Did Oracle just drain its pipeline?

Oracle has just announced quarterly results that exceed Wall Street expectations: a 35% increase in profits, a 27% increase in revenue, and a new license sales jump of 57%, far above the 30% increase that analysts were expecting.

Oracle was under particular pressure to show better results than it did in the previous quarter, when its share price came under pressure as the result of results that, according to the Wall Street Journal, "reflected some sluggishness in North America."

Oracle may have also been eager to contrast its performance with SAP's, which missed its sales goals in the previous quarter.

So, how did Oracle pull off such outstanding results this quarter? I happen to know that Oracle was extremely aggressive in closing last-minute deals at the end of last month, making what appeared to be desperate offers to get prospects to sign before the quarter ended.

At the time, I took this as a sign that Oracle was either going to have a very bad quarter or a very good quarter. Now we know.

The problem, of course, is that this game cannot go on forever. Such a tactic merely pulls in deals from the next quarter, putting even more pressure on the vendor to meet expectations from a pipeline that has been drained of many prospects. Nearly every software vendor plays this game from time to time, but the intensity of the effort in this case surprised me.

So, my guess is that Oracle's results without these last-minute antics would have been more consistent with SAP's, indicating a slowdown in new deals for enterprise software. I just heard today from some concern from another vendor that the level of activity seems to be slowing recently. If so, expect to see disappointment at the end of this quarter.

Update, 4:30 p.m. PDT: Listening to the Oracle's analyst conference call, Oracle co-President Safra Catz sounded gleeful, almost giddy, in her recap of the firm's results. During the Q&A session, however, her tone became somewhat more subdued when asked about pipeline assumptions for Oracle's upcoming fourth quarter. She said,

Obviously, pipelines are very big. Bigger than last year in Q4. But we are assuming modestly lower close rates than we had last year. Just...we just are always trying to be cautious. Even though, the truth way, last year's close rates were not outrageously high or anything like that, or one or the other. The reality is the pipelines are very, very big. But pipelines don't tell the whole story. We are just going to have to close an enormous amount of business--in North America, a billion dollars of new license revenue. We are very upbeat. But we have used reasonably conservative close rates.

In fact, Oracle's guidance for the upcoming fourth quarter is rather conservative. Catz is predicting new license sales to increase only by 5-15%. She kept justifying this conservative forecast with the explanation that it will be difficult to show year-over-year growth compared to last year's fourth quarter, which was exceptionally strong. But I still think the problem is not with last year's fourth quarter, but with the quarter that just ended, where Oracle drained the pipeline of many deals that would have otherwise closed next quarter.

I could be wrong. Check back in three months to find out.

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Microsoft's Project Green is dead

Microsoft is now claiming there was never any intention to merge its four ERP products into a single code base.

First a little history. Back in 2003, Microsoft began working on an effort to migrate its four newly acquired ERP products (Great Plains, Navision, Axapta, and Solomon) to Microsoft technology. None of these products were purely Microsoft under-the-covers. For example, Axapta was (and still is) written in its own development environment (MorphX), in its own language (X++ ), using Oracle as its preferred database.

Internally known as Project Green, this effort was aimed at converting the four products to Microsoft technology and converting their program code to a single code base while retaining the best features of each product.

If anyone could afford such a massive undertaking, it would be Microsoft. But Microsoft was not familiar with the enterprise system market and soon found out that its existing ERP customers were not all that keen on Project Green. Most of them were not eager to face a major upgrade/migration to a new product. And competitors used Project Green as a reason not to choose Microsoft, since what Microsoft was selling was going to be replaced by a new product. As Microsoft senior VP Orlando Ayala testified in court, selling ERP was a "humbling experience" for Microsoft.

Early signs of trouble
In addition, it started to look like Project Green was too much to bite off even for Microsoft. In 2004, Doug Burgum admitted that Microsoft was slowing down its work on the project, cutting the developer headcount from 200 to about 70. Some of the delay was attributed to Microsoft's problems with development of Longhorn, its next-generation server OS. Project Green was to built on top of a common services layer known as Microsoft Business Foundation (MBF), which needed capabilities to be provided in Longhorn, so if the delivery date for Longhorn slips, MBF slips, and Project Green slips.

Problems continued in 2005, as Microsoft's ERP unit pushed out its release date for the new version of Axapta and indicated that some products would be going into "maintenance mode." Josh Greenbaum even speculated the Microsoft might sell off its ERP products.

Lowering expectations for Project Green
A few months later, Microsoft began to redefine its goals for Project Green. Instead of rewriting all of its ERP products into a single code base, Microsoft would incorporate new technology and functionality into its existing products in incremental "waves." Microsoft still held out the possibility, however, of merging the four products into one successor product, but it made no commitment.

Later that year, still holding four products in its portfolio, Microsoft took the easy way to convergence. It simply re-branded all its ERP products as "Dynamics." For example, Microsoft Axapta became Dynamics AX, and Great Plains became Dynamics GP. It also announced a reorganization that pushed its ERP unit down one level and demoted its head, Doug Burgum. At the same time, Microsoft appeared to abandon any hope for MBF. Read my post at the time for quite a bit of insider feedback on these developments.

Then, about a year ago, Microsoft indicated that its release date for a converged product would be pushed out yet again.

Attempting to rewrite history
Now, for the latest news. According to Computerworld, Tami Reller, a Microsoft VP of business solutions marketing, is claiming that "there were never formal plans for a big-bang development project to meld the different applications." Furthermore, Microsoft executives are now downplaying "the notion that the software vendor has backtracked from its road map for pulling its four ERP product lines more closely together."

I had long felt that Project Green was not smart from a customer perspective. But it appears now that even the technical migration--which Microsoft should have been good at--was too ambitious. For example, I noticed in a recent Axapta sales presentation that X++ is still around. Instead of converting Axapta to C++, Microsoft has simply embraced X++ in its Visual Studios development tool set. Voila! Axapta is now pure Microsoft technology.

The ironic part is that Microsoft's solutions today are really good products, backed by the deepest pockets in the software business. So, small and mid-size businesses should continue to look at these systems and buy them as they fit their requirements. Perhaps now that Project Green is dead, they can do so without uncertainty about the future of these products.

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Impact of daylight savings time change: bigger than Y2K

Back in January, I wrote that the change in U.S. daylight savings time (DST) rules, which took effect last weekend, might be a mini-Y2K. As it turns out, in some ways, it's a bigger deal than Y2K.

According to press reports, errors have been introduced into calendaring systems at many companies as some users have applied DST patches and others have not. It's gotten really confusing for some organizations where meetings are scheduled with participants outside the organization and in different time zones. Many companies have still not gotten their calendars straightened out.

Meeting schedulers, such as Microsoft's Outlook and Exchange, are just the tip of the iceberg, as they are highly visible and errors are annoying. How many other applications that depend on accurate time-of-day, such time and billing systems, are defective today because of the rules change?

Handheld devices are also problematic. My own experience is that it took me nearly two hours to get my Blackberry OS updated and synchronized with my desktop Outlook applications. Multiply that by the number of Blackberry users worldwide and the economic impact just for this one device is significant.

Why weren't we better prepared? I believe that many organizations deliberately underestimated the potential impact of DST rule changes after their experience with Y2K, which many felt was over-hyped. With warnings of the end of civilization, or at least computerized civilization, companies spent millions of dollars preparing for the turn of the century. But when the clock turned at midnight, nothing happened. It was nearly impossible to find reports of computer failure. Many business executives concluded that the whole thing was a hoax by IT vendors and service providers to spend money upgrading systems.

With that backdrop, it's easy to see why the DST rules change wasn't considered a big deal in many organizations. As it turned out, there's probably been more practical impact from the DST change than there was from Y2K. The difference, of course, is that with Y2K the economic impact was largely felt prior to the calendar change. With the DST rules change, there has been more impact after the fact.

eWeek has a good summary of the "nightmare issues" that some organizations are facing with calendaring systems.

If you've heard of other examples of economic impact from the DST rules change, please email me or leave a comment on this post.

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i2 seeks patent license shake-down fees

A Spectator reader called my attention to this news yesterday. i2 Technologies is launching a patent licensing program to make available (for a fee) selected patents that do not apply to the company's supply chain management focus.

In other words, the patent program will NOT affect i2's current lawsuit against SAP, which is over one of i2's patents related to process planning, factory planning, sales negotiation and tracking, manufacturing allocations, and management of available to promise (ATP).

So what's the purpose of i2's patent licensing program? In one word, money. It appears that i2 has been applying for patents for general purpose approaches to system design, apart from its core expertise in supply chain applications. For example, the initial offering in i2's patent licensing program will be an i2 patent (US Patent No. 6,169,992) that relates to "the use of a Web browser utilizing an executable client application in order to enable interactive queries of a remotely located information repository."

i2's press release goes on to comment that the patent is relevant to Internet applications using Asynchronous JavaScript and XML technology (AJAX). AJAX is a web development technique for creating interactive web applications. AJAX makes web pages more efficient and responsive by exchanging small amounts of data with the server, so that the entire web page does not have to be reloaded each time the user makes a change."

Of course, i2's investors will cheer i2's move as a potential source of additional revenue. But, in my opinion, this program is another example of software patents going too far. AJAX technology is a hot topic in software development these days, as companies such as Google use it to make web-based applications much more user-friendly and efficient. For example, if you've clicked and dragged on a Google Map, you've seen AJAX in action.

Now, I'm not saying that Google Maps infringes on i2's patent. But I am saying that anyone using AJAX to access a remote database may now need to look at i2's patent claims. At what point do patents such as this one stifle rather than encourage innovation?

For more on the subject generally, see this Wikipedia entry on the software patent debate.

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Oracle hustles Hyperion

Oracle is seeking to make an addition to its series of acquisitions in the enterprise software space. The target this time is Hyperion (HYSL), one of the leading vendors of business intelligence software. The deal was announced today.

The parties have agreed to a cash offer of $52 per share, or approximately $3.3 billion. The offer is about 21% above Hyperion's stock price prior to the announcement.

Although this is a big deal, there's really not much risk. Hyperion is already an Oracle partner. In fact, it runs Oracle's E-Business Suite and Siebel systems internally. There is also not a great deal of overlap with Oracle's existing offerings. Business intelligence is a complementary product, and these solutions tend to integrate easily with other products. There is a little overlap with some of Oracle's own reporting products, but not much. When customers want industrial strength performance management tools, or business analytics, they typically go to vendors like Hyperion.

The market for business intelligence products has been one of the brighter spots in enterprise software in the past few years. Because of Sarbanes-Oxley, companies are paying more attention to monitoring business performance, and vendors like Hyperion have responded with more products to analyze trends in the mountains of data produce transactional systems produce. As a result, the market for these products is growing at a compound annual rate of 11% per year, well above the business software market generally.

Another plus for this deal: Hyperion is a Tier I vendor, with 12,000 customers, including 91 of the U.S. largest 100 companies. Many of these companies are also customers of SAP. So, ultimately, this deal could give Oracle another avenue into these sites.

The market also seems to view the deal positively. Oracle's share price is up over 3% a few hours after the deal was announced. The transaction is expected to close in April.

Check out Hyperion's website for more information. There is quite a bit of material there about the Oracle/Hyperion deal.

Update: Computerworld is reporting mixed opinions from Hyperion users on the deal.

Update, Mar. 12: Clint Boulton points out that Hyperion's products are not all complementary to Oracle's. Specifically, Oracle's own financial planning and budgeting applications and the excellent performance management products that it acquired from PeopleSoft. He quotes Keith Gile at Business Objects (a Hyperion competitor), who listened in on an Oracle conference call about the deal:

"Basically, their management came on the phone and pretty much threw 'em under the bus and said these things weren't good enough, and therefore, "we went out and bought a pure-play, best-of-breed performance management solution in Hyperion."

So, in the view of Gile and Boulton, the addition of Hyperion's products threaten to dilute some of the products Oracle already has in its portfolio.

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Wal-Mart pulls back from RFID push in its distribution centers

Wal-Mart, under scrutiny for not meeting its goal of installing RFID in 12 of its distribution centers, is now shifting its focus for RFID to the store level, away from its distribution centers.

Two years ago, the world's largest retailer set a goal for 12 of its warehouses to be RFID-enabled by the end of 2006. But it only reached this objective in five of those centers.

Now Walmart is claiming that its focus for RFID isn't at the warehouse level--it's the store level. In a Computerworld article, Simon Langford, head of Walmart's RFID program comments on the retailer's current efforts:

"We’re focused on the store level," said Langford. "If we focused internally [at the distribution centers], it would provide no value to our suppliers. When we set out on this journey, we really focused on the collaborative benefits; we wanted what was going to drive sales for our suppliers and to get product on the shelf, where it needs to be for our customers to buy."

Langford credited the use of RFID technology with cutting the incidence of out-of-stock products by 30% while improving the efficiency of moving products from backrooms to store shelves by 60%.

"RFID in our stores is going to drive the initial value," he said. "We see distribution centers as coming onstream a bit later."

It would be nice if, somewhere in his comments, Langford would admit that RFID has been more costly, less reliable, and more difficult to implement than Wal-mart originally planned. The 600 Wal-Mart suppliers who were forced to adopt RFID technology under the gun of Wal-Mart's mandate, know this all too well.

Wal-Mart's shift in strategy is symptomatic of a larger slow-down in the adoption rate for RFID in supply chain applications, although the technology appears to be gaining ground in selected uses, such as asset management. For more on this subject, see our recent analysis at Computer Economics on the RFID implementation slowdown.

RFID adoption rates slow

Over at Computer Economics, we've completed our analysis of the current stalling of RFID adoption rates. Thanks to those that answered our call for feedback on this issue. This feedback is consistent with our own survey results.

The good news is that, although RFID implementation is having a slow go in many applications, there are several industries and environments where it is quite successful.

The full analysis is on the Computer Economics website. There is also a free executive summary.

Former i2 CEO learns crime does not pay

Actually, it's worse than that. Former CEO Greg Brady will have to pay $8.3 million in SEC fines to settle charges that from approximately 1998 to 2002 he plotted to overstate i2's revenue by $1 billion. Former CFO William M. Beecher has already agreed to pay more than $2.1 million in a similar settlement. i2 itself paid $10 million in fines back in 2004.

CFO.com has the full story and background on Brady's penalty.

Update, Feb. 18: In the comments, George points out that i2's situation today is entirely different than it was in its dark years early this decade. To be fair, I should point out this recent post where I comment on i2's business today.

i2 innovates with hosted vendor-managed inventory services

Rumor mill: Oracle to acquire SAP

Apparently, the investor community has been abuzz all this week with the idea that Oracle is about to launch a takeover bid for SAP. The gossip even comes with an offer price: 38.5 euros/share ($49.78). The whispers led to some see-sawing of SAP's stock price, though it ended the week lower than it started.

The speculation was fueled by SAP's disappointing financial results earlier this month, though the disappointment was with SAP's failure to meet its own aggressive plans, not with any fall off in its business. SAP's license sales are still growing: last year they rose by 11%.

So, I wouldn't put any credence in the story. Oracle had to fight hard enough to get its PeopleSoft acquisition past the antitrust division of the U.S. Justice department. A bid for SAP would give the combined entity more than 70% of the worldwide enterprise systems market, depending on how you define it. It wouldn't fly in U.S. courts, and it certainly wouldn't be approved in the EU.

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Lawson and IBM team for ERP sales to mid-market

Lawson and IBM announced an agreement today whereby IBM will co-develop, sell and implement Lawson's products specifically for small and mid-size companies in the banking, insurance, fashion/apparel, and food/beverage sectors. Read Lawson's press release for more details.

This is not the first partnership between the two firms. Lawson already has significant connections to IBM in Lawson's Landmark development platform, which relies heavily on IBM's Websphere. The new arrangement brings IBM's services arm into the mix to promote Lawson in these key industries. If embraced by IBM's sales force, it will greatly increase the number of feet on the street pushing Lawson's products.

What's in it for IBM? Pull-through revenue from hardware, tools, and services.

The market is reacting positively to this announcement, with Lawson's stock price up over 5% today. I would wait a few months, however, to see whether this agreement amounts to anything. IBM has made similar arrangements with other software vendors in the past. For example, I recall a partnership between IBM and J.D. Edwards in the late 1990s, where IBM's resellers were authorized to sell JDE to the mid-market. I may be wrong, but I don't believe the program was terribly successful. In a more recent example, IBM and Intentia (coincidentally, now merged with Lawson) formed a similar arrangement in 2003. The press release is still on Lawson's website. But that relationship didn't seem to kick start Intentia sales.

So, I think the partnership is a good idea, but it will take more than an announcement to make it productive. It will be interesting to follow up in a few months to see what percentage of deals in Lawson's pipeline are connected to IBM's sales efforts.

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