Oracle wants to broaden lawsuit against SAP and TomorrowNow

Oracle indicated yesterday that it will ask the court for more time in the discovery phase of its lawsuit against SAP and its subsidiary TomorrowNow (TN) for theft of intellectual property. The reason: Oracle claims that the discovery performed to date has "uncovered a broader program of copyright infringement that is entirely different from the scheme alleged in the current complaint."

Oracle's charges
This development shows up in a Supplemental Joint Case Management Conference Statement filed with the court. "Based on this evidence, Oracle is gathering additional facts and analyzing the need to file an amended complaint that will encompass these new claims."

In addition, Oracle claims that SAP and TomorrowNow have not complied with their discovery obligations, alleging that the defendants have not produced documents that Oracle has requested, that SAP has refused to produce documents related the US Department of Justice investigation of SAP's conduct toward Oracle.

Oracle is also claiming that SAP personnel outside of TN were "substantially involved in TomorrowNow's downloading and other activities, and particularly in sales and marketing of services based on materials improperly taken from Oracle." Oracle claims that "as a result of this discovery, Oracle has identified more than five heavily-involved SAP AG and SAP America personnel whose depositions it will need to take.

If Oracle can prove that last claim, it will contradict SAP's assertion that there was a Chinese Wall between SAP and TN that prevented SAP from having access to Oracle's intellectual property. It would also substantially expand the scope of the lawsuit and potential damages.

SAP's response
In SAP's response, it claims that Oracle has "barely used any of the depositions permitted by the court" and that "Oracle will have taken only five depositions, at most, before the supplemental case management conference." SAP also complains that Oracle "has not provided even the barest description of its supposed new claims."

SAP further argues that Oracle has not provided "such basic information as the alleged copyrighted works at issue, financial information (such as Oracle's profit margin on services) underlying its unspecified damage claim, and about Oracle's dealings with similarly situated third party service providers other than TomorrowNow."

I'm sure there are many observers that would be very interested as well in learning about "Oracle's profit margin on services."

This lawsuit is moving forward, in spite of SAP's latest move to list TomorrowNow as a discontinued operation, and its stated desire to sell the unit. It will continue to be a distraction and an embarrassment to SAP, especially if Oracle is successful in extending the time and scope of its discovery.

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Layoff at Consona (parent of Made2Manage)

A Spectator reader, whom I know and trust, alerted me to a layoff at Consona yesterday.

For those that haven't been following vendor name changes, Consona is the new name for M2M Holdings, the parent company for Made2Manage. 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.

No word on the size of the layoff, or confirmation of the layoff, for that matter.

For some reason, Consona's website is down as of this writing.

Update, 1:25 p.m. Further correspondence with my source indicates that troubles have been brewing for some time at Consona. Specifically, he points to Consona's moving away from their area of expertise in the "small/midmarket US based ERP package business" into the "large and upper midmarket international CRM tools space" with the purchase of Onyx and KNOVA. Although these were completely different businesses and markets, Consona tried to run things like they had with Made2Manage.

He also indicates that things were made worse by management's promise to deliver a quarterly 30%-plus EBIDTA to satisfy their lenders (including venture firms) at they same time that they were trying to maintain support and deevelopment for at least nine product lines. He writes, "You can only cut R&D and marketing so much to deliver those results before paying the consequences."

On a side note, as of this update, it's been at least five hours that Consona's website has been down. Is this any way to run a technology company?

Update, Nov. 20, 2008: Consona layoffs reported on Nov. 3.

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SAP lists TomorrowNow as a discontinued operation

Buried in a footnote in an SAP press release last week is this tidbit: SAP is now accounting for its TomorrowNow business as a "discontinued operation."

Under US GAAP SAP is required to present its results of discontinued operations (TomorrowNow) separately from its results from continuing operations. The preliminary figures contained in this release include results of both continuing and discontinued operations as a single line item.

From an accounting standpoint, what this means is that SAP no longer considers TomorrowNow as part of its business in the future. SAP already announced back in November that it was considering sale of TomorrowNow. The footnote in its recent press release just makes it official. No word on whether a buyer has been identified.

The handwriting has been on the wall for TomorrowNow ever since Oracle sued SAP and TomorrowNow for theft of its intellectual property. The case is many months away from going to trial, but SAP isn't waiting for a resolution.

While SAP is shutting the doors on its ill-fated foray into third-party Oracle support, its main competitor, Rimini Street, is enjoying a windfall in new business. It just announced that revenue for 2007 quadrupled.

To get more insight on these developments, I called David Rowe, Rimini Street's VP, Global Marketing and Alliances. David confirmed that some of Rimini Street's increase in sales has come from TomorrowNow customers jumping ship. But, in fact, they are only a small percentage of the firm's increased sales. He pointed out that SAP only announced it was looking to sell TomorrowNow recently, so the impact of that announcement will be greater in the future.

Would Rimini Street consider purchase of TomorrowNow from SAP? Rowe was careful in his answer. "We would certainly be interested," he said. "But if those customers are going to come to us anyway, we would need to evaluate exactly what it is we would be buying" in an acquisition of TomorrowNow.

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Wal-mart increases pressure on suppliers for RFID

The world's largest retailer is turning up the heat on suppliers that do not comply with its demands for RFID tags on all incoming pallets to its Sam's Club distribution center in Texas.

According to Information Week:

Wal-Mart has apparently tired of its investments in radio frequency identification turning into a prolonged pilot study and is stepping up pressure on suppliers to comply with its 3-year-old inventory-technology mandate. The retailer says that beginning Jan. 30, it will charge suppliers a $2 fee for each pallet they ship to its Sam's Club distribution center in Texas that doesn't have an RFID tag. The charge is to cover Sam's Club's cost to affix tags on each pallet, says a Wal-Mart spokesman. "It's really designed as a short-term solution for those suppliers that may need a little more time to implement their own tagging solution," he says.

To be clear, Walmart's action applies only to this one Sam's Club distribution center, not all Walmart warehouses. Walmart appears determined on "turning its 700-store Sam's Club warehouse-outlet division into an example of RFID supply chain technology in action," according to the article.

The fact that Walmart needs to adopt punitive measures to force compliance with its RFID initiative is a clear indication that the business value to many suppliers is simply not there. We pointed this out in a Computer Economics research piece about a year ago entitled, RFID Adoption Stalls. As we wrote in the executive summary,

Despite these factors, the adoption rate of RFID technology has stalled significantly in the last year. This slow-down is not being publicized by suppliers of RFID equipment and systems, since their success depends on continued promotion of the technology. Some reports of an RFID slow-down, however, are beginning to appear in the business press. For example, the Wall Street Journal recently reported that Wal-Mart has only installed RFID in five of its distribution centers, which is well behind its plan two years ago that called for 12 of its distribution centers to be up and running by now. The same article reports that apparel maker VF Corp. has curbed its RFID program, citing an absence of payback for its efforts in the foreseeable future.

There are a number of factors hindering widespread adoption of RFID, in areas such as cost, technical performance, and conflicting standards, as well as security and privacy concerns.

The full research article gives details.

Microsoft Dynamics: management changes spell lack of direction

Jeff Raikes, head of Microsoft's Business Division (which includes its enterprise applications group), is leaving Microsoft. Once again, the future of the Dynamics products (Axapta, Great Plains, Solomon, and Navision) is clouded by leadership issues.

Raikes joined Microsoft in 1981 and has been one of the most influential leaders at the software giant, after Bill Gates and Steve Ballmer. However, enterprise applications have never been his forte. His main responsibility was Microsoft's Office products. The Dynamics products were added to his portfolio in 2005 in a reorganization that pushed aside Doug Burgum, former CEO of Great Plains. Burgum later left Microsoft in 2006.

The current head of the Dynamics group, Kirill Tatarinov, has only been in the job for about seven months. He will now have a new boss in the person of Stephen Elop, who is a Microsoft outsider: he was the former CEO of Macromedia/Adobe and most recently at Juniper Networks.

The main problem I see in the leadership changes at Dynamics is that none of the players since Doug Burgum have any experience whatsoever in enterprise applications. As I've said in the past, selling shrink-wrapped software--whether it be Microsoft's or Adobe's--is a far cry from selling enterprise applications that require months of presales team effort.

It's a shame, because Dynamics is a good set of products. They just need the right people in the lead at Microsoft.

Josh Greenbaum takes a similar view:

And it’s not very reassuring to see the resume of the Raikes’ replacement either, Stephen Elop: Juniper Networks may be a decent credential to help run an enterprise apps group, insofar as the Junipers of the world are heavy consumers of this kind of technology, but Macromedia, the other star position in Elop’s firmament, isn’t exactly the best finishing school for someone to decide the fate of Microsoft’s AX, GP, NAV, and other enterprise software products.

Ina Fiend has more on Raikes's departure and the management changes.

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Sun to acquire open source database vendor MySQL

It will likely be lost in the shadow of Oracle's acquisition of BEA, but there was another important deal announced today. Sun Microsystems is acquiring MySQL AB, the developer of the leading open source database management system. The deal is for $1 billion.

The deal is a great move for Sun for at least three reasons.

• It greatly strengthens Sun's position as an open source software provider. The company is already the developer of OpenOffice, an open source product that competes with Microsoft Office.
  
  
• It gives Sun ownership of the "M" in the LAMP software development platform, which refers to the combination of Linux, Apache, MySQL, and PHP/Perl, which are used in combination to develop applications entirely with open source tools.
  
  
• It gives Sun access to or strengthens its relationship to a large number of Tier I customers that are users of MySQL, such as Facebook, Google, Nokia, Baidu and China Mobile.
  

For MySQL, the deal gives the open source database greater access to Sun's customers and distribution/OEM relationships with Intel, IBM, and Dell.

The other thing I like about this deal is that it keeps MySQL out of the hands of Oracle. I don't know whether an Oracle acquisition of MySQL would have encountered problems in terms of anti-trust, but back in 2005 Oracle already acquired one open source database provider, Innobase, which in fact is used as a component in MySQL deployments where there are requirements for high concurrency and row-level locking. Putting MySQL in the hands of Oracle is just a little too much reduction in competition for my liking.

There's an informative press release on the deal on Sun's website.

Also, be sure to read this blog post by Jonathan Schwartz, Sun's CEO and President, about the deal.

Update, Jan 17. Computerworld is reporting that there are quite a few unhappy MySQL customers and that they are hoping Sun will improve the responsiveness of MySQL developers to user contributions.

In agreeing this week to pay $1 billion for MySQL AB, Sun Microsystems Inc. said it hopes to make MySQL's open-source database more attractive to enterprise users. But Sun has a lot of work to do, according to some MySQL users.

And it isn't just technical fixes that are needed, they said. Although Sun described MySQL as "an open-source icon," it also will have to mend fences with users who are unhappy about the database vendor's sales tactics and claim that it has ignored their development suggestions.

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BEA gives in to Oracle

Oracle announced this morning that it has reached agreement with BEA Systems to acquire the middleware vendor for $19.38 per share. That's higher than Oracle's original offer of $17 per share back in October, but lower than BEA's demand of $21.

Rather than counter back in October, Oracle simply let its offer expire. No one else stepped in as a white knight, which strengthened Oracle's position as the only serious contender. It didn't hurt that major BEA shareholders--specifically Carl Icahn--were pushing for the sale of BEA.

In contrast to his hostile tone in the first go-round, BEA Chairman and CEO Alfred Chuang sounded a more positive note today:

This transaction is the culmination of that diligent and thoughtful process, and we believe it is in the best interests of our shareholders. I am confident our innovative products, talented employees and worldwide customer base will be key contributors to the success of the combined company over the long term. We look forward to working with Oracle toward a successful completion of the transaction.

The deal will give ownership of one of the last remaining major independent software vendors. The deal also gives Oracle access to BEA's installed base. Most of Oracle's acquisitions in the past three years have been applications developers. BEA's client base will be fertile ground for Oracle to sell those applications.

Not to be overlooked is BEA's technology, which Oracle will incorporate into its own Fusion middleware--the foundation of its service-oriented architecture (SOA) platform, the glue that it uses to hold together its many applications.

All around, the deal is good for Oracle and BEA. Whether BEA customers will agree remains to be seen. But Oracle has done a fairly good job of keeping customers of its acquisition targets satisfied with the transition to new ownership. I would expect to see the same here.

The Wall Street Journal has a brief summary of the deal.

There's a special page on Oracle's website about the deal along with information for customers.

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IT departments face extinction

Nicholas Carr, author of the seminal article "Does IT Matter?," did an interview with Datamation, arguing that the shift to utility-based computing will ultimately lead to the elimination of internal IT departments in all but the largest companies.

Quoting from his latest book, The Big Switch: Rewiring the World, from Edison to Google, he writes:

"The replication of tens of thousands of independent data centers, all using similar hardware, running similar software, and employing similar kinds of workers, has imposed severe economic penalties on the economy," he writes. This duplication “has led to the overbuilding of IT assets in every sector of the economy, dampening the productivity gains that can spring from computer automation."

The traditional IT department is a dinosaur awaiting news of its own extinction, in Carr’s view. And when the change comes the landscape will look far different. The in-house IT department “will have little left to do once the bulk of business computing shifts out of private data centers and into the cloud,” he writes. “Business units and even individual employees will be able to control the processing of information directly, without the need for legions of technical people."

I'm in basic agreement with Carr's view, as I've written previously about Carr's work. I do think the evolution he predicts will be slow, however. Our research at Computer Economics shows only 50% of organizations are showing any type of activity related to software-as-a-service, a key element of utility computing. Of course, that number may be understated, as there may be quite a bit of SaaS activity going on outside of the purview of the IT organization. Still, adoption is incremental.

The transition to utility computing ultimately will take place, just as electrical service migrated from private power plants to public utilities. The migration will take at least 20 years, if not longer. Still, those beginning careers in IT should favor skills that are business-related, such as business and systems analysis. Those positions will only grow, as organizations become more and more dependent on IT. Individuals with those skills will prosper, whether computing power resides within or outside the organization.

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ERP support staffing survey: still time to respond

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

Take the survey now.

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

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

Oracle's sales surge again

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

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

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

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

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

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

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

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

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

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

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

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

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