All over, except for the shouting

In an interview with CNet, PeopleSoft CEO Craig Conroy says he's no longer concerned about Oracle's hostile bid for PeopleSoft. He points to the fact that, so far, Oracle has received tenders for only 8% of PeopleSoft's stock, and also to PeopleSoft's shareholder rights provision and staggered board of directors--corporate measures that make it all but impossible for Oracle to achieve success. Indeed, at this point, no one I know thinks that Oracle will win.

In a related note, prospective buyers are getting a bit tired of the takeover actions of the big software players. I attended a software demo recently for a prospective buyer. After the initial introductions, one executive in the back of the room spoke up, "I just have one question. Who are you buying, and who's buying you?" Enterprise system investments are supposed to last at least 7-10 years. Therefore, customers are looking for stability and predictability in their software vendor relationships. Amidst all the noise about who's buying whom, vendors had better remember that the ultimate stakeholder in these deals is the customer.

Who's next on SSA's shopping list?

According to Michael Dominy, senior analyst with the Yankee Group, SSA may target additional vendors in the supply chain management space, following its acquisition of EXE Technologies announced yesterday. Quoted in an article in the Daily Deal, Dominy specifically mentions Adexa, Prescient Systems, and Optiant. Adexa (formerly known as Paragon) is a supply chain vendor with strength in the automotive and high tech electronic verticals. In 2001, Freemarkets nearly acquired Adexa for $340M but called it off due to weak market conditions. Adexa would certainly go for less today. Prescient Systems is a small (50 employees) supply chain planning vendor focused on the consumer products vertical. Early in 2003, Prescient announced it had doubled its license revenue over the previous year, bucking the negative trend generally. Optiant (formerly SupplyChange) is small (42 employees) provider of supply chain analytics and optimization solutions. With overall supply chain technology spending flat, niche vendors such as Adexa, Prescient, and Optiant are probably better off as part of a larger portfolio, such as SSA's.

Update, Aug. 22: ARC Advisory Group's John Moore speculates that MAPICS (MAPX) may be SSA's next target, based on the fact that General Atlantic Partners (GAP), which owns 25% of SSA, also has a "sizeable stake" in MAPICS. However, in my opinion, MAPICS is not acting like a company that wants to be acquired. It just made the strategic move to acquire Frontstep, giving it a full product suite based on Microsoft .NET architecture. And it has lowered its cost structure, allowing it to maintain profitability even in these weak market conditions (see my post on August 5). Although GAP's 30% stake in EXE Technologies was, no doubt, a major factor in SSA's acquisition of EXE, GAP only owns 6% of MAPICS--not enough to ensure a deal, although they surely could initiate a discussion. Watch whether GAP tries to increase its stake in MAPICS. That would be a sign that a deal might be coming.

SSA is buying EXE Technologies

EXE is a well-regarded provider of supply chain execution and warehouse management systems. The company was formed as the result of the merger of Dallas Systems and Neptune Systems in 1997. The company went public in 2000. In the most recent quarter, EXE had a loss of $822,000, on revenue of $19.8 million. SSA GT is offering just over $47M for EXE, significantly less than its last year's sales of $70M.

EXE Technologies is generally considered one of the Tier I players in the warehouse management space, although it has been losing ground to Manhattan Associates over the past three years. I evaluated EXE's EXceed offerings a few years ago and was quite impressed with their functionality. But with EXE's weak financial position, the acquisition by SSA makes sense. SSA makes no secret of its strategy to acquire weaker vendors. And EXE surely has been having a rough go of it these past few years. On the other hand, SSA already has a good warehouse management system in its portfolio, in Warehouse BOSS. But Warehouse BOSS is limited to the IBM iSeries (formerly AS/400) platform, whereas EXE claims deployment across all of IBM's hardware platform. In fact, IBM is a strategic partner for EXE. This fits well with SSA's strategic alignment with IBM.

There's a press release on SSA's Web site. The same press release appears on the EXE web site.

Interestingly, starting early this morning, before any news reached the wire, the Spectator suddenly began getting web site referrals from Google for users doing searches with the words "SSA," "exe" and some variation of the word "acquisition." Obviously, the word got out before the announcement.

Wal-mart suppliers face October deadline for Internet-based EDI

In about two months, many of Walmart's suppliers will reach Walmart's deadline for adopting Internet-based EDI (EDI-INT, AS2), in place of older VAN-based EDI. Many of these suppliers have already made the switch, mostly with help from a few software vendors that provide interoperable solutions, such as iSoft (which Walmart uses), Webmethods, bTrade, Cleo Communications, Cyclone Commerce, IPNet, and Sterling Commerce. As I've written previously, Walmart's mandate is a huge shot in the arm for such software providers. And as I predicted last September, other retailers (Home Depot, Lowe's, and others) have followed Walmart's lead in converting to Internet-based EDI, creating strong incentives for adoption of these standards throughout the retail supply chain.

Internet e-commerce is not getting a lot of buzz in the trade press these days, but in fact it's becoming a way of life for many companies.

CNet has an update on the trend.

Word on the street: IT spending is up, but not across the board

In discussions with technology sales people here in Southern California, I'm hearing mixed reports regarding corporate IT spending. The bottom line is that IT spending is picking up, but not in all areas. Here's the buzz.

• In the mid-market, spending on new ERP and CRM systems continues to be slow. Most mid-market companies are still attempting to extend the life of existing systems with add-on's or complementary products and are only buying new ERP systems when existing systems are clearly inadequate. There is a pick up of mid-market activity is some verticals, such as life sciences, health care, and defense contractors, but among many verticals, such as high tech electronics, there is not much appetite for large investments.
  


• With large companies, on the other hand, spending is stronger. But it revolves around streamlining IT processes and cost savings. Specifically, there is a lot of interest in anything that reduces space requirements, such as blade servers.
  


• Data center facilities are now hot properties. Nationwide there is strong demand for new data center space. The need is driven by several regulatory mandates: HIPAA, which drives increase in electronic records in healthcare, Federal Reserve regulations that require banks to have backup sites outside the region of existing data centers, and Sarbanes-Oxley requirements for stronger internal controls such as audit trails, which increase demand for data storage. One source mentioned a case where several banks got into a bidding war for an empty data center facility that came on the market.
  


• Phoenix and Nevada appear to be strong markets. This is being driven by the high cost of doing business in California and the proximity of Arizona and Nevada, which makes them attractive as backup/recovery sites.
  


• When companies go shopping for new application systems, they are showing strong interest in Linux-based systems, mostly because of perceived cost savings. Consistent with this, enterprise system vendors such as Oracle and PeopleSoft are promoting Linux because it allows them to lower the cost of hardware and operating systems in the deal, leaving a larger share of the budget available for software licenses.

Certainly, we're not in the technology boom times of the 1990s. But that doesn't mean IT spending is moribund. It's just happening in different directions today.

MAPICS outsourcing most software development to India

CIO Magazine has a profile of Sandra Hoffman, CIO at MAPICS, who also carries the title of Chief People Officer. The article gives an interesting perspective to the changes that vendors needed to make to survive the downturn in technology spending that began in 2000. In the case of MAPICS, the changes included consolidating functions previously built around separate product lines, moving most employees to home offices, and offshoring large parts of the development function. Concerning outsourcing, MAPICS now outsources all development and maintenance activities to the Indian firm, HCL Technologies. System architecture, design, training, information development, and quality assurance work remain in the US, however. Hoffman estimates that the outsourcing strategy cuts software development costs in half. The changes seem to be working. MAPICS returned to profitability in 2002 with earnings of $14 million on revenue of $128 million.

MAPICS is not unique in moving software development offshore. Oracle is known to have large parts of its development organization offshore and a number of other vendors, such as IFS, have similar arrangements.

Two more business intelligence vendors are hooking up

Just three days after the Business Objects and Crystal Decisions merger announcement, Hyperion and Brio have announced a merger. Why? Hyperion appears to be filling out its line card. By integrating Brio's Performance Suite and Metrics Builder into its offerings, Hyperion will be able to offer a more complete set of products, from advanced query and analysis to financial analysis and performance dashboards. This will allow Hyperion to offer less sophisticated prospects tools to do basic reporting against transactional systems while providing them an upgrade path to more complex business performance indicator (KPI) scorecards and dashboards. Hyperion's flagship product is its Essbase OLAP system.

But some observers don't see the need for business intelligence vendors to offer a complete suite of products. An Internet News article quotes analyst Mark Smith, of Ventana Research. "We believe the Hyperion acquisition of Brio is not a significant move that will impact the BI or Performance Management market," he said. "Since Hyperion had little traction with the OEM of Crystal Enterprise over the last year and half in a product called Hyperion Q&R, there does not seem to be any real demand by customers or push-traction by Hyperion in selling query and reporting." With competitor Business Objects now acquiring Crystal Decisions, I'm wondering if Hyperion will continue the OEM relationship for Crystal Enterprise.

The combined Hyperion/Brio entity will have revenues of $613 million, 2,700 employees, and over 16,000 customers worldwide.

New milestone in adoption of e-procurement

Since 2000, the Institute of Supply Management (ISM), in conjunction with Forrester Research, has been conducting a quarterly survey on the adoption rate of various e-procurement practices, and the most recent report shows a new milestone has been reached. The June survey, for the first time, shows that manufacturing companies are using the Internet to purchase direct materials (i.e. those consumed in manufacturing of products) at a greater rate than they are using the Internet to purchase indirect materials (e.g. office supplies, repair parts, and services). Survey respondents spent an average of 11.7% of their total direct materials spend using the Internet in Q2 2003, up 1.7% from Q1. Indirect materials spending remained flat at 11.0%.

Why is this a big deal? Early adopters of Internet e-procurement focused on indirect procurement as a way to gain some economies of scale with categories such as office supplies, where purchases were decentralized and ad-hoc. Significant savings could be achieved through group buys, and maverick spending could be curtailed by means of an e-procurement system. Additional savings could be achieved through reduction in cost of the purchasing transaction itself. But in manufacturing firms, indirect procurement has always been less strategic than direct procurement, where cost of material was just one factor--quality, delivery, and service are also major considerations. Furthermore, with direct materials the procurement process is usually more complex, with quoting, configuration, specification, and scheduling as major activities in the process. The fact that in manufacturing firms e-procurement of direct material now exceeds that of indirect material indicates that the technology is becoming more commonplace and capable of being used more strategically. The hype phase of e-procurement is past, and companies are now making serious progress in adopting the technology.

So, what is keeping manufacturers from using e-procurement in even greater measure? According to Edith Kelly-Green, spokesperson for ISM and VP/chief sourcing officer for FedEx, "Two of the main concerns keeping survey respondents from wider adoption of the Internet surround the lack of supplier enablement and integration with internal and external systems." As these barriers are gradually overcome, expect to see e-procurement become as common as the fax machine, in my opinion.

The complete survey results are on the ISM web site.

Vendor consolidation hits business intelligence sector

It's just been announced that Business Objects, a leading vendor of business intelligence (BI) software, is acquiring Crystal Decisions, a developer of end user reporting tools. The marriage makes a lot of sense. Business Objects targets its products at business analysts and power users. It also develops high end online analytic processing (OLAP), business performance management, scorecard, and dashboard applications. Crystal, on the other hand, focuses mostly on the end user. Its flagship product, Crystal Reports, is probably the most widely deployed report writer across a variety of enterprise systems. Most vendors have realized that there is no point in trying to develop or market their own report writing tools, and Crystal has pretty much become the standard, having OEM relationships with over 350 software vendors, including majors such as Microsoft, PeopleSoft, and SAP. Crystal Decisions--which was spun off from Seagate Technology in 2000 and was on track for an IPO itself prior to this deal--has been a rising star in the enterprise software marketplace, with revenue growth of 30% in 2002.

The BI market is highly fragmented and ripe for consolidation. The Business Objects/Crystal entity, if approved by shareholders and the SEC, will have combined revenues of over $700M, making it now the leading Tier I BI vendor, followed by Cognos and Hyperion. Tier II BI vendors include Microstrategy, Brio Software, Actuate, and Information Builders. Leading technology platform vendors in the BI space include IBM, Oracle, Microsoft, Teradata, and Sybase.

There is one risk to Business Objects, however, in acquiring Crystal Decisions. Some of those 350 OEM relationships that Crystal has built are software developers that also offer business intelligence and enterprise performance reporting functionality. How eager will those vendors be to continue to wrap themselves around Crystal Reports, if the new owner of Crystal is now directly competing with them?

The press release on the Crystal deal is on the Business Objects web site.

It's official: PeopleSoft acquires J.D. Edwards

The combined firm will have annual sales of $2.8 billion, 13,000 employees and 11,000 customers in 150 countries, making it number two in the enterprise applications marketplace, behind SAP and ahead of Oracle's application business. The combination makes Oracle's bid for PeopleSoft now more expensive, and I still predict that it is not going to happen. The Associated Press today has details on PeopleSoft/JDE deal.

More interesting, however, is an interview on CNET with Ray Lane, former president of Oracle and currently a partner with venture firm Kleiner Perkins. Lane comments on structural changes in the software industry, the prospects for Oracle in acquiring PeopleSoft, and trends that will drive growth in IT in the coming years. Lane says, "A lot could be done above the ERP layer to build composite applications better and offer better user access. A lot of what I'll be doing is around finding a better process for integrating data and more intelligence. I've got a lot of data, but no freaking idea what it's doing."