The coming wave of IT staff retirements

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

From the abstract:

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

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

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

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

An executive summary of the report is here.

Google and Saleforce.com to team against Microsoft?

The Wall Street Journal this morning is reporting that talks are underway between Google and Salesforce.com concerning a partnership. The goal is to combine Google's email, instant messaging, and other online services with Salesforce.com's applications, effectively providing an alternative to Microsoft's desktop and business applications.

By teaming up, Google and Salesforce.com could be better equipped to contend with Microsoft, a mutual rival. Google has long competed with Microsoft in areas such as search and email. More recently, Google began offering online word-processing, spreadsheet and calendar services for consumers and businesses -- Web-based applications known as Google Apps -- that offer an alternative to Microsoft's productivity software.

Salesforce.com also competes with Microsoft's customer-relationship management software. Microsoft plans to offer a Web-based version of that software that could compete more directly with Salesforce.com.

I say, why stop there? Google should acquire Salesforce.com outright. That would put Google's best-in-class scalable infrastructure underneath Salesforce.com's best-in-class software-as-a-service (SaaS) platform. It would catapult Salesforce.com's position as a provider of enterprise applications to small and mid-size businesses, leapfrogging Microsoft's nascent attempts in this area.

A Google buyout of Salesforce.com? I think it's a real possibility.

Related posts
Salesforce.com unbundling its platform from its apps
Computer Economics: The Business Case for Software as a Service

Oracle bolsters its PLM-credibility by acquiring Agile

Oracle has made a big move into product lifecycle management (PLM), with its announcement today that it is acquiring Agile Software, one of the leading niche vendors in this space. It's an all cash deal, for $8.10 per share, or nearly $500 million.

Agile's software has been well-regarded as a solution for centralizing and managing product information. In a nutshell, Agile creates a central respository for all sorts of product information, such as specifications and drawings--information that in most organzations resides in a variety of paper and electronic files, scattered in various departments. Agile creates one system of record for all such information, making it easy to access and maintain by anyone with rights to see it or change it.

PLM systems are not easy to implement. There are many cultural obstacles to getting these various departments to standardize and normalize naming conventions and specification data. There are also countless debates about who "owns" what information. But organizations that implement successfully realize huge benefits, such as faster new product development, rapid engineering change, higher product quality, and reduced cost of service. Companies using Agile's products include Acer, Flextronics, GE Medical Systems, Harris, Heinz, Johnson & Johnson, Lockheed Martin, McDonald's, Micron, QUALCOMM, Shell, and ZF.

Agile's financial performance hasn't been as successful as its product concept. Agile rode high in the late 90's as part of the Internet boom, as Agile's products provided a platform for customers and suppliers to collaborate on product development over the Internet. Its stock price exceeded $100 per share briefly at the end of 2000, before starting a decline that saw it under $6 in late 2002--the result of the dot-com collapse. It's bounced around between $6 and $10 since then. It hasn't been helped by finding itself in trouble recently over its misstatement of employee stock options, forcing it to take a charge of nearly $70 million in accounting adjustments. It's combined losses since 2001 have exceeded $140 million.

Agile's failure as a niche vendor underlines the fact that PLM is an enterprise solution, and to be most successful it ought to be part of an intergrated enterprise suite of products. So, hopefully, its acquisition by Oracle will help it to become more successful in the future.

On the other hand, Agile really bolsters Oracle's credibility on the engineering side of the customer's house. I've evaluated Oracle's E-Business Suite in the past on behalf of an engineering-centric organization, and although Oracle was making progress in PLM, there was an awful lot of functionality that was only promised in future releases. It wasn't even close in terms of the functionality offered by Baan (now Infor's ERPln) The addition of Agile to Oracle's portfolio should solve that problem quickly.

For more details on the deal, see Oracle's press release as well as a special page on Agile's website.

Related posts
i2 kills off its SRM business

No such thing as a mid-market company

Josh Greenbaum thinks that enterprise software vendors are mistaken when they try to segment buyers according to size. According to Josh, the requirements of software buyers do not vary significantly according to the size of the company. Rather, they are driven primarily according to the organization's view of technology.

Here's my simple market taxonomy, which I believe pretty much spells out the death of the mythical mid-market company.

Market segment #1 consists of buyers for whom IT is a utility, much like electricity and water, that is a basic commodity but has little if any role in defining strategic advantage. IT keeps the lights on, but it is really secondary to the task at hand.

Market segment #2 consists of buyers for whom IT is a major strategic differentiator, one of the things that drives competitiveness and supports innovation. These buyers also use IT to keep the lights on, but the real reason they buy technology is to deploy it at the cutting edges of their industry.

I think Josh is on to something. Nearly all enterprise software vendors segment the market according to size. The reason: it's easy. Deciding whether a lead should be assigned to the direct sales force or to a reseller is simple--just see how large the organization is, either by annual sales or number of employees.

Likewise, business planning is straightforward. How large is the addressable market in a certain territory? Simply count the number of firms in each size category and SIC code. Furthermore, because most vendors price software according to the size of the company (i.e. the number of employees, or number of users), forecasting average selling price in each market segment is a simple calculation.

Carrying the scheme further, vendors often target their product offerings according to the size of the buyer. For large companies, they may sell a full-featured product (e.g. mySAP, or Oracle E-Business Suite). For the so-called mid-market, they may sell a completely different product (e.g. Oracle's J.D. Edwards). Or, they may pre-configure the big-company product into one or more mid-market versions that supposedly represent typical mid-market requirements (both Oracle and SAP utilize this approach as well). The problem is that, invariably, the buyer always seems to need one or two features that are not in mid-market product or the pre-configured template.

As with most sales and marketing issues, the problem is that vendors do not look at the market from the buyer's perspective. Companies do not generally go looking for a "mid-market solution." When they say they do, what they really mean is that they want the mid-market price and ease-of-use. But their primary driver is to find a product that meets their requirements. This leads to all sorts of interesting stories, such as having to convince the vendor that a so-called mid-market company is actually a good fit for the vendor's big company product, or vice-versa. I always find it amusing when I have to sell a prospect to the vendor.

Fortunately, most vendors have a few grey-haired sales types that "get it," in spite of what the program dictates. Finding those individuals is the key.

Related posts
Making money in software with a niche-industry strategy
How not to buy software
The case against case studies

Cultural obstacles hindering SAP growth

The Wall Street Journal has a long page one story today on SAP, highlighting cultural issues hindering the firm's progress as a worldwide software vendor. It begins, "Five years ago, Germany's largest software company decided it had to become less German."

An interesting statistic: in 2000, SAP employed 3,900 software developers, 75% of whom were based in Germany. In 2006, the software development headcount increased to 8,500, but only 60% were German.

SAP also made other changes to become less "German." It adopted English as its language for corporate meetings. In place of its traditionally methodical approach to software engineering. , and it began to use a rapid product development approach to bring new products to market, under the leadership of Shai Agassi.

Predictably, these changes have created quite a bit of conflict within SAP's organization, especially in Germany. The WSJ article describes the impact on SAP's German staff:

In August 2005, a German employee complained to a local newspaper that Mr. Agassi's "boys come in at very high levels, without even being seen by the staff here." Five months later, Germany's national Handelsblatt newspaper published an article headlined "SAP and Globalization -- March of the Americans." One German manager was quoted saying, "It's clear Agassi would like to get as many functions as possible to the U.S." Mr. Agassi says his mission was "to bring the best talent we could find anywhere into SAP, regardless of location."

In April 2006, SAP executives hosted a town-hall meeting in Walldorf on the "Americanization of SAP," where workers aired concerns over the increasing use of English and the hiring of engineers overseas. A few months later, a handful of SAP workers, including Mr. Schick, won enough support to start a workers' council, roughly equivalent to a labor union.

This explains much behind the departure of Agassi, who grew impatient with the pace of change, especially when it became clear he would not get the top job at SAP until at least 2009.

It also provides insight into why SAP's growth has trailed that of Oracle's, a fact which Oracle is trumpeting these days in full page ads in major newspapers.

Read the WSJ story for much more.

Related posts
SAP's Shai Agassi calls it quits

Transportation Security Administration has a problem with security

The folks entrusted with ensuring the security of U.S. air travel seem to have a problem with their own information security.

The Transportation Security Administration, a department within U.S. Homeland Security, revealed that it "lost" a computer hard drive containing Social Security numbers, bank data, and payroll information for about 100,000 of its employees. They are not sure if they just misplaced it or if it was stolen.

Here's the part that baffles me: the data was stored on a portable, external, disk drive.

Why on earth would TSA write confidential employee information to a portable disk drive? It brings to mind a similar incident last year where a laptop computer was stolen with confidential information on millions of military personnel. A Veterans Administration employee had take taken the laptop home with him, where it was stolen.

The Associated Press has the full story on TSA's information security incident.

Maybe the problem is that many IT security professionals are not taking this threat seriously. A recent study we did at Computer Economics found that a significant percentage of IT security staff surveyed think that physical loss or theft of computer hardware or storage is only a minor threat. This is somewhat surprising in light of the number of respondents who reported such incidents in the past year.

An executive summary of our study, Trends in IT Security Threats, is on the Computer Economics website.

Salesforce.com unbundling its platform from its apps

Over the past few years, salesforce.com has been gradually morphing itself from an on-demand CRM vendor to a platform for software-as-a-service (SaaS) generally. It started by first allowing extensive customer-specific customization of its CRM applications and integration with legacy or third-party systems. Then it provided a complete development environment, including test capabilities separate from production. Then it opened up its SaaS platform to third-party developers to write complementary applications. This week it announced the next logical step: it is allowing customers to buy access to its platform without buying its CRM application.

Salesforce.com Platform Edition allows customers to take advantage of other applications in its AppExchange marketplace, or, it allows customers to start from scratch and write their own custom applications. Details on Platform Edition are on the salesforce.com website.

The evolution of salesforce.com further enhances software-as-a-service as a viable alternative to traditional on-premise software. The only drawback to this approach I see is that it ties the entire IT infrastructure of the customer to salesforce.com. If you think vendor lock-in is a problem today with traditional vendors, such as Microsoft, Oracle, and SAP, imagine what it will be like when your entire technology stack--from hardware, OS, database, and application--is tied to a single provider.

I'm a big fan of SaaS, but I still haven't figured out how to get around the vendor lock-in problem.

Related posts
IT services in a SaaS world
Salesforce.com to allow customization of its hosted service
Salesforce.com's AppExchange proving its viability for developers
Computer Economics: The Business Case for Software as a Service

IT services in a SaaS world

Chris Barbin makes the case for a new kind of systems integrator, uniquely focused on implementation and support of software-as-a-service (SaaS) solutions. In his article on Sandhill.com, he writes about these "Services 2.0" providers that are "dramatically altering the system integrator (SI) landscape."

This new breed of specialized firms fully embrace SaaS with complementary business and technology consulting, productized intellectual property, and support services via flexible social networks will be disruptive to traditional Global Systems Integrators (GSI)- such as Accenture, IBM, Cap Gemini, and Infosys – who are just as addicted as the ISVs themselves to revenue streams based on the on-premise install base.

Now, Barbin is CEO of Appirio, which just happens to be an implementation services provider for SaaS vendor Salesforce.com, so it's not as if he is a neutral observer. Nevertheless, his argument is persuasive. Large global implementations of major on-premise systems such as SAP and Oracle, supported by large global service providers, such as IBM, Accenture, Cap Gemini, Infosys, and others, are notoriously expensive, difficult, time-consuming, and risky. If SaaS solutions, such as Salesforce.com, Omniture, and SuccessFactors offer to diminish the pain associated with on-premise solutions, then by extension, there must be a service-provider approach that diminishes the pain of the traditional implementation effort.

Drivers of Services 2.0
Although SaaS as an viable alternative to on-premise software has been around for at least seven to ten years, it is only recently that this new breed of service providers have sprung up to provide an alternative to the traditional system integration approach.

For early adopters of SaaS ISVs like salesforce.com, initial services requirements were limited to basic configuration, end user training and minor customizations. In the last few years, services requirements have become more substantial because the increased flexibility of platforms like Salesforce have allowed enterprises to move from single-department SaaS "experiments" to global rollouts of thousands of users.

In other words, as platforms such as Salesforce.com's have become more powerful, allowing customization and easy integration with third-party solutions, the opportunity for additional value-added services has grown. These include creation of "mash-ups" that combine SaaS-system functionality with Web 2.0 services, such as Google Maps and other web-services in unique combinations. The sheer scale of some Salesforce.com implementations, reaching tens of thousands of seats, has also increased the need for extensive system integration services around SaaS.

Customers benefit greatly from the combination of SaaS with Services 2.0: faster implementation, more customized solutions, and much lower costs. Barbin says,

The pendulum has swung from the early ERP days ($10-$15 for every dollar in licenses), to the SMB days of SaaS (10 cents for every dollar in subscription) - and will settle for enterprise customers at $2-4 for every dollar of subscription license revenue.

Threat to the Big System Integrators?
Barbin makes the case that the large IT service providers will not be able to make the transition to Services 2.0. "The reliance on mega-transactions, considerable corporate overhead, and inability to move quickly will hamper these firms’ ability to lead in the Services 2.0 world," he writes. "These firms are fully dependent upon the services revenue generated their customers’ lock-in on on-premise software."

In this respect, Services 2.0 is a disruptive innovation to the big system integration firms, just as SaaS is disruptive to the major on-premise software providers. I doubt it will be the death of IBM, Accenture, and Infosys, but watch for growth in system integrator deals to be elsewhere in the coming years.

Related posts
Major ERP vendors battle Salesforce.com for SaaS mindshare
Salesforce.com to allow customization of its hosted service
Salesforce.com's AppExchange proving its viability for developers
Computer Economics: The Business Case for Software as a Service
SAP and Salesforce.com: opposing application platforms

The economics of open source

Dirk Riehle has written an interesting paper for IEEE on the economic motivations of stakeholders in open source software. Riehle leads the open source research group at SAP Research, a research organization within SAP that identifies emerging IT trends and conducts R&D activities for new technologies. As such, Riehle's insights are interesting in that they may reflect the view toward open source within SAP.

There are a wide range of business models within open source. Reihle points out that there are actually two main forms of open source: community open source (products that are owned and developed by a community of developers) and commercial open source (products that are owned by a single commercial organization). The Apache web server is an example of community open source, while MySQL is an example of commercial open source.

Three stakeholders
He then goes on to analyze the economic incentives of open source from the perspective of three groups of stakeholders: system integrators, software vendors (closed source and open source), and individual developers/employees.

Of the three groups, system integrators stand the most to gain from open source. Open source takes out a large part of the system integrator's cost structure, the part that goes toward software. This frees up money for the client to spend on additional services, or allows the system integrator to lower its price-point, making its services more affordable and increasing volume. System integrators prefer community open source, because its cost is lower than commercial open source, and there is no "vendor lock-in" to the owner of the software.

There's a lot more in Reihle's paper, including an analysis of the impact of open source on the software developer profession. In short, open source "makes life more complicated for employees." On the one hand, a developer supporting an open source product can be more easily replaced by an outsider that has similar experience with the same product. On the other hand, a good open source developer can build expertise that has value to other employers, increasing his or her marketability. He writes,

A developer who chooses the right project can gain and maintain a position that will increase salary-negotiation power and job prospects. The developer will enjoy those benefits as long as the project is of significance to potential employers.

Open source reinforces the trend toward employees becoming "free agents."

Winners and losers
Reihle's article does a good job in explaining the economic incentives by open source. To me, it makes it easy to understand why IBM--which is today largely a services firm--is one of the strongest proponent of open source, especially community open source.

It also suggests why many traditional vendors of closed source products seem to have such a hard time with profitability these days, leading to the huge amount of acquisition/consolidation activity we've witnessed in the past five years. Unless you are an 800 pound gorilla (like Reihle's employer, SAP), the cost-structure of closed source development is just not a good way to make money. In many markets, it might just be better to embrace some sort of open source development and make money higher up the value stack, in maintenance, support, integration, and customization.

I think we are still early in the development of business models around open source. Ten years from now, things will be clearer.

There's a good discussion on Slashdot, on Reihle's article.

For another good piece on the economics of open source, see Bruce Perens's article, The Emerging Economic Paradigm of Open Source.

Related posts
The disruptive power of open source
Why organizations choose open source software
Key advantage of open source is NOT cost savings
Open source: turning software sales and marketing upside down
Compiere's open source ERP business model and growth plans

Lawson upbeat on Q1 forecast

Well, maybe Harry Debes was right. Back in January, Lawson's CEO wrote me to say that his firm's financial performance was better than observers were giving it credit for.

Now, in forecasting its first quarter earnings, Lawson said today that it expects Q1 revenue to come in at $190 to $192 million, well above its previous forecast of $181 to $190 million. After the announcement, Lawson's share price peaked at its highest point since March 2004, finishing the day about 10% higher that the previous day's close.

Lawson is still digesting its 2005 acquisition of Intentia, and related costs are still impacting financial performance. From an accounting perspective, organizational perspective, and technical perspective, I have a feeling that the merger job was bigger than Lawson expected. Hopefully, Lawson can put that work behind it and move on to build even more momentum. Although I wasn't able to attend Lawson's user conference down the road in San Diego this year, I did hear about some good things, including a tighter reliance on IBM for Lawson's technical architecture, which frees up Lawson's resources to focus on business applications.

It will be interesting to see the details behind Lawson's performance when the final numbers come in. I'll be looking to see whether the results are due to a pick up in new deals or a change in the rate of deferred license revenue, which Debes explained in his correspondence to me in January. If Lawson's new deal flow is picking up, it would be a good sign not only for Lawson but for the enterprise system market in general. Lawson's results would be consistent with Oracle's most recent quarter, which were outstanding, and contrary to SAP's, which were weak.

We'll have to wait until April 9 to find out, however. Lawson announced yesterday that it is delaying its quarterly report because of a need to review restructuring charges from the Intentia acquisition.

Related posts
Lawson's performance better than it appears: CEO
Did Oracle just drain its pipeline?
SAP license sales grow, but short of target
Lawson acquiring Intentia