as a new application-tier platform that is meant to converge its service-oriented architecture (SOA) technologies, business process management (BPM), Web 2.0 technologies and other tools and allow for both business and IT users to quickly assemble new application functionality.

We believe investor fatigue with BEA and its inability to drive sustained license growth is notable and few want to hear of BEA espousing yet its latest and greatest platform technologies that will disrupt enterprise computing. We hear internally there is a rallying cry to do everything possible operationally to stay independent and we believe even the heretofore closed cash coffers are being opened up to belatedly invest in needed sales, marketing and acquisitions. Even if the current drama ebbs and somehow the company is able to stay independent, those investors that are willing to re-engage on fundamentals must grapple with the potential for increased operating expenses in order to grow the business, potentially disruptive technology/product transitions and risks around acquisitions.

Ultimately we think there is still a probability greater than 50% that BEA is taken out and Oracle is the winner....The company may very well scrape by but recent events are likely to disrupt larger enterprise transactions.

BEA is in a tough position. The company has long prided itself on its independence, a position that is increasingly difficult to maintain in the current wave of technology vendor consolidation. Although business for tech vendors has been quite strong this year, softness in consumer spending due to the weaker dollar and housing downturn could spread to business spending. Furthermore, as Parker points out, questions about BEA's future is likely negatively affect is ability to close new deals in the coming months. If so, its share price could weaken, making any future offer from Oracle likely to be even lower than its $17 bid.

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Epicor to miss its revenue targets

Epicor just updated its forecast for its third quarter financial results, and the picture isn't pretty.

The firm says that revenue for the quarter will be between $110 million and $112 million. Wall Street has been expecting revenue in the neighborhood of $119.5 million.

Epicor's explanation for the shortfall is also weak. It blames its method for forecasting sales to more accurately reflect the timing of the close of larger orders. It says it has now changed its forecasting process and as a result it expects year-over-year software growth rates to be affected for the next quarter or two. It looks as if the firm is positioning itself for continued bad news.

Commenting on Epicor's announcement, David Parker at SunTrust Robinson Humphrey writes,

This is the second quarter in a row in which the company has missed license revenue estimates and we feel this stems from an abrupt lack of focus with regards to mid-market customers, which we find surprising given that these customers are the company’s core target market. Although we understand the desire to move the product up-market, we are hard pressed to find a valid reason for meaningful license misses simply because the company finds it challenging to balance a move up-market with historic success in the mid-market. In addition, our belief that the company can return to at least double-digit license growth is hindered when weak execution in the core market is combined with the intense competition from the likes of SAP and Oracle in the large enterprise market.

As Parker points out, Epicor is in a tough position. Oracle and SAP are aggressively coming down into the mid-market, largely though VARs and resellers, and are doing a pretty good job of winning deals. At the same time, vendor consolidation has made buyers question the viability of smaller vendors. Epicor's announcement this week reinforces buyer fears that the firm is not on a winning path.

Ironically, Epicor has been one of the players behind the vendor consolidation trend--snapping up a series of even smaller players in the past years. This gives it a diverse portfolio of product offerings, but raises questions about its ability to support them all. It appears to be promoting its Vantage product as its flagship offering right now, as a way of countering perceptions that it is simply a rollup of smaller vendors. But its announcement this week shows that it's not being successful in this strategy.

Update, Nov. 15: Rumors of a layoff coming at Epicor.

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Microsoft: the Rodney Dangerfield of open source

If you haven't been following the latest developments in the open source world, here's an interesting development. The Open Source Initiative (OSI) has just certified two Microsoft licenses as open source.

This is a big deal. OSI is the organization that determines which software licenses qualify as open source, according to a list of 10 criteria. Microsoft submitted two of its shared source licenses, the Microsoft Public License (Ms-PL) and the Microsoft Reciprocal License (Ms-RL) to OSI, which generated an enormous amount of debate within the open source community concerning Microsoft's motives and whether OSI should approve such licenses.

In the end, however, OSI gave the nod to the two Microsoft licenses. OSI president Michael Tiemann wrote, “The decision to approve was informed by the overwhelming (though not unanimous) consensus from the open source community that these licenses satisfied the 10 criteria of the Open Source definition, and should therefore be approved.”

Lora Bentley's blog on IT Business Edge has a good round up of the news.

Microsoft's motives
So why is Microsoft, whose CEO Steve Balmer once referred to the open source operating system Linux as a "cancer," now seeking approval of its two licenses as open source? I think the answer is two fold.

First, Microsoft needs to do everything it can to counter the perception (and reality) that it has monopoly power. For example, it is having to jump through very small hoops in Europe in order to comply with a 2004 anti-competition EU court ruling. Just this month it has agreed to make workgroup server interoperability information available to open-source developers. Like it or not, Microsoft has to open up and if it is going to open up it might as well do so on its own terms.

Second, open standards are increasingly valued by buyers in their technology decisions. For example, three years ago the State of Massachusetts proposed a mandate that all state documents be saved in open, standards-based file formats. This move nearly cost Microsoft the loss of its entire Office business in the state. Only intense lobbying by Microsoft got the state to draft specifications that allows state workers to continue using Microsoft Office, as long as they used its open XML format to save documents. Openness is part of the buying decision for many purchases, and if Microsoft wants to win it has to open up.

No respect
Which leads to a paradox. Why does Microsoft get so little credit for its move to open source, while companies like Apple get very little criticism for its continued reliance on proprietary systems?

Apple really likes open source--as a component of its offerings. For example, Apple incorporates open source code from GNU, OpenBSD, NetBSD, and FreeBSD into its Mac OS X operating system. But when has Apple ever--I mean ever--released any of its own code as open source? Its iPod music format is proprietary. iPhone handheld device can only operate on Apple's partner AT&T's network. Apple takes all kinds of legal and technical measures to keep these products closed.

Yet many of the same folks that criticize Microsoft for its perceived lack of openness are carrying iPhones and iPods.

Even a small thing like blogging shows how little respect Microsoft gets for openness generally. There is probably no company in the world that has more of its employees blogging--with corporate approval but little corporate control--than Microsoft. In contrast, Apple is like the old Soviet Union. The firm does not allow employees to blog as Apple employees, in line with its near-obsessive attempts to control information. It even posted a notice at its developer conference last year warning attendees not to blog any information presented.

Yet, nearly everyone thinks of Apple as cool.

Microsoft's public and private war against open source, historically, has a lot to do with its credibility gap in the open source community. Read the Halloween Documents if you don't know what I'm talking about. And, much of it simply goes with the turf of being the largest software company in the world.

The reality, however, is that even Microsoft is being forced by the market into open standards and open source. And that's good news for technology buyers.

Update, Oct. 25. A commenter (read here) points out that Apple released Webkit and Darwin as open source. Webkit is an application framework built with code that Apple developed along with components of the KDE open source desktop environment. Darwin is a desktop OS built with code from other open source projects along with code that Apple got from its acquisition of NeXT. I stand corrected.

Some of the other comments serve as evidence of my main point: Microsoft does not get much credit for open sourcing some of its code and--because of its own behavior in the past--may never get respect. It is probably being forced into openness for the reasons I outlined in the post, but regardless, Microsoft's actions are good for buyers.

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SAP wins at Wal-Mart but reports slowing growth in U.S.

SAP just reported its third quarter results, with a 11% growth in new license sales worldwide but a measly 3% growth in the U.S. New license sales growth was stronger in other markets: 14% in EMEA and 25% in Asia-Pacific. SAP said it now expects overall software and related sales for 2007 to reach the upper end of its estimate of 12% to 14%.

SAP's growth vs. Oracle's
These results do not look great in comparison with Oracle's most recent quarter (its Q1). Last month Oracle reported a 35% increase in new license sales, including a 65% increase in application software revenue. Of course, Oracle's results include the benefit of its new acquisitions of Hyperion and Agile Software. Its not clear to me how much of the increase is due to revenues from those product lines, but it certainly can't explain all of the difference from SAP's growth rates.

Although the SAP versus Oracle story is interesting, I'm more concerned with what SAP's results mean for the business software sector overall in the U.S. I note that the market has been strong over the past couple of years, based on financial results for the major vendors as well as observations of the general level of sales activity. Do SAP's quarterly results point to a slow-down? Oracle's results seem to indicate a more positive outlook, although Oracle will say that SAP's slowing growth is caused by Oracle's winning deals against SAP. Complicating the picture: SAP claims its market share is increasing in the U.S., which is hard to imagine in light of the disparate growth rates of SAP and Oracle, unless they are both taking market share away from smaller players.

Win at Wal-Mart
Separately, SAP announced that it had won a deal with Wal-mart for financial management software. Wal-Mart is known to run mostly in-house developed systems, but apparently felt that the horizontal nature of accounting applications justified a departure from this strategy. SAP will replace some legacy systems while integrating with other internal systems. Terms of the purchase were not disclosed, but--this being Walmart--there's no way this can be a small deal.

In light of SAP's battle with Oracle, the Wal-Mart deal gives bragging rights to SAP--assuming the implementation is successful. Unfortunately, it won't be a quick. The first phase of a multi-phase implementation is expected to finish in 2010.

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Oracle bids for BEA Systems

There seems to be no end to Oracle's acquisition campaign. The latest move is a $6.7 billion bid for BEA Systems, one of the leading vendors of middleware. A successful bid for BEA will greatly strengthen Oracle's middleware and tools business and take a major competitor out of the picture.

Oracle has been hounding BEA, unsuccessfully, to sell for years. But BEA's recent share price decline, driven by its problems in accounting for stock option grants, has put BEA in a much weaker position. It hasn't helped that last month Carl Icahn purchased 13.2% of BEA's shares, hoping to force BEA to sell out to someone.

So now Oracle has stepped in as a willing buyer.

An AP story on Oracle's bid points out that Oracle has demonstrated its willingness to fight in order to complete acquisitions in a hostile manner if necessary. Its PeopleSoft acquisition in 2003 is the best example. There, Oracle even fought the U.S. Department of Justice, which sued Oracle in order to block the deal on anti-trust grounds.

It doesn't sound as if Oracle will need to fight that hard for BEA, however. BEA is wounded, and too many stakeholders will rather see Oracle's bid succeed, at a 25% premium over BEA's share price yesterday.

But Oracle's problem might not be BEA's willingness to sell--it might be other bidders. Carl Icahn spoke to CNBC a few minutes ago and indicated that he expects other potential buyers to make offers. He specifically mentioned H-P and IBM.

To which I might add, what about SAP? It's unlikely, with SAP just having offered nearly $7 billion for Business Objects, but it sure would be make things interesting.

Update, Oct. 13. As it turns out, according to the Wall Street Journal, Carl Icahn has already mentioned SAP as a potential alternative bidder for Business Objects. However, there appear to be reluctance on the part of all three bidders (IBM, SAP, and H-P) to make offers.

A person familiar with IBM's thinking said IBM is unlikely to enter the bidding fray, because IBM typically buys small software companies, and the Oracle offer for BEA is already about twice as much as IBM has ever paid for an acquisition. Plus, this person said, there is enough overlap between IBM's WebSphere software and BEA products that it would probably raise antitrust scrutiny. An IBM spokesman declined to comment.

A person familiar with SAP's thinking said the company would be unlikely to be interested in buying BEA because it wants to focus on a competing product, called NetWeaver. An SAP spokesman declined to comment.

An H-P representative said H-P isn't interested in entering BEA's market, but declined to comment specifically on whether it had any interest in buying the company.

If so, Oracle may not find much competition to its offer.

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SAP to buy Business Objects

Vendor consolidation in the business intelligence (BI) space continues with SAP announcing its acquisition of Business Objects, one of the last independent best-of-breed vendors of such solutions.

The move is, in a way, an answer to Oracle's acquisition of Hyperion, a Business Objects competitor, earlier this year. Although SAP already has significant BI capabilities, it apparently felt the need to strengthen its offerings. Its acquisition of Business Objects certainly fills the bill.

Consolidation in the BI market has been going on for some time now. In 2003, Business Objects itself acquired Crystal Decisions, a popular developer of end-user reporting tools, used by quite a few enterprise system vendors. Shortly thereafter, Hyperion acquired Brio. As mentioned above, both Hyperion and Business Objects now are part of the two leading enterprise system providers.

SAP indicated that it intends to continue to operate Business Objects as a separate business. This will limit the cost-savings that SAP will realize from the deal, but it will probably be more attractive to customers that don't necessarily want to be tied to SAP. As the Wall Street Journal points out, it also helps SAP avoid having to deal with French laws that limit the ability of employers to conduct layoffs. Business Objects is headquartered in France.

OpenMFG is now xTuple

I really dislike vendor name changes, but here's another one. OpenMFG, the open source ERP vendor, has changed its name to xTuple. It appears the name change is the result of adding a second product, PostBooks, in addition to the organization's existing OpenMFG product. So the name of the vendor had to be changed to something other than the name of the product. It makes sense, actually. Because PostBooks has applicability beyond the manufacturing industry, a new name was also needed for the organization that did not imply a strictly manufacturing-orientation.

The PostBooks product is not a separate product from OpenMFG. It appears to be a subset of OpenMFG code that the firm distributes on a truly open source basis (under the CPAL open source license). This allows users with limited needs or individuals that want to prototype a limited set of functionality to do so without getting involved in licenses or contracts. There's a comparison chart on xTuple's website that explains the functionality present in each product.

There's more information on the CPAL license in this InternetNews article, which quotes xTuple's CEO Ned Lilly on reasons for going with the new license.

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Pro-sellout shareholder of i2 elects second board member

Amalgamated Gadget, a major shareholder of i2, has now elected its second board member, one David L. Pope. According to the SEC filing, Pope is employed by an affiliate of Amalgamated, which "acts as investment manager for R2 Top Hat, Ltd., which owns all of the issued and outstanding shares of the Series B Preferred Stock." Earlier this month, Amalgamated openly called for i2 to find a buyer.

An astute reader also informs me that i2 has taken down from its website all open job postings for customer-facing positions. He notes that previously, i2 had consistently been running 30-50 of these jobs at any one time. It's all speculations, but it could be an indication that the company is trying to reduce costs by not filling open positions, possibly to improve earnings prior to negotiation with potential buyers.

Update, Oct. 4: A second major shareholder, SAC Capital Advisors LLC, has just increased its holdings of i2 shares to 8.9% and promptly joined the call for sale of the company. At the same time, i2 is reporting that it has narrowed the list of finalists in its search for a new CEO and expects to name the winner in 30-45 days. If so, the winner may find him/herself with a very short resume entry.

Update, Oct. 15: The job postings now appear to be back online on i2's website. There are 51 jobs currently open, a level similar to that in the recent past. So, maybe the absence of postings was due to a website glitch.

Update, Oct. 17: Barrons is reporting that another major shareholder, SAC Capital, now holds 1.9 million shares (8.9%) of i2 and is also calling for sale of the company.

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Oracle reports another blow-out quarter

By my count, it's now three quarters that Oracle has reported financial results that exceeded expectations. The first time (Oracle's last year Q3), I questioned whether Oracle had achieved those results by draining its pipeline for Q4.

But then Oracle's blow-out results in Q4 ruined my theory. But I noted that Oracle co-President Safra Catz was predicting a whopping 20-30% increase in new license sales for Q1.

So what is Oracle reporting now for Q1? A 35% increase in new license sales, including a 65% increase in Oracle's application software revenue. Some other results: a 26% increase in revenue and a 25% improvement in net income. All of these results exceed just about anyone's expectations.

So what's going on? Certainly, a strong technology market doesn't hurt. Evidence of that is SAP's strong performance last quarter (it has yet to report the most recent quarter). Many other technology providers are showing strong results as well. Furthermore, I'm seeing and hearing of many new deals in process for enterprise software vendors generally, more so than in years.

But it's impossible to ignore the fact that Oracle's results also speak to the success of its acquisition strategy. Oracle keeps acquiring and integrating smaller vendors each quarter. This quarter's results include revenues from its pick up of Hyperion and Agile Software. Whether or not you like the trend toward vendor consolidation, of which Oracle is a major driver, it's hard to argue with success. We'll have to wait another three months to see if it can continue its hitting streak.

In the meantime, I am giving up on trying to predict Oracle's performance.

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IT budgeting policies and practices

Over at Computer Economics, we've launched a new survey on IT budgeting policies and practices. The survey covers the following areas:

• What categories of spending are typically included or excluded from IT budgets
• Where such spending appears: corporate IT budgets, divisional IT budgets, or user departmental budgets
• What types of IT expenses are charged back to users
• The trend for IT spending this year and next year
  

The survey will only take 10-15 minutes. If you or someone you know is interested in this subject, you can take the survey at the following link.

IT Budgeting Policies and Practices Survey

Anyone who completes the survey will receive a free copy of our analysis report that we produce from the survey results.

Major i2 shareholder calls for sale of i2

i2 has been having some tough times lately. CEO Mike McGrath resigned in July. Then the firm announced an earnings shortfall for its second quarter. It also said that it wouldn't be able to meet its previous forecast for the full year.

Now, one of i2's largest shareholders is calling for i2 to throw in the towel and search for a buyer. In an SEC filing yesterday, Amalgamated Gadget LP, said that i2 is too small to survive as an independent company and is better off to seek to be acquired.

Amalgamated isn't just blowing smoke. The size of its stake in i2 gives it the right to elect two board members. It says that it has already elected Michael Simmons, formerly from General Electric, as a board member and it is now seeking someone to fill its second open position.

i2 has been trying to recover for years from the tech downturn earlier this decade, but never fully seems to be able to get traction. Most recently, it has been trying to juice up its business model by adding more services to its traditional software product mix. This strategy, to me, has a lot of attraction in that supply chain management projects are often highly customized to the specific industry and supply chain than pure off-the-shelf solutions.

Nevertheless, an acquisition is probably the best path right now for i2, to put it in the hands of a larger firm that can better leverage its extensive product line, its impressive client list, and its patent portfolio.

The question is, who will step up to this opportunity? Names like Oracle and Infor are often mentioned, since they already have a history of making such acquisitions. But I think that some of the large IT services firms, both in the U.S. and in India, might be potential buyers. Think CSC, Accenture, IBM Global Services, or Infosys. I'm just speculating here, but since, as mentioned earlier, i2's business is increasingly services-oriented, such a combination might make a lot of sense.

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Total cost study for an open source ERP project

Baseline Magazine has an interesting case study on PerTronix Performance Products, of a small manufacturing firm that implemented the open source ERP system, Compiere. What's interesting is that the article reports the specific costs that the company incurred for the open source implementation. Thus, it provides a useful comparison with the typical costs for proprietary ERP systems.

Here are the metrics reported for PerTronix's open source ERP implementation:

1. Number of employees: 100
2. Number of named users: 20
3. Upfront costs (licenses, customization, training, and implementation): $20,000
   or, $1,000 per user
   
4. Hardware and operating system (Dell and Microsoft): $3,800
5. On-going support from Compiere partner: $12,000/year
   or, $600 per user
6. On-going support as percentage of upfront costs ($12,000 / $20,000): 60%
   

Now let's look at these metrics in light of a typical implementation of a proprietary ERP system:

• The up-front costs really stand out as exceptionally low: $1,000 per user is about one-fourth of the typical cost of a proprietary ERP implementation. For planning purposes, I generally assume about $2,000 per user for software, plus at least one times that for implementation, or $4,000 per user--usually more. Of course, the fact that there is little if any software license cost is a major driver of the low cost advantage of open source, here. (The article does mention "license costs," indicating there may have been some proprietary extensions of Compiere as part of the deal here--the article doesn't say. But whatever they are, they couldn't account for much of the upfront costs.)
  
  
• The $600 per user for on-going support is only somewhat higher than that for proprietary ERP, which generally runs about 20% of the initial license fee. Assuming an initial license fee of $2,000 per user, a proprietary ERP system would generally cost about $400 per year in maintenance fees, which cover software patches and help desk support. The $600 per user figure is certainly not out of line.
  
  
• Because Compiere is running on low-cost hardware and a Windows operating system, these costs are quite low, although many proprietary ERP systems, especially packages written for small and mid-size firms, run on this platform. So, we cannot point to an advantage for open source here.
  

So the major difference in cost between open source ERP and proprietary ERP lies primarily in the up-front cost. The on-going support costs are similar, which is not surprising, since those costs are largely driven by the cost of labor.

One might also point out the advantages of open source in terms of flexibility. If the lead development organization, Compiere Inc., goes out of business, PerTronix still has rights to the source code. If the Compiere implementation partner raises its support fees, PerTronix can go look for another, or it can hire its own support technicians. There is no vendor lock-in.

The article also discusses the benefits of the new system, which include centralizing of order processing and inventory management across multiple facilities, productivity improvements, ability to implement price revisions more frequently. But we can assume that those benefits would have been realized from a proprietary software implementation as well. Therefore, the real difference between an open source ERP system and proprietary software stand out more on the side of cost and flexibility.

Is open source ERP the right solution for all companies? Definitely not. These products, such as Compiere, Open For Business (OFBiz), ERP5, Tiny ERP, are still small in scale. Although they may have strong functionality in a few areas, they lack the overall breadth of features of established proprietary offerings. This is why there is almost always customization involved in the implementation.

But open source operating systems (e.g. Linux) and application platforms (e.g. Apache, JBoss), were once minor players as well, and today they have significant market share. In the case of Apache, it is the market leader. Open source is moving up the technology stack to business applications. Whether it can gain significant market share remains to be seen. ERP systems are much more specialized than operating systems and application platforms. It is not clear to me whether there are sufficient populations of developers to gain critical mass for these products, as there has been for products lower in the stack.

Who should consider open source ERP today? In my opinion, these solutions today are not so much an alternative to proprietary software as they are to custom development. An organization that knows it will need to do significant customization or enhancements to an ERP system should consider open source as a starting point instead of proprietary ERP. Organizations with unique requirements or unusual business models may be in this category. Modifying core code of a proprietary ERP system generally voids the warranty and makes on-going support less relevant, since the vendor will not support your custom modifications. Why not start, then, with open source ERP, where there is little if any charge for the source code? To me, that's a better choice than to start with 100% custom development.

I'm looking for more cost metrics on open source ERP implementations. If you're willing to share them with me, let me know.

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IT project management lessons learned, and re-learned

Liam Durbin, CIO at GE Fanuc Automation, writes in CIO Magazine about one of the most important lessons learned in IT project management--the need for strong leadership from the business side.

I took my current position on the heels of such a hard lesson. Our software business was the scene of the crime for our disastrous CRM implementation. Inside sales team was bleeding badly from several deep wounds and a thousand paper cuts. Channel partners were revolting. Activities that used to take minutes, like placing an order or checking availability, now could take half an hour. The system was bouncing frequently. The IT team was releasing a Siebel recompile every other day.

The root cause of the problems? A lack of strong functional leadership on the project. To emphasize this lesson, Durbin points out five scenarios where IT projects fail from lack of functional business leadership (in my words):

1. Trying to make the new system work just like the old system
2. Rushing the implementation to satisfy unrealistic schedule expectations
3. Expecting the IT project manager to represent business users as well as IT
   
4. Underestimating the complexity of data warehouse projects
   
5. Having multiple functional leaders instead of a single commander
   

It's not that IT executives don't realize the need for engagement by functional leaders--it's that they too often forgot or compromise "just this one time." They know what's right, but they don't stay strong in the face of false assumptions or unrealistic expectations.

Read the whole article.

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Update on Lawson's strategy

I interviewed Barry Wilderman, VP Business Strategy at Lawson Software, yesterday. I haven't written much about Lawson recently, so I thought it would be good to get the story from Barry, apart from the usual press releases and announcements.

Barry was named to his post this past January. Previously, he was a senior VP at META Group, where he was an ERP market analyst. I've met Barry in the past and have appreciated the analysis he did at META on the total cost of ownership (TCO) of ERP systems. He was a good catch for Lawson.

Some of the key points from our phone discussion.

1. We discussed Lawson's SOA framework, Landmark. Introduced over two years ago, Landmark incorporates pattern, or domain-specific language, to allow business analysts to build applications without knowledge of programming. So far, Lawson's human capital management (HCM) offering is built on Landmark as well as its new strategic sourcing application. Eventually, all of Lawson's products will transition to this new technology environment.
   
   
2. Landmark is built entirely on IBM technology, such as Websphere. I've long felt that application software vendors have no business building application development tools, so I agree with this strategy. At the same time, however, doesn't this reliance on IBM pose a problem to Lawson customers who do not use IBM technology? Barry agreed that this could be a problem to a customer that has standardized, say, on Microsoft's competing .NET technology. However, if Lawson is a key component of the customer's application portfolio, it should justify the transition.
   
   
3. I pointed out that many other software vendors have stumbled when they tried to make a major technology transition. Witness all the vendors from the host-based era who tried to make the transition to client-server. For example, the former System Software Associates (SSA) went into bankruptcy as the result of its attempt to move its AS/400 host-based product, BPCS, to a client-server architecture. J.D. Edwards had problems for several years in its transition from its host-based World product to its client-server and web-based offering, One World.
   
   
4. Barry didn't agree with my analogy, however, indicating that Lawson had already made the transition to Websphere for its entire product line, and that the move to Landmark was more of an evolution than a wholesale technology overhaul. So, the introduction of SOA and workflow should be less disruptive and can be accomplished in stages.
   
   
5. How does Lawson compete with SAP and Oracle? These days I'm hearing of many cases where prospects are not considering other vendors and when they do, SAP and Oracle are difficult to beat. Barry indicated that Lawson competes by focusing on key verticals, such as healthcare and retail. When they compete in their sweet spot, they do not lose many deals.
   
   
6. Lawson made a major acquisition two years ago when it merged with Intentia, a Swedish-based vendor that is strong in manufacturing and asset-based businesses, especially in Europe. Has this merger been successful, and how much cross-selling is taking place between customers of Lawson and Intentia. Barry indicated that there have been a handful of cross-sales of M3 (the former Intentia product) to Lawson customers, mostly of Intentia's enterprise asset management (EAM) offerings. There have also been a few sales of M3 in total into Lawson's installed base in the U.S. There have not yet been a lot of sales of Lawson's HCM into Intentia's customer base in Europe, however, largely because of the need to provide compliance with European regulations.
   
   
7. Finally, Barry said that he wants to communicate a more sophisticated message concerning Lawson's total cost of ownership, that Lawson delivers more value per dollar invested. In his view, Lawson installs faster, is easier to understand, and takes less time to implement. Of course, these are claims that are put forth by nearly all enterprise system vendors. Barry's previous work at Meta did show that Lawson (along with QAD) had the lowest TCO of seven or so major ERP vendors. Whether those results still hold true now, five or six years later, are unclear.
   
   
8. All of the major vendors are making significant efforts to simplify and speed implementation, and there is anecdotal evidence that those efforts are bearing fruit. At the same time, much of the cost of implementation is outside of the control of the vendor. A client that is well-organized for the effort, who has a well-trained project team and understands the need for business process improvement and change management will realize a much lower TCO than the client that expects the vendor to do all the work.

Still, Lawson continues to be one of the largest enterprise system vendors that has managed to show enough success to remain independent during this period of software vendor consolidation. Its share price is at its highest point since 2002, which vindicate Lawson's CEO Harry Debes and his email to me earlier this year.

Comparing Lawson's share performance over the past six months with SAP and Oracle (see below), it would appears that the market agrees.


Update, 9:36 a.m.: This morning, Computerworld has an interview with Lawson CEO Harry Debes, where he talks at length about competing with SAP and Oracle.

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SAP sales jump, defying Oracle's PR campaign

Following Oracle's outstanding quarterly results last month, SAP has posted its own preliminary results for its most recent quarter. SAP reports an 18% jump in software revenue over the same quarter last year, and a 10% rise in revenue overall.

Furthermore, SAP indicated that it is gaining market share against its rivals. According to unnamed industry analyst research, SAP's share of the worldwide market for "core enterprise applications" increased over the past year by three percentage points to 26%.

In nearly every public announcement of its financial results, Oracle has been comparing itself to SAP. SAP's most recent results show that Oracle's success doesn't mean it is triumphing over SAP. It just means that there's a robust market for enterprise software this year.

A rising tide lifts all boats.

SAP's quarterly results can be found on its web site.

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IT budgets are lagging behind corporate revenues

Over at Computer Economics, we've just published our 2007/2008 IT Spending, Staffing, and Technology Trends study.

One of the key findings is that the median IT budget growth rate in the U.S. and Canada is accelerating to 5.0% this year, from 4.1% reported in 2006. At the same time, the median IT budget as a percentage of revenue is falling to 1.8%, from 2.0% last year. The only way to interpret these two statistics is to understand that IT spending is lagging behind corporate revenues.

This is not bad news. What it means is that IT managers generally are able to support the growth of the business without corresponding increases in IT spending. Our study shows that the large majority of companies are increasing their IT spending--but they are doing it at a pace that is less than the growth of the business.

In the last part of the 1990s, IT budgets grew at much greater rates because of Y2K and the dot-com boom. Then, during the recession in the early part of this decade, IT spending actually fell in a significant number of companies. From 1997 through 2003, IT budgets were a story of boom-and-bust.

What I like about today is that these major disruptions in IT spending appear to be over--at least for now. We seem to have entered a period where most companies are expanding their IT budgets in a restrained but consistent way. This is a far easier environment in which to plan IT investments.

On the staffing side, increases in headcount are somewhat more restrained, but most companies are adding IT staff members this year. And, there's still no end to the increase in the level of outsourcing.

These findings and more are presented in the study. There's a complete description on the Computer Economics website. There's also a press release.

SAP admits wrongdoing in Oracle lawsuit

SAP filed its response to Oracle's complaint last night, admitting that its TomorrowNow subsidiary engaged in some inappropriate downloads of Oracle intellectual property.

SAP reasserts the rights of its TN unit to download materials on behalf of Oracle customers who have the rights to those materials. It points out that "Oracle’s complaint does not challenge the basic propriety of third party support, nor do its factual allegations support the inflammatory statements" of Oracle's complaint.

At the same time, SAP claimed that the Oracle materials did not leave TN's internal systems, which are separate from the rest of SAP's network. SAP's response says,

Upon acquiring TN, SAP AG and SAP America put in place extensive policies to assure that no allegedly confidential material of Oracle obtained by TN on behalf of its customers would reach SAP AG or SAP America. Defendants are unaware of any breach of these policies, and believe that none has occurred.

It continues,

Oracle’s allegation that TN’s downloading conduct was “corporate theft” or involved SAP AG or SAP America is simply untrue.

SAP also announced that it is installing a new head over its TN unit. Former SAP Americas COO Mark White will now oversee TN, with founder and CEO Andrew Nelson reporting to White.

I think SAP is smart to admit any wrongdoing at this point. Any such activities would eventually be exposed anyway during Oracle's discovery process, leading to a drip by drip release of negative information about SAP. At this point, the issue would is to what extent TN or SAP benefited from the downloaded materials and what damages should be awarded.

SAP takes its turn at throwing punches at Oracle:

Oracle professes surprise and confusion about how TN can provide services more cost-effectively than Oracle. The answer is simple – TN does not force its service customers to pay artificially inflated prices for service to fund Oracle’s future acquisition and integration of products that customers do not want or need.

Of course, SAP does not mention that its own maintenance fees for customers of SAP software are pretty much in line with Oracle's. So, SAP should be careful about continuing this line of reasoning.

More seriously, in my opinion, SAP indicated that the U.S. Department of Justice is investigating SAP and TN. I speculated earlier that this lawsuit could lead to criminal charges against SAP, TN, or individuals implicated in the illicit activities.

SAP's response to Oracle's complaint is available here. SAP has also issued a press release on this matter.

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Oracle's Q4 beats estimates

It looks like I was wrong.

When Oracle exceeded Wall Street expectations at the end of its third quarter, I speculated that Oracle might have done so by draining its sales pipeline for Q4. I based that on word I had heard of some extremely generous discounts that Oracle was granting to prospects that signed by the end of Q3. Such a move would deliver superior results for Q3 but risked pulling in sales that might have otherwise closed in Q4.

At the time I wrote that readers should check back in three months to see if I was right. Well, now it's three months later and Oracle has announced Q4 new license sales that are 17% higher than the same quarter last year. That's well above Oracle's forecast of a 5-15% increase. Revenue overall rose 20%, and net profit jumped 23%. Impressive results all around.

So, what's going on? Catz attributed Oracle's success to execution, which is no doubt true. But it also confirms Oracle's strategy, in which it has been able to integrate a string of software acquisitions into its operations without losing customers. It also is showing momentum against its chief rival, SAP--a fact which it continues to promote on its website.

Oracle is now forecasting a whopping 20-30% increase in new license sales in its for its first quarter, which would include revenues from new acquisitions Hyperion and Agile Software.

The Wall Street Journal has more on Oracle's Q4 results.

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Malware damages fall to $13.3 billion annually

Over at Computer Economics, we've just released our latest annual Malware Report. Included in the report, is our estimate of annual worldwide direct cost to business of malware attacks, where we report that such damages fell to $13.3 billion last year, from $14.2 billion in 2005.

We attribute the drop in direct cost damages to two factors, one good, one bad.

• The good factor is that, in our estimation, the antivirus vendors do a pretty good job of thwarting malware attacks before they can become the massive worldwide storms that organizations experience in previous years. It's been some time since we've seen an attack like the Love Bug in 2000, or even MyDoom, Netsky, or Sasser in 2004.

• The bad factor is that much of the drop in direct damages has to do with the changing nature of malware. Malware authors these days aren't writing viruses, worms, and trojans primarily to cause damage, but to make money. To make money, you don't damage the host computer--you keep it running to serve as a spam proxy, or to perpetuate click-fraud, or to steal confidential information, for example.

Therefore, direct cost damages may be declining but indirect and secondary damages are increasing. Follow the links below for further discussion of the implications of this point.

The full report, entitled, 2007 Malware Report: The Economic Impact of Viruses, Spyware, Adware, Botnets, and Other Malicious Code analyzes the cost of malware at the worldwide, organization, and event level.

An extended description of the report is available, as well as a more complete excerpt, on the Computer Economics website.

Oracle now charges SAP with copyright violation

Right on schedule, Oracle has amended its complaint against SAP and its third-party support unit, TomorrowNow (TN). (You can read the background on this case in my original post on the subject, and also developments prior to today in my post earlier this week.)

In its amended complaint, Oracle is adding copyright violation to its previous charges of theft of intellectual property. At the time of the original filing, Oracle had not registered the copyright for many of the support materials. It has since done so and is now suing for additional damages under U.S. copyright law.

In its amended filing, Oracle gives one interesting example of TN's copyright violations.

86. The DST Solution. In at least one instance, SAP TN has also, publicly displayed, distributed, and thereby profited from Oracle’s copyrighted Software and Support Materials. In December 2006, Oracle developed a knowledge solution related to the recent early change to Daylight Savings Time (the “DST Solution”). The DST Solution is a narrative document with specific instructions for how to conform certain Oracle software to the new Daylight Savings Time change. Oracle fielded more than a thousand service requests from its customers related to the Daylight Savings Time change, and its DST Solution helped resolve more than 750 of them.

87. Oracle traced downloads of the DST Solution to SAP TN’s IP address on January 8, 2007 and January 15, 2007. Oracle also noticed that SAP TN posted a “PeopleSoft Daylight Savings Time solution” on its website. SAP TN’s “solution” is substantially similar in total–and in large part appears to be copied identically from–Oracle’s DST Solution. SAP TN’s copied version even includes minor errors in the original DST Solution that Oracle later corrected. SAP TN’s version also substitutes an SAP TN logo in place of the original Oracle logo and copyright notice.

88. Oracle has registered the downloaded version of its DST Solution that SAP TN copied and created derivative works from, and later distributed and publicly displayed, as well as a later version that SAP TN also downloaded shortly before Oracle filed its original Complaint, Registration Nos. TX 6-541-019 and TX 6-541-018. No customer is licensed to create derivative works from, distribute or publicly display Oracle’s Software and Support Materials, and neither is SAP.

If this case involved anyone other than SAP, it is likely that upon discovering this activity, Oracle would have notified the offending party to cease-and-desist.

As I noted previously, Oracle's earlier allegations of excessive and improper downloads might be explained by a TN consultant simply trying to work efficiently, using a single customer's user credentials to download materials for multiple customers.

The copyright infringement allegation, though, is harder to explain--essentially republishing an Oracle document, including errors, with an SAP logo. If true, TN has really handed Oracle a big club to use against SAP.

SAP denies any wrongdoing and promises to vigorously defend itself. It has until July 2 to respond.

Oracle has a special SAP lawsuit webpage with all related documents.

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Latest on the Oracle/SAP lawsuit

It's time for an update on Oracle's lawsuit against SAP alleging theft of intellectual property by SAP's TomorrowNow unit, which provides third-party support for some Oracle products.
Here's the latest:

1. On April 30, Oracle asked for a court order to force SAP to preserve electronic records that Oracle might want as evidence. In its filing, Oracle complained that SAP has not responded to a proposed "stipulation order" concerning such records, such as server logs. (As a side note, this is a good example of how new federal eDiscovery rules are coming into play in litigation.)
   
   
2. On May 9, the judge in the case resigned after finding herself disqualified and requested that the case be reassigned to a different judge. She did not give a reason for her resignation. The news means that a trial will be delayed, however. Her filing noted that "all pending dates of motions, pretrial conferences and trial are hereby vacated and are to be reset by the newly assigned judge."
   
   
3. On May 10, SAP CEO Henning Kagermann said in a speech to shareholders that SAP would put up a "massive fight against the accusations" that Oracle has made. "SAP respects the protection of intellectual property," he said. "At the moment we are investigating every single claim in the lawsuit and composing the defense that we will file with the court."
   
   He also positioned the lawsuit as an attempt to kill the third-party Oracle support business. "Even if Oracle portrays it differently in its petition, we believe what this is about is an attempt to make it more difficult for third parties to provide service and support for Oracle software," he said.
   
   
4. One week later, Oracle and SAP agreed to extend the deadline to June 1 for Oracle to file an amended complaint, with SAP's response now pushed back to July 2.
   
   
5. Then, yesterday, TomorrowNow CEO Andrew Nelson began to speak up, not so much about the lawsuit directly, but about the value of his firm's services relative to Oracle's. In an interview with CNET's silicon.com, he questioned the value to customers of paying maintenance fees so Oracle could invest in future products, such as Fusion. He said,
   

   Oracle customers no longer value pre-funding a Fusion application that they no longer understand, that's uncertain to them and that they're not sure they will ever use.
   
   Oracle has to respond to that. The challenges they've created through their M&A strategy... they've really dug a hole for themselves.

In the meantime, TomorrowNow continues to sell new business, though it's not clear how much of it is for Oracle support. Last week it announced that it expects to sell support contracts for 10 clients of Baan (now Infor's ERP ln).

Not to be left out of the action, TomorrowNow competitor Rimini Street sends word that it has picked up a new deal to support a Siebel implementation at medical products manufacturer Beekley Corporation. Rimini Street claims a savings for Beekley of 50% in support costs, while stabilizing the system and improving Beekley's service to its customers.

Expect more news next week when Oracle amends its complaint, and then July 2 when SAP is due to respond.

Update, Jun. 2: Oracle has amended its complaint to include copyright infringement. Read more in my post for June 2.

Related posts
Oracle/SAP lawsuit: view from Rimini Street
SAP subject to criminal charges?
Oracle sues SAP and its TomorrowNow unit

More on Microsoft's attempted patent shakedown of open source users

There's a good overview on the battle between Microsoft and open source developers/users/distributors--of all places, on CNN's Money website. The lengthy article goes into the history of software patents, an overview of open source licenses, a biopic on Richard Stallman, the father of the GPL open source license, and the latest chess moves in the Microsoft/Novell agreement regarding Linux.

The good news is that the U.S. Supreme Court recently raised the bar for the types of patents that Microsoft is using to threaten open source. The bad news is that large corporate customers of open source are more likely to be cowed by the threat of lawsuits than they are to fight Microsoft's shake-down attempts on principle.

Read more on the CNNMoney.com website.

Related posts
Microsoft threatens Linux users
Strange bedfellows: Microsoft and Novell in Linux deal
The economics of open source

The coming wave of IT staff retirements

Over at Computer Economics we've just published a special report on the soon-to-be-felt impact of baby-boomer retirements on IT organizations.

From the abstract:

As the baby-boomer generation ages, a growing number of senior IT professionals are nearing retirement, and many organizations have not fully prepared for the loss of so many leaders and experienced technical staff members.

Furthermore, as younger IT staff replace older workers, the demographics within the typical IT shop are changing, leading to a number of "generational issues" (differences between generations in their skills, culture, and experience) that will need to be addressed.

This special report, based on our survey of over 150 organizations, documents the extent of these problems by size of organization, highlights the various strategies that IT groups are taking to deal with them, and provides practical recommendations for IT executives to prepare for the coming generational transition of the IT workforce.

This issue might not have the doomsday sounds of Y2K, but it might have a greater long-term impact. For many organizations, loss of knowledgeable staff might be the tipping point for finally replacing many of those legacy systems.

An executive summary of the report is here.