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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More layoffs at Epicor

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 Sandhill.com. 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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Open source ERP and CRM carry strong ROI

Over at Computer Economics, we've just released a new study on adoption trends for open source business applications, such as ERP and CRM, and the results are encouraging.

Bottom line: although adoption levels for open source apps are still low, the ROI reported by our survey respondents is quite strong. 65% report positive ROI within two years, while only 5% report negative ROI. That's one of the strongest performances for any of the 20 or so technologies that we surveyed this year. An executive summary and the full report on open source business applications is available on our website.

Traditional vendors, such as SAP and Oracle do not seem to be viewing open source products such as opentaps, Compiere, xTuple, SugarCRM, and others as a threat. Why should they? The open source ERP and CRM market share is tiny--today. But that may change as major vendors continue to increase their software maintenance costs. As our study found, the ROI for open source is very strong, which should ultimately drive increased adoption.

What will it take for open source applications to really become a serious threat to traditional vendors?

Thriving ecosystem of service providers needed
The primary need is to have a thriving ecosystem of service providers around a few open source products in each application category. Much of the discomfort with open source apps comes because business leaders by nature are conservative. They fear being "orphaned." They perceive proprietary software as being more viable in the long run than open source products.

This is in spite of the fact that the past thirty years have seen dozens of so-called major vendors go out of business, leaving orphaned products. Or, vendors are acquired and their products are relegated to subordinate status in the portfolio of the new owner. Think of ManMan (now in Infor's portfolio) or Manfact (now in Epicor's).

It is also in spite of the fact that each of the open source products listed above--opentaps, Compiere, xTuple, and SugarCRM--have commercial development organizations behind them. Contrary to popular belief, most open source business applications are not developed by "volunteers." Open source is a software licensing model--it has nothing to do with how the software is developed or maintained. Open source means you have rights to the code and are free to use it, enhance it, and even redistribute it, provided you do so on an open source basis.

It also means that anyone, any service provider, can build a business around supporting the software. As long as there are users that need support, there will be demand for services, and with open source there is no restriction on who can provide them. So in this aspect--as we indicate in our full report--open source may in fact be less risky than proprietary software. As long as adoption reaches a critical threshold, and there is a thriving ecosystem of support providers, the product will not be orphaned. And if the product is not widely implemented, at least you have full rights to the source code.

Where will open source service providers come from? Interestingly, I see ERP resellers and VARs becoming increasingly dissatisfied with the current state of affairs. They have their own list of complaints, which I won't enumerate right now. Suffice to say that being an open source service provider is a much simpler life than being a "business partner" with a major software vendor. (Write to me or leave a comment below if you have an opinion on this point.) If open source adoption does increase, I can see a trend developing where service providers begin to add open source support to their offerings, or jump ship altogether in favor of supporting open source ERP and CRM apps.

Don't underestimate costs of open source
Our study sounded one cautionary note regarding open source apps: early adopters tend to underestimate costs. It might be that because they perceive the software as "free," they tend to underestimate the costs of implementation and support. Our full report provides details on the percentage of organizations that reported TCO greater, less than, or the same as budgeted amounts. Nevertheless, in spite of a tendency to overrun budgets, the ROI for open source applications is overwhelmingly positive. In other words, most projects had no problem reaching favorable ROI even with cost overruns.

It's too early to say that open source is the future of ERP, CRM, and other enterprise applications. It is more likely that proprietary software and open source apps will each carve out their respective niches--sometimes coexisting in the same organization. Nevertheless, experiences of early adopters show that the business case for open source is strong. The positive economic characteristics of open source can only lead to increased adoption.

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Key advantage of open source is NOT cost savings
Open source: turning software sales and marketing upside down
ERP Graveyard

Oracle confirms: maintenance fees are virtually all profit

If there was ever any doubt that the major ERP vendors are overcharging for maintenance, there's no question now for anyone listening to Oracle co-President Safra Catz speaking to financial analysts this week.

Catz was arguing that Oracle's maintenance contracts would continue to strengthen Oracle's financial performance through an economic downturn.

“We get to keep virtually all of that money,” said Oracle Co-President Safra Catz. Sure, some of that goes to customer service, but Catz said that mostly customers are paying for access to the new software – and Oracle is going to develop that new software regardless of whether customers pay them maintenance fees. For Oracle, maintenance is pretty much free money, about $10.5 billion worth in its 2008 fiscal and about $1.5 billion more than that this year. “When many customers just send you money for something you’re doing anyway, you literally can’t help [but increase profits],” said Catz.

Ben Worthen at the Wall Street Journal has the whole story.

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Is there really an SAP and Oracle skills shortage?

There continue to be conflicting news on the state of the economy generally, and the IT economy specifically. The latest is an article from CIO Magazine that reports a shortage of ERP consultants with Oracle and SAP experience. The article quotes AMR Research analyst Dana Stiffler:

"SAP and Oracle application skills, in particular, are in huge demand, with service providers reporting their ERP practices continue to experience double-digit growth and strong pricing premiums relative to other IT skills," Stiffler writes...."They tell us the packaged applications business is limited only by their ability to find, train, and place appropriate resources."

It continues:

For SAP, which has more severe staffing problems (some 30,000 to 40,000 experts in need) than Oracle, the news is worse: "Unless the striking variance in skills availability is eliminated," Stiffler notes, "Oracle will become an increasingly attractive option relative to SAP."

The goes on to speculate that this shortage will drive customers to the SaaS model--but forget about that for a moment. I'm questioning whether the shortage is real. If so, it's a real bright spot in the IT services market.

But one commenter on the article disagrees:

This HUGE shortage you are referring to is only present for SAP professionals with 5+ years of experience. The other guys trying to come up aren't really doing that great.

Another confirms the same point:

There are plenty of people with SAP Skills may be just a few years experience but they are there. I personally know more than five people who have short term knowledge but no jobs. Employers are now asking for lots of years of experience due to economy turn down. Employers have personally told me they are only hiring senior consultants. Maybe the problem is something different...maybe the employers don't want to put effort to train people with short-term experience.

Shortages of SAP consultants in particular were acute in the mid-to-late 1990s, when SAP was in its initial growth phase, and even newly minted implementers were billing in the $300 per hour range. Today, with SAP and Oracle widely installed around the world, there should be no shortage of experienced implementers.

So, which is it? Leave a comment on this post if you have insights.

Oracle profits strong, thanks to your maintenance payments

True to the recent trend, Oracle reported strong first quarter profits yesterday, exceeding Wall Street expectations. Net income rose a whopping 28%, on revenue growth of 18%.

Oracle's results speak well for the prospects of the technology sector holding up amidst the turmoil in financial markets. That was not the case in the recession in the early part of this decade, when the downturn was led by the tech sector. Oracle's diversity in worldwide revenue sources--half of its sales come from outside the U.S.--is one factor in its success.

But I couldn't help but notice one other factor in Oracle's financial success:

Chief Executive Larry Ellison, meanwhile, said the company is in a strong position because more than half its revenue comes from maintenance contracts and license renewals, which carry high profit margins.

Oracle's financial model--like SAP's--has really turned into an annuity business. New software sales just open the door to the place where these vendors really make money: maintenance contracts. In fact, I'm hearing of one case recently where the vendor is essentially willing to offer upfront licenses for FREE. The maintenance businesses is apparently so profitable--as much as 85% profit according to one source--that they can actually give away the software and still make money.

Once again, however, I have to say that this model is unsustainable in the long run, as customers are already growing tired of it.

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Reading the fine print on ERP contracts
High software maintenance fees and what to do about them

Vendor software maintenance programs: top 10 wish list

One of my hot buttons these days is the value--or lack thereof--in enterprise software vendor maintenance and support fees. With SAP and Oracle now charging 22% of the software license cost annually, customers are in essence paying again for the software in less than five years. What exactly are customers getting for their money?

Ray Wang hits the same button with a post last week, where he points out that many vendors take up to 85% of the money as profit, leaving 15% for actual support services.

He then provides a top 10 list of what he sees customers wishing their vendors would provide to justify their maintenance fees. I'll just comment on his top four.

• Ray lists "Service level agreements for response times and quality of resolution" as number 4. Many of the support agreements I've reviewed do include a response time promise. But when was the last time you saw a vendor held accountable for meeting that promise? And, what reporting is done on "quality of resolution?" I would really like to see vendors dinged once in awhile for failure to meet their service level agreements.
  
  
• For number 3, Ray lists, "Transparency in how much of the maintenance and support dollar is reinvested versus how much is going to profit." To this I would add, how much is going toward development of "next generation" products, apart from the product the customer is paying support for? Much of the initial license fee pays for the enormous amount of work that vendors spend in marketing and sales. Vendors count on maintenance and support fees to fund much of their new development.
  
  
• Number 2 is "Choice in support options and packages (i.e. tiered maintenance options)." I've touched on this one previously. Some vendors do offer tiered programs--but even the base level program is too rich, in my opinion. For a customer that doesn't plan on upgrading, why can't that customer buy a bare bones support package--for example, one that only provides bug fixes. Many customers on older systems would even opt out of help desk support, if they could.
  
  
• Ray's top wish is "Option for third party maintenance." I fully agree. If I buy a Lexus, I don't need to go to my Lexus dealer to get support. I can get authorized third-party maintenance from a variety of independent service centers. Why should it be any different for enterprise software?
  

Read Ray's entire post for the complete list--they are all good points. If vendors would deliver on these wishes, I think there would be a lot more value and a lot less dissatisfaction with vendor support programs. I also believe that these points are a roadmap for mid-tier vendors to compete on maintenance and support against SAP and Oracle.

On the other hand, if things don't change, I do believe we will reach a tipping point. Whether that will means a rise in the third-party support model, or a serious turn to open source, or some sort of antitrust legislation, I don't know. But things can't continue as they are today.

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High software maintenance fees and what to do about them

Mr. Fusion leaving Oracle

Dennis Howlett is reporting on an internal Oracle email that confirms the rumor that Jesper Andersen, Oracle's SVP Application Development is leaving for Cisco.

This is a big deal in that, as Howlett points out, Andersen has always been considered the brains behind Oracle's Fusion program, its next-generation of products to take the best of the many products it has acquired.

In keeping with its recent practice of near-silence on Fusion, Oracle has not been forthcoming on Andersen's departure. Howlett interprets Oracle's silence and the loss of Andersen under three points:

• Fusion is happening but not at the pace Oracle originally thought.
• Coming as it does just before Oracle Open World, the story will be spun so that new releases will be branded as Fusion, regardless of whether they’re new or something else.
• Vertical market plays, on which Oracle was pinning a lot of hope are up in the air.

I had the pleasure of listening to Andersen speak once at a PeopleSoft conference several years ago and was happy to know that he was assigned leadership of the Fusion effort. His departure has to be a loss to Oracle. Hopefully they can backfill his role.

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E-Discovery: making law firms earn their fees

A Wall Street Journal article (subscription required) points out an interesting side benefit of the latest e-discovery tools: reduction of low-value work for law firms. That is, not a benefit to the law firms, but to their clients.

First, some background. E-Discovery refers to the production of electronic documents during the discovery phase of litigation. As more and more corporate records are managed in electronic format, it becomes increasingly important to be able to search and produce these records in a timely fashion. Recent amendments to the Federal Rules for Civil Procedure (FRCP) made major changes regarding how companies must produce such information.

To serve these needs, software providers, such as Autonomy, as well as major vendors such as H-P, Xerox, IBM, and EMC, have been pushing e-discovery solutions that centralize information about an organization's electronic documents and facilitate search and retrieval of information when needed to support litigation.

The WSJ article points out that some law firms aren't happy about the new tools. Why? Because they allow clients to cut back on the amount of low-level billable hours that law firms assign to junior attorneys--tasks such as reading through boxes of paper documents looking for relevant information. The WSJ quotes Michael Lynch, CEO of Autonomy:

"The old-fashioned way of doing this was having a lot of lawyers doing a lot of simple things," he says. "You would literally have lawyers reading through things saying 'there was chicken for lunch.' You don't need lawyers to know it's a lunch menu."

Recent experience at Comcast is similar:

When outside lawyers working for the cable company recently requested thousands of archived documents for a court case, Genny Garrett, who is in charge of managing Comcast's records, found them by doing a search from her desktop computer.

The lawyers "were surprised," she says, that "they didn't have to wander around a warehouse" looking for records, a task that once generated big legal fees.

My view. Sound legal advice in a time of need is worth every penny. Nevertheless, a law firm's value is not in running up billable hours for clerical work that is better automated. Clients should welcome e-discovery tools as a way of focusing law firms on rendering legal advice instead of paper pushing.

On a side note, the Oracle v. SAP lawsuit has generated document requests from both sides for many thousands of documents and terabytes of data. It's a good example of the challenge of discovery in the information age. From my reading of court documents it appears that both sides are making good use of the type of e-discovery tools discussed in the WSJ article.

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More layoffs at Epicor

Spectator readers have been reporting more layoffs at Epicor:

• Five in early August from Epicor's CRS Retail Systems unit in Newburgh N.Y.
• An unknown number of Epicor employees in the firm's Montreal office
• In mid-July, 40 employees including "quite a few" management and consultants from the Vantage side

I've not yet gotten a response from Epicor's analyst relations office for verification. If other readers have additional information, please let me know.

Separately, a discussion with a local sales rep for an Epicor competitor indicates that Epicor is doing a good job getting their sales team into new deals. According to this Tier II ERP competitor, they see Epicor in nearly every deal.

The reported layoff of Vantage consultants concerns me. If the previously reported increase in consultant utilization is in part due to cutting the number of consultants, Epicor may have trouble delivering services to back up the good efforts of its sales force.

Update, Nov. 13: Fresh round of layoffs at Epicor.

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