Wednesday, December 17, 2008

Sage launches on-demand offering targeted at micro businesses

Dennis Howlett got an early look at SageLive, Sage Software's new software-as-a-service (SaaS) offering. According to Howlett, the system is being targeted at very small businesses:
These services are aimed at micro businesses where the user count is most likely to be a single user plus the accountant. The typical customer will be a lifestyle business that might be selling goods or services and may not keep any books today.

Sage is opting for a soft launch with SageLive, the brand which Billing (a free service) and Cash (paid for) will occupy. As of tomorrow, the company will be in open beta and eliciting feedback.

Pricing is in the range of £10 per user per month, which at today's exchange rate would be about $15.

It's not clear from Dennis's post whether the system will be offered outside of the UK. Nevertheless, it will be an interesting case study on several levels. First, whether so-called micro-businesses can be induced into taking a SaaS approach to accounting. Many of these businesses scarcely keep any books at all. They just turn over a pile of expense receipts and bank statements to their accountant. Will they be willing to turn over nearly $300 a year to Sage to automate the process?

Secondly, as Dennis points out, can a traditional software vendor such as Sage make the transition to the on-demand world? Dennis is not entirely convinced, but read his whole post for more details.

Update: Read Dennis's second post, outlining the architecture, functionality, and mobility features of SageLive.

Update, Dec. 18. David Turner offers an alternative approach to financial systems SaaS. His CODA 2go application is built on top of's platform. He writes, "It’s cut years off our time to market and given us the freedom to focus on application development, which is what we do best. It also gets us quickly past any security concerns that users might have, by using a hosting service and infrastructure with an outstanding record over many years."

Related posts
Sage layoff in North America

Tuesday, December 16, 2008

Court dismisses some Oracle claims against SAP in TomorrowNow lawsuit

SAP won a small victory in its defense against Oracle's lawsuit over SAP's Tomorrownow business unit. The U.S. district judge overseeing the case agreed with SAP yesterday that two Oracle legal entities do not have the grounds to sue for copyright infringment, as they do not hold the copyrights. One Oracle entity does have such grounds however.

Nevertheless, the judge rejected all other motions by SAP to dismiss Oracle's case. SAP had argued that TomorrowNow personnel could not have committed breach of contract by improperly accessing Oracle support materials as those personnel were not parties to the customer contracts.

Bottom line: the case will go forward and SAP is still in a heap of trouble.

The full 14 page ruling of the judge is available.

This news is getting surprising little press coverage. A single article, from Reuters, as a short summary of the judge's ruling.

Related posts
Oracle increases accusations in SAP lawsuit
SAP puts TomorrowNow out of its misery
Legal basis for third-party ERP support industry
Oracle wants to broaden lawsuit against SAP and TomorrowNow

Monday, December 15, 2008

SaaS: plan to get out before you get in

A question about software licensing contracts on Ray Wang's blog, prompted me to think about issues involving the use of software-as-a-service (SaaS) for mission-critical applications. Specifically, the issue of vendor lock-in.

If you thought vendor lock-in was a problem with traditional on-premise ERP software, think about the issue when it comes to SaaS. Under a perpetual license agreement for on-premise software, you always have the option of going off maintenance but continuing to run the software, and perhaps maintaining it yourself.

But with SaaS, there is no such thing as going off maintenance. If you stop paying, access to your mission-critical system gets cut off.

Therefore, I think it is important for buyers to think about what will happen if and when they decide to migrate from their SaaS provider. Specifically, there are two things I believe that buyers should ensure are in their license agreements:
  • First, if the SaaS provider offers an on-premise version (e.g. Oracle On-Demand), ensure that there are terms and conditions that allow you to transition to an on-premise version. This covers cases where you want to continue to use the software but are no longer satisfied with the hosting arrangement.

  • Second, if the SaaS providers does not offer an on-premise deployment option (e.g., be sure the provider gives you the ability to extract all master file and transactional data to an open format (e.g. XML). The ability should be repeatable--not a one-time right--so that you can develop migration programs to facilitate conversion to a new SaaS or on-premise solution.
Software-as-a-Service is becoming more and more accepted as a deployment option for enterprise systems. But if the application is truly mission-critical, be sure you have an escape plan in advance.

Update, Dec. 28. I just came across this blog post by the folks at Zoho, which competes at one level with for CRM customers.
Salesforce has repeatedly tried to block customers from migrating to Zoho CRM, by telling them (falsely) that they cannot take their data out of Salesforce until their contract duration is over. We have emails from customers recounting this.
If true, and I have no reason to think it's not true, it underscores the need for customers to take proactive measures to mitigate vendor lock-in by SaaS providers.

Update, Feb. 13, 2009. For a really sad story on difficulties getting out of a SaaS relationship, read this account concerning NetSuite. I do not know if current customers of NetSuite are having similar experiences.

Related posts
Netsuite claims new deal flow more predictable
SaaS: degrees of multi-tenancy
Workday: evidence of SaaS adoption by large firms
All not sweet with NetSuite
Computer Economics: The Business Case for Software as a Service
Dell acquires SaaS platform Everdream

Wednesday, December 10, 2008

Infor layoffs, Dec. 2008

A Spectator reader reports that Infor is in the process of laying off 400 people worldwide, December 9-10. He writes, "I made it through over 10 years, and several acquisitions. Time to say goodbye!"

I emailed this information to Infor, which responded with a written confirmation:
Infor is undergoing a net headcount reduction of approximately 5% of its workforce, which is significantly less than its primary competitors. Like many companies, Infor is aligning its workforce to reflect the realities of the global economy. At the same time, Infor is accelerating several strategic business initiatives to keep pace with its innovative product strategy, increase efficiencies and improve the services it offers to customers. Infor is a healthy, profitable company and these actions position it for exceptional growth when the economy recovers.
Infor is not alone among enterprise software vendors in making headcount reductions, of course. Epicor, Sage, Consona, Lawson, and Oracle have taken similar actions in recent weeks.

If you have additional information regarding Infor's action--e.g. what functions have been affected--or layoffs at other vendors, email me or leave a comment on this post.

Related posts
Sage layoff in North America
Consona layoff
Layoffs at Lawson
Oracle layoffs, Nov. 2008
Fresh round of layoffs at Epicor

Tuesday, December 09, 2008

Crack in the dike for SAP maintenance fee hike

It appears that SAP's forced march to higher maintenance fees is not going so well on its home turf.

The Financial Times first reported this morning, in German, that SAP has agreed to let its customers in Germany and Austria to stay on on their current maintenance contracts through 2009. Previously, SAP had unilaterally forced all such customers to upgrade to its more costly enterprise support. I was first alerted to the FT article in a tweet by James Governor (aka Monkchips).

SAP's backpeddling only gives relief to its customers in Germany and Austria, but it is hard to imagine that clients in other geographies won't demand the same treatment. They should.

Dennis Howlett is following the story and is posting additional news and commentary as he finds it. He writes:
This is a major victory for SAP customers who, despite SAP management’s protestations to the contrary have continued to lobby for reconsideration of SAP’s maintenance package pricing. According to the FT, some 50-60% of SAP customers in Germany and Austria were deeply unhappy with the measures, citing economic pressures contributing to difficulty in justifying what was already a tough budgetary sell. Computerwoche confirms that SAP had only managed to persuade 25% of its customers to changeover from standard to enterprise support.
Update, Dec. 10. Vinnie Mirchandani questions whether a maintenance fee rollback to 17% of license cost is enough for SAP, as even that level of cost is too high for the value delivered.

Update, Dec. 10. Dennis Howlett follows up his original post with a phone call from Bill Wohl, an executive at SAP. Wohl says that there are specific legal issues in Germany and Austria that required SAP to tear up existing contracts and issue them afresh so that it could impose the price increase.

Howlett points out that this has created an incredibly complex situation for multinational customers that have different contracts in different countries. He also thinks that SAP is not really hearing its customers on how much resentment the price increase has generated.

Read the whole post for the full picture.

Related posts
SAP maintenance fees: where is the value?

SAP under the spotlight for "broken promises"
Mad as hell: backlash brewing against SAP maintenance fee hike

Friday, December 05, 2008

Follow the Spectator on Twitter

After months of resisting, I've starting Twittering. You can read my tweets (Twitter posts) at To follow me in real time, you'll need to set up a free Twitter account if you don't have one.

I'm using Twitter to do quick notes on items that I think may be of interest to Spectator readers, especially when I don't have time to do a full post on the Spectator. I also post quick updates on things I'm researching. Plus a small amount of chatter, which I try to keep to a minimum, so as not to annoy people.

I started Twittering about a week ago, and it's already led to some interesting exchanges with other IT professionals and analysts. It also has proven to be a good source for chasing down leads/news/rumors.

Read this Wikipedia entry for more on Twitter itself. There's also a list of my most recent tweets in the right hand column.

Recession prompts great financing deals from IT vendors

An IT leasing agent recently told me that business has actually picked up in the past few months, as a result of the credit crunch. Those leasing firms that still have access to capital are finding buyers more willing to consider financing, where they might have done purchase deals in the past.

Now, major IT vendors are getting in on the act as well. Vendors that have access to capital are offering financing on attractive terms in order to get prospects to close deals.

An article this morning on mentions Dell's latest offer:
Dell last week offered its zero-percent deal for "qualified large businesses" that lease Dell and EqualLogic hardware for 12 to 48 months. The company is also allowing "best credit" large businesses defer their payments for three years if they buy at least $40,000 worth of hardware by January 23, 2009.
Microsoft is taking a similar approach in pushing its Dynamics line of ERP systems:
Microsoft, for example, is promoting the zero-percent rate for new customers of its Dynamics ERP and CRM systems whose purchases total between $20,000 and $1 million. The deal must be made before March 20, 2009. Brian Madison, Microsoft Financing's general manager, says he can't yet specify numbers on how many clients have been granted the low rate since the offer was made in mid-November. He told the "lending approval rates have been in line with, or better than, industry norms."
The article also mentions SAP as a vendor making aggressive financing offers.

Financing options for enterprise systems deals--whether financed by the vendor, or by a third-party--are often a good approach for organizations to conserve cash and improve the timing of costs and benefits. The aggressive terms currently being offered by certain vendors only makes this option more attractive. If you are about to negotiate a new deal, be sure to ask about financing options.

Thursday, December 04, 2008

JDA calls off merger with i2

It's now official. Following weeks of speculation, JDA has canceled the merger it announced back in August with i2.

In its press release, i2 said it expects to receive the non-refundable termination fee of $20 million from JDA within three business days.

JDA did not agree to disclose any information about why it canceled the deal. However, it did announce in November that it needed more time to secure financing, leading to speculation that the global credit crunch might force JDA to pull out.

This leaves i2 back in the same place it was before JDA extended its offer, looking for a way to rebuild its leadership in supply chain management, but now in a market that is much weaker than before. There is little danger for the short term, however. i2 has a strong cash position, with $220 million in cash and equivalents, as of September 30.

Larry Dignan has more analysis.

Update, Dec. 7. Adrian Gonzalez has a good analysis of what termination of the deal means to both JDA and i2.

Related posts
JDA to acquire i2, creating major SCM player
i2 forms committee for possible sellout
Pro-sellout shareholder of i2 elects second board member
Major i2 shareholder calls for sale of i2
i2 seeks patent license shake-down fees
Former i2 CEO learns crime does not pay
i2 innovates with hosted vendor-managed inventory services
SAP: If you can't beat 'em, sue 'em
i2 kills off its SRM business
i2 fires 300, struggles to refocus

Wednesday, December 03, 2008

Sage layoff in North America

Sage confirms a tip passed on to me of a layoff yesterday within Sage's North American business. A Sage spokesman confirmed that the layoff affected 150 employees (about 3%) from across Sage North America.

He writes:
We're supporting all of the people involved by offering severance and outplacement services. We're now at about 4,800 across North America. The reduction affected roles across the business, except for our Healthcare Division, which underwent a reorganization in July. Yesterday's changes are part of cost reduction efforts across the business that will help to ensure we continue to be competitively strong.
Separately, Dennis Howlett has some good analysis on Sage's financial results, announced today. Bottom line: slowdown in activity is most acute in the U.S., especially in Sage's healthcare business. His analysis is in these two posts: Sage results show market slowdown and Sage results show impact on SMB market.

The news of layoffs in North America would be consistent with Dennis's analysis.

Epicor's publicity stunt

Over the past few months, Epicor has fought off a hostile takeover bid, announced disappointing results, seen its stock price cut in half, and conducted employee layoffs.

So, what does Epicor do? Spend scarce funds to launch an elaborate fake website for a fake musical, "In the Key of ERP," based on a fake book by a fake author.

Suggestion for Epicor: do a survey of your customers, employees, and shareholders and ask them where they think you should be spending your money these days.

Related posts
Fresh round of layoffs at Epicor
Epicor facing unfriendly takeover bid
More layoffs at Epicor
Epicor in transition: revenue up, profits down
More on Epicor's management changes
Layoffs coming at Epicor?

Monday, December 01, 2008

H-P cuts IT spending in half

H-P's IT spending is planned for about 2% of revenue in 2009, compared to 4% in 2005. That's a 50% cut, but it's not because of the weak economy. Rather, it is the result of an aggressive IT restructuring and consolidation project initiated several years ago by CEO Mark Hurd and CIO Randy Mott.

According to the Wall Street Journal:
The IT restructuring began just after Mr. Mott joined the company in July 2005, and will lower IT costs by more than $1 billion a year from that year's levels, in line with its estimate when it began the plan.

H-P will be able to reduce spending on internal IT from about 4% of revenue in 2005 to less than 2% in 2009.

The company also consolidated more than 85 IT data centers globally to six centers in three locations, which are expandable to accommodate growth. It also consolidated more than 6,000 applications running the business to about 1,500.

The company reduced its annual energy consumption in its data centers by 60% as it decreased the number of servers by 40%, while increasing processing power more than three-fold.
Technically, organizations such as HP show up in the list of companies cutting IT spending this year. But again, it has nothing to do with weak economic conditions. Rather, it has to do with a broad trend toward consolidation and finding efficiencies in delivery of IT services. Sun Microsystem's massive ERP consolidation project is another example. Remember this when you read the reports of IT spending cuts this year. Some of it would be taking place even if the economy were booming.

Related posts
Sun's massive ERP consolidation effort
HP's new CEO: the un-Carly
What went wrong with HP's SAP migration?
HP blames SAP migration for revenue shortfall

Negotiating enterprise software deals in Q4

Ray Wang and Vinnie Mirchandani each have good posts this morning on negotiating software deals. Ray focuses on recommended buyer tactics in the current economic environment. Vinnie does a rerun of what he calls his "Top 10 Stupid Salespeople Tricks."

From Ray,
In both the enterprise and SMB space, recent market conditions point to a lack of available financing for enterprise software purchases. This trend will continue as the credit markets tighten. The result - vendors will be more inclined to discount. Enterprises engaged in contact negotiation with software vendors should take this opportunity to seek additional discounts as the scarcity of new deals will put customers in the driver seat.
Ray continues with five tips for buyers.

Vinnie's "stupid salespeople tricks" include "We want to be a partner, not a vendor," "One of us does not belong," and ""You are trying to commoditize us." Read his whole post for the full list of ten.

Both take a shot at revenue recognition as a vendor excuse. I covered the revenue recognition issues in my previous post. Although I believe revenue recognition is a legitimate issue, Ray encourages buyers to push back when vendors claim it hinders their flexibility:
Have the vendor demonstrate the range of discounts as they apply to their VSOE rules. Often times, the sales person is confused about how these rev recognition rules impact the deal and will “hide” behind these rulings. Breaking down the revenue recognition components often identifies hidden opportunities. Keep in mind there are some limits.
Vinnie agrees that most salespeople don't understand the accounting standards and therefore hide behind them. He writes,
A client CFO challenged a software salesman and asked to speak to his Controller about a so-called recognition issue. The issue magically disappeared soon after. We agreed it probably was a "commission recognition" issue rather than a revenue recognition issue.
Regarding the current economic climate, my own observation is that there are still quite a few organizations out there planning to buy software, at least here in Southern California. A local SAP SMB reseller told me last week that he has never been busier, believe it or not. But most deals have already slowed to a crawl. Buyers that are able to move forward, however, will find themselves in the driver's seat when it comes time to negotiate.

Related posts
Why vendors resist negotiating software maintenance fees

Wednesday, November 26, 2008

Why vendors resist negotiating software maintenance fees

I've been coming down pretty hard lately on certain software vendors for escalating costs of software maintenance contracts as well as the lack of value and flexibility in maintenance programs. I'm not alone in this criticism, as other bloggers, such as Vinnie Mirchandani (aka, Vinnie Maintenance), Ray Wang, and Dennis Howlett have voiced the same concerns.

One thing that has puzzled me for a long time, however, is why vendors are not willing to negotiate software maintenance fees in the same way that they negotiate upfront license fees. One of my associates the other day referred to maintenance fees as the "third rail" of ERP deals--it seems you can't touch it. But vendors often discount the license fees to close the deal. Why aren't they willing to negotiate maintenance fees?

They easy answer is, because that's where they make their money. Although that's no doubt true, I've recently learned that there is another reason.

Issues with revenue recognition
A Spectator reader, who will remain unnamed, recently contacted me about this matter. He is the CEO of a privately-held Tier II ERP company and a veteran of the industry. He'd been observing my rants about vendor maintenance fees and thought it might help me to see the situation from the vendor's perspective, specifically from the accounting side.

He points out that accounting standards for revenue recognition in the software industry have been evolving over the past several years. "Revenue recognition" simply refers to the policies that govern when a company can book sales dollars as earned revenue.

For enterprise system vendors, revenue recognition involves a number of issues. For example, suppose a vendor closes a deal for 100 users, plus implementation services, plus hardware, plus maintenance fees.
  • When is the vendor allowed to record the revenue for the software licenses? Does he count it all as revenue as of the date of the invoice, the date the software is shipped, the date the software is installed at the customer's location, or the date that the implementation is complete?
  • The implementation services are a bit simpler, as they typically are billed and recognized as revenue as of the date of service. But what if the implementation is performed as a fixed fee? When should the revenue be recognized?
  • What about the first year's maintenance fees? Should they be recognized as revenue at the time of sale, or amortized over the 12 months? Can the vendor recognize revenue for maintenance in months prior to the software being operational?
  • And what about the hardware? Should the sale of the hardware be recognized at the time the hardware is shipped, at the time it is installed at the customer site, or at the time that the complete system goes live?
A little thought about questions like this and you can see why the accounting for enterprise system deals can be difficult.

Potential for abuse
Furthermore, if the customer wants to structure the deal differently (e.g. for financing purposes), can the vendor move money between different parts of the deal? For example, can he charge more for the software licenses and take it out of maintenance fees? Or, can he take money out of the implementation services and put it in hardware?

What if moving this money around also lets the vendor recognize revenue earlier than he would have been able to if he had structured the deal as he normally does? Isn't that cheating? It sure could be.

Because moving money from one part of the deal to another may affect revenue recognition (and therefore, tax obligations), a large body of regulations have been promulgated to provide accounting standards for software deals. The most significant of these standards is AICPA's Statement of Position (SOP) 97-2, Software Revenue Recognition (later amended by SOP 98-9). According to The CPA Journal, a publication of NY State Society of CPA's:
SOP 97-2 provides that revenue should be recognized in accordance with contract accounting when the arrangement requires significant production, modification, or customization of the software. When the arrangement does not entail such requirements, revenue should be recognized when persuasive evidence of an agreement exists, delivery has occurred, the vendor’s price is fixed or determinable, and collectibility is probable.
The rules get really complicated when contract accounting is not required. In such cases (which cover many enterprise software deals), the rules require that the vendor’s fee be allocated according to something it calls "vendor-specific objective evidence (VSOE)" of the fair value for each element of the deal. The CPA Journal article explains:
VSOE is limited to the price charged by the vendor for each element when it is sold separately. This requires the deferral of revenue until VSOE can be established for all elements in the arrangement or until all elements have been delivered. If PCS [postcontract customer support] is the only undelivered element in the arrangement, however, the entire fee can be recognized ratably over the term of the PCS contract. In addition, recognition of revenue must be deferred if undelivered elements are essential to the functionality of any delivered elements.
This brief explanation, as complicated as it is, does not do justice to the complexity of these accounting standards. Read the entire CPA Journal article to get an idea of the problems facing software vendors in accounting for sales. You can also read this article from CFO Magazine, which illustrates what happens when a company runs afoul of these regulations.

To further complicate things for publicly held companies, different auditors may have slightly different interpretations of the rules and may force vendors to restate earnings if they do not agree with the interpretation of previous auditors.

Why vendors resist negotiating maintenance fees
But what does this have to do with negotiating maintenance fees? As patiently explained by my CEO reader, software vendors spend a lot of time structuring their pricing for each element of the typical deal so that it will pass muster with their accountants and auditors. Change the structure of the deal, and it is likely that the vendor will have a huge accounting problem.

Therefore, if the vendor appears unwilling or unable to negotiate changes to the maintenance fees, it's not just that the vendor is greedy. It is at least partly, if not largely, due to the accounting considerations.

I believe this explanation and think it is important to keep this in mind when negotiating with software vendors. It does not explain, however, why software maintenance fees are so high to begin with.

As confirmed by my source, rather than try to negotiate a lower percentage on maintenance fees, a better approach would be to negotiate harder on software license fees. As most vendors are now basing their maintenance charges as a percentage of the discounted price of the software, any discount won will pay off in terms of lower maintenance fees over the life of the contract. In addition, negotiating a maximum increase over multiple years is also advisable.

Update, Nov. 28. I contacted Stephen Guth, author of the Vendor Management Office blog, for his take on this post. He spends a lot more time on these matters than I do, so I was interested in his perspective. He writes back:
I think software account reps tick through an ordered list of reasons as to why they want to resist negotiating fees (high margin, annuity stream, etc.), and I think revenue recognition and having to deal with their Controller are somewhere on the list. I used to work for a vendor, and it was always easier for us to go to our special pricing folks than to go to our CFO/Controller. We avoided the Controller like the plague. We would be willing to do deals through our special pricing folks but rigorously resisted any deal elements that required us to go to the controller for approval. I suspect it's the same elsewhere and your contact's perspective confirms my suspicion.

I guess the point is that buyers need to look at the TCO and their own accounting treatment (e.g., capital of a license vs. the expense of maintenance). In some cases, and it sounds crazy, a buyer may want to (as a trade-off) offer to load a software license fee as a concession for a dramatically lower maintenance fee. Again, all about the TCO. And all you and I can do is try to equip people with our perspective so that they can make their own informed decision.
In other words, Stephen confirms that from the vendor's side there are some negotiation points that can be handled through "special pricing" and some that require sign off by the vendor's CFO/Controller. Knowing when you are treading into the second area is key to understanding why vendors resist changing maintenance terms, conditions, and pricing structures. These points may be well-known by those that work on the vendor side of the table, but they are not widely realized by typical buyers that I deal with.

To negotiate successfully, buyers need to understand the needs of sellers. At the risk of repeating myself: software revenue recognition issues are not an excuse for recent escalations in software maintenance fees by certain vendors. But the issues around accounting compliance do explain why, once maintenance program structures, terms, and conditions are established, vendors resist changing them on a case by case basis.

Related posts
Pushing back on software vendor maintenance fees
SAP maintenance fees: where is the value?
SAP under the spotlight for "broken promises"
Vendor software maintenance programs: top 10 wish list
Mad as hell: backlash brewing against SAP maintenance fee hike
Oracle confirms: maintenance fees are virtually all profit
Oracle profits strong, thanks to your maintenance payments
Vendor maintenance fees: just say no
High software maintenance fees and what to do about them

Fallout from SAP's maintenance fee price hike

Dennis Howlett is reporting that the U.S. SAP user group (ASUG) has terminated its first full-time CEO, Steve Strout. Dennis speculates--with good reason--that Strout was not pushing back hard enough on SAP's recent hike in maintenance fees.

Read Howlett's post for more.

In related news, Societe Generale analyst Richard Nguyen put out a sell-rating on SAP's shares, on his forecast that SAP's fourth-quarter profit will come up short. The reason? SAP customers are pushing back on SAP's maintenance price increase.

Larry Dignan has more on Nguyen's downgrade on SAP.

Related posts
Pushing back on software vendor maintenance fees
Mad as hell: backlash brewing against SAP maintenance fee hike

Monday, November 24, 2008

Microsoft Dynamics customer stories

Dennis Howlett attended Microsoft’s Convergence conference in Copenhagen, its annual gathering for users of its Dynamics line of ERP systems. He was favorably impressed with the user-centric nature of the event:
This was a modestly confident yet cautious Microsoft, happy to parade good customer stories. This is to be welcomed and a sharp contrast to other shows where the emphasis is often on ensuring the company’s message is not tempered by customer reality. As we move forward in an uncertain economy, these stories will become much more important to commenters and customers alike.
Read Dennis's blog post for the latest from the show on Microsoft's AX, NAV, and GP products.

Thursday, November 20, 2008

Consona layoff

A Spectator reader informs me that Consona had an unannounced layoff on November 3. Sales, development, and corporate functions were affected. The number of employees affected is unknown. My source is a former Consona employee that maintains contact with folks who still work there.

Consona, which changed its name from M2M Holdings last year, is the parent company for Made2Manage, a well-regarded ERP system for small and midsize manufacturing firms. Consona has also acquired several other ERP and CRM systems for the SMB market, notably Intuitive, Onyx, Encompix, DTR, Cimnet, and Axis. Intuitive itself had previously acquired Supplyworks and Relevant. Many of these are solutions focused on niche industry requirements, an approach that I am particularly fond of.

Consona has not responded to my request for confirmation of the layoff.

If you have further information, please email me or post a comment below.

Update, Nov 24. A Consona represented responded this morning with confirmation of the workforce reduction, but claims they were movements of jobs from the U.S. to Consona's offshore development facility in India.

She writes:
We did recently move some positions to our office in Bangalore, India. We are leveraging our offshore development capacity during the economic downturn to maintain our ability to deliver solutions to our customers while keeping costs down. We also restructured our IT organization to provide 24 hour support to our customers and offices around the world by opening an IT support organization in Bangalore. Considering these positions were simply transitioned to another location, the "reductions" you note ... are insignificant.

Overall, Consona has a track record of being a stable company for our customers. Our strong financial performance is based on the fact that we continually adjust our business based on our results, near term projections, and state of the market and economy. This is not something all software companies are doing, as you know.

Just a few notes on our office in Bangalore...
  • Mixed onshore/offshore model that doubles development capacity and achieves a faster time to market (24-hour operation)
  • Similar structure in many other SW providers.
  • We have our own development center operating successfully since the 90s as part of Cimnet Systems.
  • Staff are Consona employees, have been successfully releasing both major and minor product releases

    Wednesday, November 19, 2008

    Netsuite claims new deal flow more predictable

    On-demand enterprise system provider NetSuite appears to be bucking the trend these days. According to NetSuite CFO Jim McGeever, sales slowed in late September, but since then the flow of deals has become "much more predictable." He made these remarks today in a presentation to the UBS Global Technology and Services Conference.

    Tom Steinert-Threlkeld reports:
    "What has happened in October and so far in November is that when people said they were going to buy, they actually bought," McGeever said.

    Going by the boards have been deals with small customers, who spend less than $10,000 a year with the company, he said. The deals with big customers, aka "elephants," are getting done. Elephants who didn't complete deals at the end of September, will complete them before the year ends, he said. "We don’t expect to lose any of them," he said.

    NetSuite got its start by selling to very small businesses. In 2002, the average ticket was $447 per customer. Now, sales growth comes entirely from customers spending more than $10,000 a year. The biggest growth area: Customers spending more than $100,000. "The larger deals seem relatively strong," he said.
    I'm not sure what to make of this. Our research at Computer Economics shows that 44% of U.S. and Canadian organizations have delayed the start of major projects in the August to October timeframe, and 16% have cancelled such projects outright. The only explanation I can come up with for NetSuite's success is that its on-demand model is selling well these days as it minimizes upfront investments. Still, the claim that it is doing well in large deals is counter-intuitive in this market.

    If you have insights, email me or leave a comment on this post.

    Related posts
    Workday: evidence of SaaS adoption by large firms
    All not sweet with NetSuite

    Tuesday, November 18, 2008

    Layoffs at Lawson

    I spoke too soon on the previous post. A Spectator reader alerts me to layoffs announced today by Lawson Software.
    The restructuring plan includes the elimination of approximately 200 employees, or 5 percent of the global workforce, with personnel departures expected to be substantially completed by Dec. 31, 2008. When combined with anticipated voluntary attrition and limited hiring, the total reduction in the global workforce is estimated to be between 8 percent and 10 percent by the end of the company's fiscal year on May 31, 2009.
    The firm expects restructuring costs to be in the range of $9-12 million, resulting in savings of $40-50 million.

    Read Lawson's announcement for more.

    Expect to see more of these sorts of announcements. Investors will view not vendors in a bad light for layoffs in the current economic climate, and in fact may actually view such actions favorably.

    It's another story for those let go, of course. We hope the best for them and their families.

    Oracle layoffs, Nov. 2008

    Update: See my latest post on Oracle layoffs, January 2009

    As I mentioned previously, the Spectator is getting a surge in Google-referred traffic recently for search terms such as "Oracle layoffs." Oracle is not saying anything publicly, but I am getting some feedback from readers.

    The latest is that there have been Oracle layoffs in November, but so far they are not affecting delivery people. There was a reduction in force, however, in August that did affect Oracle's consulting unit, which I reported previously.

    Again, anyone with more information, please email me or leave a comment on this post.

    Update, 1:10 p.m. Tom Steinert-Threlkeld points out that although SAP has not yet cut overall headcount, its employee count in the Americas, excluding acquisitions, has actually fallen slightly in the past nine months. He also quotes SAP's CFO, Werner Brandt, as indicating that SAP layoffs in the future cannot be ruled out. Brandt made the comment in answer to a question at a UBS converence in New York today.

    No recent news to my knowledge on layoffs at other enterprise system vendors, such as Infor, Microsoft, IFS, Lawson, QAD, Exact, Glovia, Best, or JDA.

    Update, Nov. 20. A spectator reader reports:
    I spoke to one of my former coworkers that was just laid off [by Oracle] on Monday and she said that her understanding was that 20% of the Education staff was let go. They were notified by managers early Monday morning and by noon they had each received a packet at home via FedEx with a severance packet. By EOB on Monday email had been cut off. Typical Oracle. Still haven't found any articles on it.

    Thursday, November 13, 2008

    Top ten software engineering concepts

    Ed Yourdon, the father of structured programming and one of the greatest minds in software, has put out a terrific presentation, Top Ten Software Engineering Concepts.

    Ed does a great job summing up the key principles of software development, many of which go back decades. I studied many of them in college over 30 years ago and in my early years in corporate IT. Ed points out that these principles keep getting rediscovered by new generations of developers, using different terminology. The presentation, in PDF format, is loaded with links to external resources on each concept.

    Do yourself a favor and download it now for future reference.

    Ed is giving the presentation itself at a CompAid “Software Best Practices” conference in Chicago on November 13th.

    Fresh round of layoffs at Epicor

    Epicor announced a new round of cost-reduction steps today, including headcount reduction, cutbacks in discretionary spending, and efficiency improvements. It said that expects to save somewhere between $16-20 million, with restructuring charges eating up $4 million of the savings during the fourth quarter.

    Although Epicor did not note the number of employees affected, an Epicor employee in the firm's Newburgh, NY office informs me that the layoffs hit 10% of Epicor's headcount worldwide. Unfortunately, he was one of them.

    The cost-cutting actions come at a key time for Epicor. As with all tech companies, the firm faces cutbacks in IT spending due to economic conditions. But Epicor is also battling a hostile takeover bid by New York hedge fund Elliott Associates. Epicor's board voted last week, for the second time, to reject Elliott's offer. Elliott already owns 10.2% of Epicor and is gunning for the whole thing. It originally bid $9.50 per share back in October, but last week lowered its offer to $7.50.

    Cost-cutting will just take Epicor so far in improving the bottom line. If it wants to remain independent, it will need to improve the top line as well. But under current economic conditions--and intense competition from other players--it won't be easy.

    Postscript: I am convinced there is a fresh round of layoffs at Oracle as well. The Spectator's web log is suddenly getting hammered this week by Google searches for the words, "Oracle layoffs." The only difference with Oracle is that they are not saying anything. If you have more information, leave a comment or send me an email.

    Related posts
    Epicor facing unfriendly takeover bid
    More layoffs at Epicor
    Epicor in transition: revenue up, profits down
    More on Epicor's management changes
    Layoffs coming at Epicor?

    Wednesday, November 12, 2008

    2009 IT spending outlook: could be worse

    Over at Computer Economics, we've just released the results of a special survey of IT executives, conducted in October 2008. In light of the current turmoil in world financial markets, the findings are a bit contrarian. According to the report's media alert:
    IT organizations decidedly stepped up their cost-cutting measures in the third quarter of 2008. Nevertheless, as they head into 2009, most IT executives are not anticipating deep cuts in IT operational spending or staffing levels, according to a new survey by Computer Economics, an IT research and advisory firm in Irvine, California.

    In the October survey of 159 North American IT organizations, one-quarter of the respondents anticipate spending reductions of at least 3%. But another quarter anticipate that their IT operational budgets will rise by at least 5%. At the median, IT organizations forecast that their spending growth will be flat.

    IT executives are also focused on retaining their current employees. IT organizations at the median and 25th percentiles forecast no change in their headcount in 2009, while companies at the 75th percentile are actually forecasting a 5% growth in staffing levels.
    The full report, Outlook for 2009 IT Staffing and Spending Levels, is available on the Computer Economics website, along with an executive summary.

    Tuesday, November 04, 2008

    Pushing back on software vendor maintenance fees

    negotiating software maintenance. He first asks, how is it that vendors are now charging annual maintenance fees that are 20% of the initial license cost (or more, in the case of SAP and Oracle), where they were typically charging 15% a few years ago? The answer, in effect, is because they can. In other words, buyers are simply not pushing back hard enough.

    He then provides a list of 18 questions you can use to push back on your software vendor when it comes time to negotiate. Here are a few...
    • Why do I have to pay you to fix your own bugs?
    • Why should I have to pay software maintenance in advance?
    • Can you separate the cost of actual maintenance from how-to / technical support?
    • I'm only able to install half of the total licenses in the first year, so why do I have to pay maintenance on all of the licenses?
    Read post to get the whole list.

    I know I've been harping on this subject for a long time (see related posts below), as have other bloggers, such as Vinnie Mirchandani (aka, Vinnie Maintenance), Ray Wang, and Dennis Howlett. But things won't change until buyers start pushing back harder.

    Or, antitrust actions are taken. But that's another story for another post.

    Update, Nov 6. SAP's co-CEO Henning Kagermann defends SAP's plans to increase maintenance fees.

    Related posts
    SAP maintenance fees: where is the value?
    SAP under the spotlight for "broken promises"
    Vendor software maintenance programs: top 10 wish list
    Mad as hell: backlash brewing against SAP maintenance fee hike
    Oracle confirms: maintenance fees are virtually all profit
    Oracle profits strong, thanks to your maintenance payments
    Vendor maintenance fees: just say no
    High software maintenance fees and what to do about them

    Thursday, October 30, 2008

    Unpackaging ERP

    A business associate asked me this week whether ERP systems have simply become too big and too bloated to implement.

    My answer--the easy one--is that it depends on the customer's needs. Some customers need the wide breadth of functionality that the Tier I vendors, such as SAP and Oracle, offer. But now well-known analyst Judith Hurwitz comes along and questions the whole idea of packaged ERP software. Her premise? It just doesn't exist anymore.

    Hurwitz tells the story of the CIO of a large corporation that decided to replace a number of legacy applications with a major ERP system (she doesn't mention which one):
    The idea was correct – the company needed a system that would implement business process and best practices to support the business in a uniform and efficient manner. The problem, in my mind was two fold – first the cost. To purchase and then implement this software cost the company $500 million dollars. Obviously, a considerable part of this expense was for professional services. And maybe that is the point. The idea that a company can purchase a packaged ERP system that is really packaged software is a misnomer. In reality, packaged software is not really packaged. It is a set of tools, a set of templates and processes that are linked together based on marketing and promise. The CIO I was speaking with provided some insight into the complexity of this implementation. It required a lot more customization than anyone had anticipated. The promise of out of the box implementation was a myth. Once the customization was applied to this package, the concept of a packaged environment was gone. Therefore, it should not have come as a shock when the next time the base platform of processes and tools had to be upgraded; it cost the company an additional $50 million.
    Her solution? She has five recommendations, but they basically come down to this: business software should be based on software components (services) that can be can be linked together to support individual processes, configured specifically to the organization's business.

    Service-Oriented Architecture
    What Hurwitz describes, quite well, is the essence of a service-oriented architecture (SOA), and it is at the heart of SAP and Oracle's current development efforts. SAP's Netweaver is simply an SOA platform, allowing functionality to be more easily deployed and composite applications to be built on the fly. And Oracle's Fusion middleware uses SOA to integrate its newly acquired products, and SOA is the foundation of its next-generation Fusion applications.

    SOA is also the core strategy of other vendors, such as Lawson, Microsoft, IFS, and many others. For example, long before SAP and Oracle announced their SOA strategies, IFS had already built its applications on a component-based architecture--beginning in the late 1990's. When you drill down into IFS Applications, what you find at the bottom is not modules and programs but processes. These processes are then linked together to support specific business processes within the application. They can also be linked by the customer into other or different processes--exactly what Hurwitz is calling for.

    Lawson, another Tier II vendor, is also transitioning its application portfolio to SOA, using its Landmark development environment, featuring domain-specific specific languages. The vendor has already released some functionality built on Landmark, including some HR and strategic sourcing applications, and it is working on others.

    Microsoft is also incorporating SOA in its Dynamics line of ERP systems, and even Infor is claiming use of SOA as part of its strategy to link the many products in its portfolio.

    An evolution in ERP
    In years past, the winning vendor was the one that could check the most boxes on the customer's RFP. Today, many vendors can check most if not all of the boxes (though "how" vendors meet requirements often differs). The result is software that has enormous functionality but requires thousands of decisions to implement, especially in large companies. Today, customers have heard all the war stories, and they do not have an appetite for large, complex, risky, implementations--especially in today's economic climate. Speed, simplicity, and flexibility are the attributes that appeal to buyers today. Of course, the key requirements still need to be met. But the question to the buyer often comes down to, which system can we implement quickly and more easily?

    The short-term approach of most vendors has been to simplify implementation through preconfiguring their systems for specific industries and so-called best business practices. SAP's approach is its "All-in-One" offerings. Oracle's is through use of "implementation accelerators." Both vendors have good references to demonstrate the success of their approaches, especially with small and midsize firms. These efforts are commendable.

    But ultimately, the real answer is to transition completely to service-orientation--both by vendors and by customers. The good news is that most ERP vendors are already in this transition to, in effect, unpackage ERP. The transition will not be rapid, but it is taking place.

    Update, Oct. 31. Floyd Teter gives his take on Judith's analysis. Floyd thinks there is a risk inherent with SOA--organizational stovepipes--and suggests social networking as a solution.

    Related posts
    Update on Lawson's strategy
    Payback begins from SAP's Netweaver strategy
    The death of packaged software
    Blogging from the Lawson user conference
    Latest from the IFS World conference

    Tuesday, October 21, 2008

    Oracle layoffs, October 2008?

    [Please see the more recent post on Oracle layoffs in November.]

    Over the past two days, there are a significant number of search engine hits against the Spectator, searching phrases such as "Oracle layoffs," including some from within Oracle's own domain. Which generally makes me think that there may be a reduction in force (RIF) in process.

    The number of such searches have increased today.

    If you have any insights or experience, please email me, or leave a comment on this post.

    Update, Oct. 24. The search engine referrals continue, including words such as layoff, firings, and pay cuts. It could be just rumors or gossip.

    Update, Nov. 17. Search engine referrals increased sharply last week and continue. I am convinced that there were reductions in headcounts last week. The one comment on this post, dated 11/17 is consistent with this view.

    Monday, October 20, 2008

    SAP maintenance fees: where is the value?

    Vinnie Mirchandani continues to hammer away on his theme that software vendor maintenance fees represent "empty calories" in the IT budget. In a post today, he revisits SAP's recent hike in maintenance fees to 22% of the software license cost.

    His basic argument is two-fold. First, SAP's contention--that customers will save on testing costs by using SAP's Solution Manager to apply new enhancements--is bogus. He writes:
    For a vendor which has made a ton of money selling Governance, Risk and Compliance the last few years, it is a naive statement at best. SAP is not the arbiter of what gets tested, in what regression sequence etc. There are plenty of auditors, quality assurance employees and outside experts who make that decision. And even if Leo is correct, it will take 3-4 years for early adopters to test the premise, share results before it is propagated across the customer base and there is material impact on TCO.
    Second, SAP should be lowering maintenance fees, not raising them.
    Then there is SAP's own cost base. They have offshored some of the support. There is more automation - more customers get self-service support answers through knowledge bases. Their community is handling many routine support questions (and customers are funding that community, not SAP). In the spirit of rollbacks, SAP support costs should have been declining for the last several years.

    SAP knows that only too well. SAP offered Oracle customers cut-rate maintenance through its TomorrowNow unit, but steadfastly told its own customers they did not deserve a similar, low-touch offering.
    Read Vinnie's entire post for more.

    Dennis Howlett also has an excellent analysis of co-CEO Leo Apotheker's TechEd keynote, which included defense of SAP's price hike. Needless to say, Dennis is not convinced.

    Related posts
    SAP denies it is cutting spending on IT
    SAP under the spotlight for "broken promises"
    Mad as hell: backlash brewing against SAP maintenance fee hike

    Thursday, October 16, 2008

    SAP denies it is cutting spending on IT

    SAP is trying to counter blogger reports earlier this week that it is cutting back on its own internal spending on IT.

    On Tuesday, Ben Worthen at the Wall Street Journal posted portions of an internal SAP email in which co-CEOs Henning Kagermann and Leo Apotheker appeared to be ordering SAP employees to cut back on IT spending. I followed up with a quick blog entry calling attention to Worthen's post. A number of other tech bloggers did the same.

    The excerpt from SAP's internal email seemed clear enough:
    We will review all planned investments in IT equipment, hardware, software, facilities, and company cars, as well as internal IT projects....Do not order any new equipment at this time.
    But today SAP wrote Worthen, to deny that it is cutting IT spending. Worthen today reports:
    On Thursday, Herbert Heitmann, the head of SAP’s global communications, wrote us to let us know that our post “suggests an inaccurate portrait of our management decisions about cost savings while maintaining strategic investments into our own IT.” SAP is not halting its own tech spending, he wrote. Instead, the company “continues to make strategic investments in IT projects that directly impact our ability to grow our business globally and that assure we can provide world-class services to our customers,” Heitmann wrote. Furthermore, “we expect our customers and prospects to continue strategic IT spending over the next months, while somewhat narrowing their focus more to IT projects that deliver quick returns.”

    Cutting costs in non-customer facing areas, he wrote “is what management is expected to do in times of uncertainty. Our call on employees to stop ordering “new equipment” for standard IT infrastructure like cell phones, photo copies, printers, laptops, etc. as well as an appropriate review of all planned investments and projects is a prudent and necessary step.

    “We’ve even asked our CIO to identify strategic IT projects that would help us to optimize SAP’s business processes.”
    So which is it? If this were not a tech company, the answer wouldn't be a big deal. But the last thing SAP wants to do is, by its own actions, encourage the idea that IT spending should be cut.

    Unfortunately, that's what seems to be happening. Our survey now running at Computer Economics shows a significant percentage of IT organizations deferring the start of new projects in light of current economic conditions.

    If you have insights, post a comment below.

    Related posts
    SAP in expense-cutting mode
    IT spending pull-back: SAP warns on Q3 earnings

    Wednesday, October 15, 2008

    SAP in expense-cutting mode

    SAP is joining Oracle, Epicor, Sage, Infor and other enterprise systems vendors in cutting back expenses in light of current economic conditions. SAP's action also follows its announcement of disappointing Q3 earnings.

    Ben Worthen at the Wall Street Journal got hold of an internal email to SAP staff from co-CEOs Henning Kagermann and Leo Apotheker, and it outlines a number of immediate actions that SAP is taking to cut costs. Worthen quotes portions from the email:
    There is a complete headcount and hiring freeze, and all existing job vacancies will be canceled. This includes any temporary workers, interns, and students. There will be no replacements for employees leaving SAP. No internal transfers may take place. Only those written offers sent to a candidate and/or internal transfers agreed to on or before October 7, 2008, will go forward.

    Since we are not hiring, all engagement with external recruiters must cease immediately. We will discontinue engagement with management consultants and evaluate the impact this has on ongoing projects. Until further notice, all external training is to be canceled. Internal meetings must be held within SAP buildings, and you cannot rent external conference facilities for this purpose.

    Cease ALL internal non-customer-facing travel in October…Any non-customer-facing travel already booked should be canceled immediately, even if this incurs penalties.
    Worthen finds it ironic that--in spite of the public position of many in the technology industry that organizations will continue to spend on IT to become more efficient in the current economic client--SAP is cutting IT spending:
    We will review all planned investments in IT equipment, hardware, software, facilities, and company cars, as well as internal IT projects....Do not order any new equipment at this time.
    Over at Computer Economics, we're running a short survey to evaluate the impact of current economic conditions on the outlook for IT spending and staffing. If you'd like to participate in the survey and get a free copy of the results you can take the survey now.

    Related posts
    IT spending pull-back: SAP warns on Q3 earnings
    Layoffs in Oracle Consulting unit
    Layoffs at Infor and Sage
    More layoffs at Epicor

    Monday, October 13, 2008

    ERP support costs: the offshore model

    Vinnie Mirchandani has a good post on ERP total cost of ownership (TCO), referencing our Computer Economics study on ERP support staffing ratios. Vinnie and I have been corresponding on this subject.

    He also points out the role of offshore service providers in ERP support. Although they have been able to demonstrate their ability to deliver some ERP support functions in an offshore model, the cost advantage of offshore resources has been mitigated due to cost escalation.
    One way to manage that cost in the last few years had been to use offshore firms. In the run-up to Y2K they showed themselves adept at transitioning knowledge on a number of relatively steady, legacy custom developed apps. They have since extended that capability to ERP support, particularly around SAP and Oracle applications. But with the currency and wage inflation most Indian firms have experienced in the last couple of years, that support cost is re-emerging as an area that deserves significant CIO attention - and, of course analyst and blogger scrutiny.
    If the cost-advantage of offshore providers is lessening (and Vinnie is in a position to know), it makes support optimization all the more important.

    Our original study on ERP support staffing ratios examined and quantified the primary drivers of support costs--multiple ERP systems, instances, and versions, along with extent of modification and other factors. Simply minimizing salaries or hourly rates will not have as great an effect on support costs as optimizing these drivers. It's a tougher job, but worth doing.

    Saturday, October 11, 2008

    Impact of current economic conditions on IT spending and staffing

    Over at Computer Economics, we've just launched a new survey concerning the impact of current economic conditions on the outlook for IT spending and staffing. The data collected in this survey will be analyzed and published by Computer Economics in a research update in November 2008.

    If you are qualified to answer the questions in this survey, and you fully complete the survey, we will send you a FREE copy of the final report, which will otherwise only be available to our subscribers or on a pay-per-view basis ($95).

    Note to Consultants and Vendors: This survey is intended only for IT departments in companies with at least U.S. $50 million in annual revenue. If you are a consultant or technology vendor, please do not answer on behalf of your own organization, but refer this survey to an IT executive in one of your client organizations.

    Friday, October 10, 2008

    Speaking at APICS Orange County: ERP Support Staffing Ratios

    On a personal note, I'll be speaking at the APICS Orange County professional development meeting Wednesday night, October 15, 2008, on the subject of Optimizing ERP Support Staffing Ratios.

    From the presentation abstract:
    The cost of supporting an ERP system goes far beyond the vendor's maintenance fees. The largest part of ERP total cost of ownership (TCO) is the cost of internal resources, such as applications programmers, DBAs, business analysts, administrative personnel, help desk support, and other technical support staff. This presentation provides typical staffing ratios for key ERP support positions, based on number of users and other factors, such as extent of modifications. Recommendations for improving ERP staff productivity will also be provided.
    If you are in the Southern California area, come on by!

    More information is on the APICS Orange County website.

    This is a presentation of a study we completed earlier this year at Computer Economics, with the help of many Spectator readers. If you can't make the presentation, you can purchase the study, ERP Support Staffing Ratios, on the Computer Economics website. There's also a free executive summary there.

    Wednesday, October 08, 2008

    Oracle acquires leader in project management systems

    Oracle's acquisition program continued this week with its acquisition of Primavera, one of the leading providers of software for project management and project portfolio management. Primavera claims 5000 customers worldwide.

    Primavera is fairly well known. Its project management offerings are often viewed as a higher end alternative to Microsoft Project. Though they certainly can be used in this way, as a standalone tool for managing individual projects or groups of projects sharing common resources, the value to Oracle goes far beyond this limited use.

    Although Oracle does have some good project-based functionality in its E-Business Suite, addition of Primavera really bolsters its offerings. However, the value will not be fully realized until Oracle integrates Primavera with its core ERP products. Oracle's announcements on the deal clearly show that this is the goal.

    For organizations that are project-based, such as engineering and construction, public sector, aerospace and defense, and engineer-to-order (ETO) manufacturers, there is a great need to integrate project management with ERP. For example, for a true ETO manufacturer, the project schedule is (or should be) the master production schedule. Requirements for material, labor, outside services, and other resources are directly tied to the work breakdown structure. ERP systems based on a traditional MRP approach simply do not work.

    Project-based organizations are relatively under-served by enterprise system vendors today, so Oracle no doubt sees a market opportunity. SAP has a strong presence in certain of these industries, such as energy and public utilities. IFS does a very good job in this sector as well, though its presence in Europe is greater than in the U.S. Baan used to be strong in this sector, though since its acquisition by SSA, and now Infor (renamed ERP LN), it is not being well represented. Other players, such as Glovia and Encompix (now owned by Consona), have the functionality but lack the scale.

    So, the question is, how quickly will Oracle be able to fully integrate Primavera to work "seamlessly" with E-Business Suite? As noted recently, many vendor attempts to integrate disparate products wind up with a lot of seams. Oracle has the resources to do it right, and hopefully it will. But don't expect it to happen overnight.

    There's more information on Oracle's vision for Primavera on Oracle's website.

    Vinnie Mirchandani likes the deal.

    Brian Sommer has a good post on the PM software space, what the deal might mean for Oracle, and for Primavera customers.

    Update, Oct. 19.
    Brian Sommer has an another excellent analysis of Oracle's acquisition of Primavera, the competitive landscape, and recommendations for organizations looking at a project portfolio management system these days.

    Related posts
    Vendor ecosystems: less than meets the eye

    Layoffs in Oracle Consulting unit

    A friend of mine reports layoffs on September 5 in Oracle's North America consulting unit. The reduction in force included 140 implementers specializing in Siebel, E-Business Suite, PeopleSoft, J.D. Edwards, and Hyperion products.

    I can't seem to find any announcements or news reports on this small number of firings, but I have no doubt about the accuracy of this report.

    He says that principal consultants appear to be hit the hardest, including some with high utilization rates.

    Oracle's layoffs are baffling. Senior consultants with Oracle experience are reportedly in short supply. If Oracle's sales are as robust as Oracle says they are, they should be hiring such people, not firing them. Perhaps this is an early warning that Oracle sees softness in its new sales pipeline, and without cutting headcount it knows that consultant utilization will fall. In professional services, utilization is the key to profitability.

    If you have direct knowledge or insight on this situation, please leave a comment or drop me an email.

    Related posts
    Is there really an SAP and Oracle skills shortage?

    Tuesday, October 07, 2008

    SAP under the spotlight for "broken promises"

    Ray Wang, a Forrester analyst, is speaking out on what he calls SAP's broken promises to customers. Ray is conducting a webinar this Thursday on the subject, and Dennis Howlett got Ray's permission to use his blog to comment on some of Ray's slides.

    Ray (and Dennis) really lowers the boom on SAP, summing up a number of complaints from SAP customers concerning unilateral hikes in maintenance fees, lack of integration, constant pressure to buy more software, and aggressive sales tactics. His analysis is backed up by a Forrester survey of over 200 SAP customers.

    Dennis comments:
    Ray sets the backdrop by describing the partnership vision SAP customers have bought into. That includes:
    • SAP would deliver an integrated suite of solutions
    • Maintenance and support fees would be reinvested to fill out the gaps on the product roadmap
    • SAP would not ‘rape and pillage’ the customer like other ERP vendors of the day
    He then goes on to show how most of those promises have been broken...
    I won't reproduce all of Ray's and Dennis's points here, because I won't do them justice. Read Dennis's summary for yourself. If you want the entire story, you'll need to register for Ray's webinar this Thursday.

    Update 1:27 p.m.
    Vinnie Mirchandani is blowing the same horn. He also points out that in many respects Oracle is no better than SAP.

    Update, Oct 11: Forrester is allowing free download of Ray's entire slide deck. Good move, Forrester! Visit this Forrester page and click the link on the upper right to download Ray's slides.

    Related posts
    Vendor software maintenance programs: top 10 wish list
    Mad as hell: backlash brewing against SAP maintenance fee hike

    Monday, October 06, 2008

    IT spending pull-back: SAP warns on Q3 earnings

    In what may be an early sign of cuts in IT spending, SAP is warning that its Q3 results will be below the firm's previous forecast. In the announcement, Henning Kagerman, SAP's co-CEO said:
    The market developments of the past several weeks have been dramatic and worrying to many businesses. These concerns triggered a very sudden and unexpected drop in business activity at the end of the quarter. Throughout the third quarter we felt quite positive about our ability to meet our expectations. Unfortunately, SAP was not immune from the economic and financial crisis that has enveloped the markets in the second half of September, causing us to report numbers below our expectations.
    Keep in mind, however, that SAP's revenue is not actually shrinking--just not growing as much as it previously forecast. SAP said that it expects non-GAAP revenue to increase of 16% - 17% compared to the third quarter of 2007.

    Dennis Howlett quotes Kagermann during an analyst conference call accompanying the announcement:
    Many customers felt the need to focus on shorter term concerns and put planned IT investments on hold for now. There was some hesitation on software purchases where financing was an issue. No company including SAP is immune from a sudden and serious economic downturn....We are not cutting out or downsizing, that would be too extreme at this time but we are in preparedeness mode....We remain in the middle of the range of our guidance for software and software related revenues.
    SAP's warning will likely be followed by similar announcements from other enterprise system vendors. The easiest thing for buyers to do during times of economic crisis is to defer major spending decisions. ERP, CRM, and other enterprise system acquisitions are big ticket items. So far as other types of IT spending--hardware, services, infrastructure software--is pulled through by application software sales, IT spending overall is likely to decline.

    Our analysis at Computer Economics earlier this year showed more organizations increasing IT spending in 2008 than decreasing. However, in light of the current situation, all bets are off. We hope to have a new projection in the next few weeks, and my guess is that it will show a severe drop off in IT spending intentions.

    Update, Oct. 7. A Spectator reader wrote me this morning on a key point that I missed. He points out that SAP's announcement does not indicate how much of its Q3 revenue is from Business Objects, which was not part of SAP in 2007 Q3. So, SAP's revenue growth is certainly not 16-17%. Frankly, I think it is a little misleading on SAP's part to warn on quarterly results on not give the entire picture.

    Update, Oct. 7. An article in Datamation points out that there could be an uptick in some IT spending as a result of the many mergers and acquisitions currently taking place in the financial sector. It postulates that consultants and systems integrators serving this sector may see increased demand for services as organizations are unlikely to have sufficient headcount for the integration effort. But I'm not buying it. The combined firms will likely have excess IT headcount that they would otherwise terminate. Any increase in integration projects just means that fewer of them will be laid off.

    Related posts
    2008 IT spending and budget metrics online

    Thursday, October 02, 2008

    Epicor facing unfriendly takeover bid

    Elliott Associates and Elliott International LP, which together own over 10% of Epicor's outstanding shares, are making an unsolicted bid for Epicor. The $9.50-per-share bid is over 20% higher than Epicor's price prior to the news and values Epicor at about $566 million.

    Who are the Elliotts? They are hedge funds--private investment groups that put money to work in any number of investment types, such as equity shares, debt instruments, precious metals, real estate -- even art collections. (The name "hedge fund" comes from the fact that these groups often use short-selling and other means to hedge downside risks in their investments).

    Here's an interesting description of the Elliotts' business:
    Elliott means action: Hedge fund firm Elliott Management takes an activist approach to investing, frequently amassing significant but minority stakes in distressed or underperforming companies and attempting to foment change. It manages hedge funds Elliott Associates and Elliott International, which together manage some $10 billion of capital for large institutional investors and wealthy individuals and families. Elliott Associates invests in corporate, real estate, and sovereign debt, with investments in North America, Asia, and Europe. Founded by Paul Singer in 1977, Elliott Associates is one of the oldest hedge funds under continuous management.
    In other words, these guys are financial players, not a software company. They have a history of buying into technology companies with the intention of selling them to someone else:
    • Earlier this year, the Elliotts bought 5.5% of MSC Software, which develops engineering and simulation systems--based in Santa Ana, CA, just down the highway from Epicor's headquarters in Irvine (which is around the corner from my office, by the way). Elliott promptly told MSC that it should consider "strategic alternatives," including a sale.
    • In March, the Elliotts also bought a stake in Packeteer, a developer of telecom equipment and WAN optimization products. It then offered to buy the whole thing, but failed in its takeover attempt.
    You get the picture.

    The pattern is similar with Epicor. The Elliots recently bought 10% of Epicor and, true to form, were talking about forcing a sale. But it is doubtful that the most likely buyers (SAP, Oracle, Microsoft) would be interested in Epicor. SAP, Oracle, and Microsoft generally buy software companies that have specific products filling niche functions or serving specific industries. Epicor does not fit that description--it is a diverse collection of products that itself has acquired over the past decade. Sort of a mini-Infor.

    So now the Elliotts are offering to buy all of Epicor, and Epicor is resisting. But what would the Elliotts do with Epicor, assuming they get it? They could sell it to Infor, except that if Infor wanted Epicor, it could have made an offer a long time ago. Or, the Elliotts could use Epicor as a "platform" to roll up other smaller vendors. Except that's what Epicor has been doing for the past decade--so how would the Elliott's strategy be different?

    Regardless, Epicor's investors must be happy right now. Epicor's share price rose 13% on the news of Elliott's offer. Not bad in this market.

    No word on how Epicor's customers are reacting to the news. If you are an Epicor client, let me know or leave a comment on this post.

    Ned Lilly gives his analysis of the deal.

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    More layoffs at Epicor

    Layoffs at Infor and Sage

    Update: news on Infor layoff on Dec. 9-10, 2008
    Update: news on Sage layoff on Dec. 2, 2008.

    The enterprise software market, which has so far held up surprisingly well in the current economy, may finally be taking some hits. There are two back-to-back emails in my inbox this morning tipping me off on layoffs at Infor as well as Sage in the UK.

    The first source, regarding Infor, reports that Bob Aldworth, SVP of Finance (Revenue) is now gone. Infor reportedly also laid off one-third of the distribution sales team and 12% of the CRM development team. He indicates that it is not clear "whether this is just business contraction or due to balance sheet issues from a delayed public offering."

    The second source says that Sage in the UK recently "laid off a significant number of staff in their mid-market business (formerly Tetra.)" He claims that Sage is performing poorly among companies in the £1M-$100M space and is losing deals in this space to SAP, Microsoft, and others.

    I do not have confirmation of these two items, although the first source is known to me and has connections within Infor.

    These reports follow news of layoffs at Epicor in August. No word on reductions at SAP and Oracle, which appear to be holding up well so far. If you have news on other vendors, please let me know.

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    Tuesday, September 30, 2008

    Vendor ecosystems: less than meets the eye

    ERP vendors like to present their partnerships with complementary product vendors as ecosystems--an array of niche functionality and services that fill gaps in the ERP vendor's world. When a prospect's RFP calls for features not offered by the ERP vendor, the partner's product will be presented as the solution. The phrase "seamless integration" is often used in these presentations.

    Vinnie Mirchandani has some good insights on these partner applications.
    For many industries, the partner applications are not "the last mile" - they represent core processing capability. As I wrote recently about Oracle's Insurance offering, most big vendors have not delivered vertical functionality for most non-manufacturing industries. So, another decision point is whose ecosystem? If I was a hospital CIO I would let my clinical application's ecosystem drive my financial or HR application choices, not the other way around.
    He also points out that, "while the bigger vendors boast thousands of partners in their ecosystems...they often represent agreements signed eons ago and atrophied partnering practices." In other words, the vendors may have a relationship on paper, but how real and current is the relationship? How many deals have they done together, and how successful were they?

    Vinnie also argues that you may, in fact, be better off in choosing a complementary product that is NOT in the vendor's ecosystem. The reason? Pricing is likely to be better, as ecosystem vendors often have to pay referral fees to the primary vendor, and the non-ecosystem vendor will likely provide better support.

    I would also add that, you're likely going to have to do more integration than you think, even if stay in the vendor's ecosystem. According to my observation, the integration of ecosystem partners is usually anything but "seamless." In many cases, the two organizations will have only done a handful of deals together and the integration would have been treated as a custom development project in each case.

    So, in cases where complementary product functionality is unavoidable, check references thoroughly. Err on the side of overestimating the integration effort. And, if at all possible, get an implementation partner that has successfully done the same integration in the past.

    Update, Oct. 2: In the comments section, Ray Wang calls attention to work he's done at Forrester to come up with a framework for evaluating vendor ecosystems. Ray's full report is on Forrester's website, and he also wrote a good overview on The framework includes a partner solutions maturity model. I like his definition of level zero (the lowest level of partner integration): "Barney deals" (i.e. "I love you, you love me"). In other words, "Solutions represent as-is offerings that have not been integrated or even repackaged. These deals emphasize marketing aspects including joint press announcements, minor go-to-market coordination, and some price coordination." Ray also points out the value for prospects in using a third-party consultant to evaluate the robustness of the partner relationship/integration.

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