Thursday, December 20, 2007

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.

Wednesday, December 19, 2007

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.
Related posts
Oracle reports another blow-out quarter
TomorrowNow and the future of third-party support providers
SAP wins at Wal-Mart but reports slowing growth in U.S.
Computer Economics: 2008 IT Spending Outlook: Anemic Growth

Monday, December 17, 2007

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.

Related posts
Layoffs coming at Epicor?
Epicor to miss its revenue targets

Tuesday, December 11, 2007

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.

Related posts
SAP considering sale of TomorrowNow
SAP admits wrongdoing in Oracle lawsuit
Oracle now charges SAP with copyright violation
Latest on the Oracle/SAP lawsuit
Oracle/SAP lawsuit: view from Rimini Street
SAP subject to criminal charges?
Oracle sues SAP and its TomorrowNow unit

Tuesday, December 04, 2007

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.

Related posts
Microsoft and SAP: the merger that didn't happen