New details on Infor's Lawson acquisition

Confirming the rumors swirling for the past several weeks, Infor today announced that it is acquiring Lawson Software. (Technically, it is an affiliate of Infor's owner, Golden Gate Capital, doing the acquisition, but the practical outcome is that Lawson and Infor will now be one company.)

I received a quick phone briefing on the news from Duncan Angove, Infor's President of Products, Marketing and Support. Duncan himself is new with Infor as of last December, part of the new management team brought in from Oracle by CEO Charles Phillips.

The press release announcing the acquisition provides the primary talking points. But I wanted to get more details behind the announcement. Here's what I learned.

Product strategy

The acquisition is being driven by the top line (i.e. increasing revenues) and by the desire to create a "third-choice" for the top tier of enterprise buyers (i.e. someone other than SAP and Oracle) by delivering a strong offering for key industries. For example, Infor is interested not just in process manufacturing or "food and beverage," but "bakeries" and other sub-verticals. It intends to offer functionality that takes into account how bread dough rises at certain altitudes, or how long it takes an oven to reach its desired temperature, for example.

According to Duncan, there is little overlap between products of the two firms and they complement each other well. For example, Lawson has very strong presence in healthcare, and Infor does not have healthcare-specific offerings today. But Infor does have a strong asset management product, which is of great interest in hospitals, which must manage detailed information on medical device equipment. Infor sees the integration of Lawson's healthcare systems with Infor's EAM offering as an attractive offering.

Likewise, healthcare providers today face constraints due to the shortage of skilled nurses, and managing the productivity of nursing staff is a key driver of success. Lawson has strong human capital management (HCM) offerings for healthcare, which Infor intends to integrate with its own time-and-attendance and workforce scheduling applications (from its Workbrain acquisition), again, offering a more powerful solution.

On the Lawson M3 (formerly, Intentia) side, Infor sees strong synergies with its other manufacturing offerings, specifically with its product lifecycle management and supply chain products which many consider as best-of-breed.

Technology strategy

Here's where things get even more interesting. I wanted to find out how Infor viewed Lawson's M3 technology, which is 100% Java-based, in light of Infor's decision last year to standardize as much as possible on Microsoft.

Well, as it turns out, with the new management team in place, Infor has un-done its decision to standardize on Microsoft for key elements of its technology stack. Infor now prefers to stay "open" on the technology side. It will continue to leverage Microsoft Sharepoint but will leverage open source components for some elements of middleware, such as the Apache web server, OASIS standards for document exchange, and open source reporting tools. The technology stack will vary by product (e.g. Syteline will continue to be 100% Microsoft), but newly developed complementary products will not standardize on Microsoft SQL Server, for example, as had been Infor's statement of direction earlier.

As far as cloud deployments, Infor will continue to leverage the co-location data center services of Savvis and does not see a conflict with Lawson's strategy to host instances of its systems on Amazon's cloud. Infor currently uses Amazon's cloud to handle peak workload requirements, so it is not unfamiliar with Amazon's services.

Interestingly, Infor claims that the Infor/Lawson combination will have over 1 million users "in the cloud." The bulk of these will comprise Infor's current cloud-based users of its asset management and expense management systems, as well users of Enwise, a SaaS provider of HR service delivery and workforce communication solutions, which Lawson itself acquired in December 2010.

Impact on Lawson customers and employees

As with any software industry merger or acquisition, the primary concern is what the impact will be on customers, who have made large investments in Lawson software, and employees, who have invested their careers in Lawson. Concerning customers, Duncan maintains that, if Lawson was going to be acquired, Infor is the best place for its customers. It has committed not only to maintain current development efforts, but to expand them, with some of the 400 software developers it recently announced it was hiring. Lawson customers should see increased levels of investment with Lawson products, not lower.

Concerning Lawson's people, there is little doubt that there will be "efficiencies" (read: layoffs) in back office functions, but no plan to conduct layoffs among software developers. Infor sees no need to consolidate or push development offshore as a way of improving margins.

As in most cases like this, we'll have to wait to see what the real impact is on Lawson customers and employees.

My take

Infor's strategy to focus on specific industries, and sub-industries is a good one. It is quite similar to what Microsoft put forth in its Convergence conference for its Dynamics line of enterprise software products. The world has enough "broad spectrum" software that addresses a whole host of needs that no one company has, and thus carries a lot of unnecessary code, features, and configuration choices. Focusing on the differentiating requirements of specific industries (e.g. bakeries, breweries) is a better choice.

On the other hand, I think Infor's ambition to become a "third-choice" to SAP and Oracle might be a bit premature. In its ERP offerings, Infor is still a large collection of independently developed and maintained products. Lawson just adds two more (S3 and M3) to the portfolio. Nevertheless, there are enormous opportunities for Infor to establish itself as a strong contender in specific industries, short of being a "broad spectrum" provider like SAP and Oracle. There are also opportunities for Infor to position certain of its offerings in a two-tier configuration, with SAP or Oracle running for corporate or shared-services, with Infor offerings running at the plant or local office level. I would like to see Infor develop and promote out-of-the-box connectors with SAP and Oracle financials and shared services, such as order processing. That would strengthen its credibility further and would be quite attractive for many global organizations, which already are running Infor products in some of their locations.

Finally, the technology shift away from Microsoft, while understandable, represents the second or third major change in strategy over the past two or three years. Infor needs to make its technology strategy explicit and assure customers and partners that it plans to stick with it for the long run.

Related posts

Shifting strategy: Infor casts its lot with Microsoft
Update on Infor's Flex program: customers win
Lawson's cloud services: good start, but no SaaS

What’s new with Microsoft Dynamics AX 2012

Microsoft held its Convergence conference in Atlanta last week, and one of the big items on the agenda was the scheduled general availability this August for Dynamics AX 2012 (formerly known as Axapta). There are several areas in which this new version of AX is a real advance for Microsoft, positioning AX up-market more and more as a viable alternative to SAP and Oracle for many customers.

First, let’s see some areas where Microsoft is moving the ball forward with AX.

Microsoft Dynamics AX as an ISV platform

With this new release, Microsoft is positioning AX as more than just another ERP offering. It is now pushing AX as a platform for other independent software vendors (ISVs) and business partners to build out narrow industry-specific solutions. AX currently has strong functionality for manufacturing, public sector (in four countries currently), service industries, distribution, and retail (coming soon).

Of course, many other ERP vendors target specific industries. But Microsoft is going beyond this level of focus. It has a major effort underway to recruit ISVs and business partners to extend this industry-specific AX functionality with more narrow solutions to target certain sub-industries.

For example, Microsoft has already signed up Lexis Nexis to build its legal firm solutions on top of native AX functionality for professional services. Likewise, Aldata is providing fashion and apparel industry functionality on top of AX’s retail industry solution. In another example, Microsoft recently purchased intellectual property from Tyler Technologies for the public sector and rolled it into the AX core. Now Tyler is building solutions for the government and government contracting sectors on top of AX.

Few ERP vendors are moving as aggressively to position their products as a platform for other ISVs. Smaller ISVs often do not have the resources to keep their products up-to-date with the latest technologies. By building on top of AX, they can focus their efforts not the part that really counts--the industry-specific part--instead of modernizing legacy code or reinventing the wheel with another general ledger. In one-on-one analyst briefings, Microsoft executives tossed out approximate numbers of ISVs currently in discussion about following the example of Lexis Nexis, Aldata, and Tyler Technologies—if half this number commit to AX as a platform, it will be truly impressive.

International support

There are also improvements for global implementations. Dynamics currently has development centers in Brazil, Russia, India, and China (the so-called BRIC nations). It is rolling in localizations for these countries and others into the core product, which greatly improves its global support. AX traditionally has relied upon local partners to provide customizations, which may still be appropriate in some localities. But too many partner localizations sitting on top of one another can be cumbersome. So, Microsoft’s approach makes a lot of sense to take on more of these international requirements in the core product.

Expanded functionality

In terms of new functionality, there is much to like, with new core ERP features and functions for supplier relationship management and case management, a new constraint-based product configurator, public-fund accounting, project quotation and budget control for service businesses, better multi-entity capabilities, and embedded business intelligence and reporting. There is also a new role-based user interface, and enhanced interoperability with familiar Microsoft tools such as Word, Excel, Outlook, and Sharepoint.

From the first day keynote, it was clear that Dynamics AX has its share of whiz-bang features, thanks to its ability to leverage innovations coming from other parts of Microsoft. For example, Microsoft's Lachlan Cash showed a prototype the new AX visual Kanban display, manipulated by means of the user’s body motion, using Microsoft Kinect, which is technology used in Microsoft’s Xbox gaming console (see photo). Cash pointed out that such an application would be ideal in a down-and-dirty manufacturing plant, where it might not be advisable to have users touching a keyboard and mouse.

There is much more, too much to list here. A "what's new" fact sheet is available that outlines all the enhancements of this new release and is worth a careful read.

Cloud deployment options

During the conference, many observers headlined their reports, in effect, that Microsoft is “moving its Dynamics line to the cloud.” However, the reality is that Microsoft is moving AX to the cloud in stages. At present, prospects can have their AX systems hosted in partner data centers. When the 2012 version is released in August, it will be continue to be available as a hosted solution in partner data centers, with hosting in Microsoft's Azure cloud available with the next major version after AX 2012.

Although options for cloud-based deployment with the AX 2012 version are currently limited to hosting in partner data centers, this should be sufficient for most customers. As pointed out in the analyst briefings, customers today tend to be conservative in moving their core ERP functions such as financial applications off-premise, although they may be interested cloud deployment for selected functions, such as CRM, time and expense reporting, and applications that support the mobile workforce. As Microsoft and its ISV partners build out complementary products on Azure, all customers will benefit, whether they have AX hosted on Azure or continue with on-premise deployment. So, Microsoft still has time to build out its cloud deployment options.

Where does AX fit?

Considering all of the above, Microsoft Dynamics AX is a strong candidate for organizations in the mid-tier and above, especially for those with the following characteristics:

1. Organizations in sectors targeted by AX, specifically manufacturing, distribution, retail, public sector, and services. These are major industry groups covering a broad swath of business types.
   
   
2. Organizations that have standardized or want to standardize on Microsoft's technology stack, such as Windows Server and MS SQL Server.
   
   
3. Organizations where users want to leverage their familiarity Microsoft's end-user productivity tools, such as Microsoft Office, Exchange/Outlook, and Sharepoint.
   
   
4. Organizations needing an ERP system that can scale globally to multiple international locations without incurring the overhead and expense of an SAP or Oracle.
   
   
5. Or, conversely, organizations that have SAP or Oracle running for centralized functions such as financials and HR, but desire a lower-cost, small footprint solution for local operations or satellite offices/plants—the so-called “two-tier” strategy.

Finally, organizations running multiple legacy systems that want to consolidate to a single modern platform are well advised to short-list Dynamics AX. Its backing by Microsoft in many cases will be enough to warrant AX a closer look. With the enterprise software industry undergoing consolidation over the past decade, Microsoft’s continued investment in AX gives customers and prospects the assurance that AX is not at risk for being acquired and orphaned.

A practical way forward

The enhancements introduced in Dynamics AX 2012 are not revolutionary, but rather reflect the continued evolution of a product that has become the centerpiece of Microsoft’s ERP strategy.

Microsoft’s promotion of AX as a platform is an interesting product strategy, enabling ISVs and business partners to build out more focused industry solutions (the so-called “last mile” of the solution). This approach blends well with Microsoft’s partner strategy, allowing partners to find new ways to make money while increasing the attractiveness of AX as a niche solution in a variety of sub-industries. As more and more prospects choose cloud-based solutions, traditional sources of partner revenue (e.g. hardware sales, networking, etc.) will dry up, and partners will need to provide more of a value-add. Industry-specialization is their ticket.

Microsoft is also moving in the right direction in strengthening AX for multinational organizations. Microsoft’s efforts now make AX a real alternative to SAP and Oracle, either as a complete replacement or as part of a two-tier deployment, with SAP or Oracle operating at headquarters and AX running in satellite locations. For those uncomfortable with a de-facto duopoly at the top end of enterprise ERP, the emergence of Microsoft Dynamics AX as a viable option is a welcome development.

Update, May 18: corrected timing of hosting options for AX 2012.

Related posts

Update on Microsoft Dynamics products and plans

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When smartphones disrupt medical devices

I'm here at the Medical Design & Manufacturing (MD&M) West conference, one of several shows running concurrently in the Anaheim, CA convention center this week.

Along with the trade show, there is an excellent conference program. I am especially interested the tracks on disruptive technologies in the medical device industry as well as updates on the regulatory environment with the US Food and Drug Administration and other regulatory bodies globally.

Here are some highlights of what I've heard so far.

Global competition for innovation

Tracy Lefteroff of Pricewaterhouse Coopers outlined opportunities and barriers in worldwide medical device innovation, based on a PwC survey.

The results are not good for the US.

• The US is becoming increasingly unfriendly to innovation. Israel is the easiest place to get regulatory approval for new medical device technologies, followed by the EU and India. The US ranks lower down the list. So, if you need treatment involving innovative technology, you may need to go outside the US.
• The US carries the highest cost per hospital bed, and fewer beds per capita than any other global region--by far.
• Industry participants expect that the regulatory environment in the US will become even more restrictive in the future.
• On the positive side, the US is still the best place to raise money for new medical technologies and it also one of the easiest markets to enter, once you have an approved product.

There may be hope, however. Lefteroff reports great interest in Washington to see the regulatory environment improve. Why? Jobs in the medical device industry are leaving the US for more friendly jurisdictions, and in the current environment, anything we can do to improve the employment situation is attractive, on both sides of the political aisle.

Disruptive technologies in the medical device industry

Jeff Brown from UBM TechInsights followed with an insightful look at how consumer technologies are disrupting established ways of addressing patient needs. Brown showed as new technologies reach critical mass, their IP is often transfered into other established technologies, disrupting them and driving down the cost and size of the established products. For example, digital camera capabilities increased and the cost dropped to the point that the technology could be incorporated into cell phones. Today, many consumers do not carry digital cameras, as the cameras in their cell phones are "good enough."

Although Brown covered several disruptive technologies in the medical device industry, much of his presentation focused on how smartphones (e.g. Apple's iPhone) are becoming and will become part of future so-called mobile health (mHealth) solutions.

For example:

• The AliveCor EKG sleeve turns your iPhone into an electrocardiogram monitor. Note however that the device is not cleared for marketing in the US. More on that issue in a minute.
  
• iStethoscope Expert, a free primitive iPhone application, uses the native microphone in the iPhone to listen to and record your heartbeat.
  
• Hearing aids, which at the high-end can cost thousands of dollars, are about to be disrupted by blue tooth earpieces connected to smartphones.

In these and many other examples, Brown pointed out the tremendous improvement in capability that comes when standalone devices (e.g. hearing aids, stethoscopes, EKG monitors) are replaced by devices that connect to smartphones. They not only perform the same function as the device they are displacing but they can go beyond with their ability to record and store data and to communicate with other devices.

For example, a traditional hearing aid can only do one thing: help you listen better. But a hearing aid that is connected to a smart phone can take advantage of the smart phone's capability to record and store conversations. In fact, a smartphone could take that recorded conversation and convert it into text and email it to you. One can imagine many applications, even for people that are not hearing impaired.

Innovation vs. regulation

Brown briefly covered the regulatory issues that constrain the convergence of new technologies with medical device solutions. Current FDA regulations treats many of these new applications and distruptive technologies as medical devices, depending on their intended use to diagnose or treat disease, or to affect the structure or function of the human body. This classification puts FDA squarely in the middle of commercialization of such products.

As Lefteroff indicated earlier, other jurisdictions are friendlier environments for introduction of these new converged technologies. It may be that some of these solutions will take hold first in developing countries, where their low cost and "good enough" capabilities will allow them to be perfected and proven.

It is ironic that, while the underlying technologies may have been developed by US companies (e.g Apple), their application as medical devices may only come to the US after they have been established and proven in other geographies.

Related posts

FDA still enforcing regulations for validation of enterprise software

Avoiding project death by ROI

I had an unusual experience recently: a client demanded an exhaustive ROI calculation for a project, and the client approved the investment.

How to kill a project

Why is that unusual? First, some background. Over the years, my consulting firm, Strativa, has developed a methodology for building the business case for enterprise IT projects (or, any initiative for that matter). We identify the perceived benefits of the new system (for example), trace them back to features/capabilities of the new system, then quantify the direct financial impact. We also identify the time-phased project costs so we can calculate the ROI, whether by a simple break-even calculation or a more sophisticated internal rate of return. The whole methodology is implemented in an elaborate Excel workbook.

Although we are quite proud of this tool, I have noticed a pattern in cases where we use it. Often, when a client demands an exhaustive ROI calculation ("show me the money"), the project does not get approved. This is true even in cases where our calculations show a strong ROI.

Although I am a great believer in the need to demonstrate financial return, I have come to the conclusion that, in practice, too many executives ask for the business case not to determine whether they should make the investment, but to find an excuse for why they should not.

Now, having said that, there are some cases where an organization's capital expenditure processes require a formal business case. Here, the project sponsor requests the business case not as a means to kill the project but merely to get funding for a project that he or she already wants to do. But apart from these cases, what explains the correlation between client demands to see an ROI and projects being killed?

The "ROI Trap"

My hypothesis is that, due to a reluctance to say "no" directly, ROI calculations are often a convenient way to refuse projects that management simply doesn't want to do.

This "ROI trap" can take several forms:

• Management argues the project budget is underestimated
• Management argues the benefits are overly optimistic
  
• Management argues the benefits cannot be connected to the proposed initiative

That final point is the most subtle. For example, benefits involving increased sales are the most difficult to get by management review. A new sales force automation (SFA) system, for example, might be justified in part by increased revenue from new sales. The rationale would be that sales people today only spend about 50% of their time selling. The rest of their time is spent looking for information, administrative activities, and reporting to management. By providing faster access to information and automating much of this administrative overhead, sales people can spend more time selling, which should result in increased revenue per salesperson.

The problem, however, is that the organization is planning to do all sorts of things to increase sales, such as any number of marketing programs and new product introductions. If sales do increase after the new system is implemented, how will management know that the improvement is due to the new system and not to other things that the organization is doing? Therefore, when presented with a SFA business case that relies in part on increased sales, the easiest thing for management to do is to say, we don't see the connection.

Who owns the business case?

Is there a way out of this trap? We have found that there is one important key to having a business case approved: management ownership of the benefits statement.

Here is how we now prepare the business case for a new system or business initiative. We hold a series of workshops to collaborate with the client's project team and stakeholders around five questions:

1. What the objectives for the proposed investment?
2. How will the project meet those objectives?
3. What financial metrics would improve if those objectives were met?
4. What are the baseline measurements for those metrics today?
   
5. What percentage improvement would be achieved in those metrics if the project is approved?

We often find, however, that even among the project sponsor, project team, and key stakeholders there can be significant disagreement, especially in answering the fifth question. The reason is simple: stakeholders are going on record that they believe the project will yield certain benefits, and if the project is approved they are in effect taking responsibility for meeting those improvements in performance.

A success story

Now, back to our recent client project, which involved selection and approval of a new customer relationship management (CRM) system.

Early in the project, the client made it clear that a strong business case would be needed for a new CRM system to be approved. Based on my past experience, alarm bells went off in my head. What were the chances that this selection would end in "no decision," to the disappointment of the project team and the vendors asked to bid on the project?

Knowing about "the ROI trap," our consultants took a collaborative approach to the business case. Instead of going off in a corner and coming back with the proposed business case, they brought the client's team into the room and asked the five questions outlined above. The CFO was particularly strong in telling the team: if you say these things are benefits, you can expect your sales quotas and budgets to reflect what you say. Translation: they would be held accountable. The CFO even went so far as to ask us to break down the benefits by region, so that the regional sales managers could be held accountable.

The result? A business case that, perhaps, was understated (due to the desire not to set too high a bar) but one that was still quite positive, and most importantly, one that had the ownership of the stakeholders who would be responsible for implementation.

In the end, the project was approved, and contracts have been signed.

Lessons learned

No one likes to be held accountable, and if the business case for a new initiative is the consultant's work only it becomes an easy excuse for stakeholders to escape responsibility. Collaboration is the key: combining the consultant's methodology and industry knowledge with the client's ownership of the goals and metrics. Then, when it comes time to present the business case, it is not the consultant's presentation but the project team and stakeholders arguing in favor of the investment.

Footnote: way back in 2004, I explored the psychological dynamics of the ROI trap, based on the work of Max Bazerman. These are still quite relevant today. See the related posts below for more discussion.

Related posts

Escaping the ROI trap
Escaping the ROI trap, Part 2

*Image courtesy of Ramberg Media Group.

Apply for Our 2011 IT Spending Survey

For more than two decades, the annual Computer Economics IT spending survey has been the authoritative source for IT spending and staffing benchmarks for IT executives.

Our 2011 survey is now underway, but we're looking for additional survey respondents.

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IT spending outlook for 2011 and implications for enterprise software

Over at Computer Economics, our end-of-year update on IT spending and staffing trends is showing some incrementally positive good news.

IT spending outlook

First, based on our Q4 survey of US and Canadian IT end-user organizations, we are forecasting IT operational budgets to increase 2.0% at the median. This might not seem like a big jump, but if it holds (and we'll know when we conduct our annual survey in Q1 2011), it will be an improvement over the past two years, when budgets were flat at the median.

Figure 1 shows the trend for this metric since 2006.

However, don't expect big increases in IT staff hiring, at least in early 2011. Although 27% of IT shops say they've been adding to headcount over the past three months, 14% were cutting headcount, for a net gain in only 13% of IT organizations, as shown in Figure 2.

On the other hand, on a positive note, those IT professionals who are employed are already seeing an increase in their work hours. Over the past three months, a net 47% of IT organizations have been allowing their staff members to work more hours, which could include overtime or cessation of furlough days.

On another positive note, nearly half of all IT organizations have been increasing their work on major projects over the past three months. That, of course, could be a large part of what is driving the increasing staff hours.

Finally, in welcome news for IT staff augmentation firms and contract service providers, a net 31% of IT organizations have been increasing their use of contractors and temps over the past three months. Again, this may be tied to the renewal of major project work.

Implications for enterprise software

For customers and vendors of enterprise software, what does it mean? First, the overall trend for IT operational spending may be moderate, but it is positive. The news on the capital spending side is likewise positive, with over half of our respondents expecting to spending more for IT capital investments. Our full report has details.

Second, the underlying dynamics in IT organizations are shifting. Whereas last year, and the year before, many of our respondents were canceling or deferring major projects, laying off IT staff, and cutting work hours, the picture over the past three months is exactly the opposite. New project work is increasing, new hiring is exceeding layoffs by a small amount, work hours are being extended, and IT contractors are getting the nod. All of these are positive signs.

Bottom line

I wouldn't expect 2011 to be a boom for IT spending--not only in comparison to the late 1990s, but even compared to the 2006-2007 time period, which was sort of a mini-boom compared to today. Still, after the last two to three years, any improvement is welcome.

We know from our previous years' surveys that many organizations cut back dramatically on major new initiatives, including enterprise software projects. As a result, many needed improvements were put off, and users are clamoring for relief. While economic recovery is still weak, organizations that make those investments now will be in much better shape when business conditions improve. In addition, most vendors of enterprise software are still in a deal-making mood: prices for software and for services are still a buyers-market.

Therefore, now is a good time to be making those investments.

The full report, Outlook for IT Spending and Staffing in 2011, is available on the Computer Economics website.

Related posts
Computer Economics: IT Spending and Staffing Benchmarks 2010/2011: IT Ratios and IT Cost/Budget Metrics by Industry Sector and Organization Size

First impressions: Salesforce.com far outgrows its name

I'm here in San Francisco covering Dreamforce 2010, the annual conference of Salesforce.com (SFDC).

Over the past several years, and especially from the keynotes given thus far, it is apparent that Salesforce.com needs a corporate name change. With roots as SaaS provider of salesforce automation system, the firm's services have expanded to a broad set of applications and applications development platform services.

More on that in a minute, but first, check out the energy and enthusiasm on display here at Dreamforce--from CEO Mark Benioff's on-stage cheer-leading to the vigor of the exposition floor. For example, one small developer told me last night that on the first day of the expo, he walked away with 75 good sales leads. I shot some quick video, which can give you a little window into the vibe, in spite of the dreary, rainy weather outside.



Okay, back to the issue: does SFDC need a name change? Just consider the following:

1. SFDC's own functionality has been expanded to include customer service applications, bringing its footprint further into complete CRM territory.
   
   
2. Back in 2006, the company opened up its development platform to third-parties, allowing them to build their own commercial applications and sell them via its AppExchange marketplace. The platform itself has since been renamed Force.com. Since then, independent software vendors have developed something like 1000 products on AppExchange, either as extensions to or in addition to Salesforce.com's own products.
   
   
3. Earlier this year, SFDC announced its intent to acquire Jigsaw Data Corp, which provides current data on businesses and contact information, putting SFDC into the data services business.
   
   
4. Earlier this year as well, SFDC introduced its Twitter-like capability, dubbed Chatter, which provides a secure, private social/collaboration environment from within SFDC's services and systems built on Force.com.
   
   
5. Building out its platform-as-a-service (PaaS) capabilities, SFDC earlier this year launched a joint-venture with VMware to provide Java development capabilities as part of its Force.com platform, allowing third-party developers to use Java instead of SFDC's own proprietary development language. Furthermore, just yesterday, SFDC announced its agreement to acquire Heroku, a PaaS provider for the Ruby-on-Rails development platform. Ruby is an increasingly popular development platform for rapid application development, including many social and mobile applications.
   
   
6. Another announcement during the conference this year: SFDC is introducing something called Database.com, which gives developers a cloud-based database capability, even if they are not building on SFDC's own Force.com platform.

This is just a partial list of the ways in which SFDC has moved far beyond salesforce automation to become something of a cloud-based development environment. So, as I said, at some point, I think a name-change would be in order.

For a deeper dive on the Heroku acquisition and the Database.com announcement, see the post from my colleague, Dennis Howlett, Salesforce's Database.com as a game changer now they've acquired Heroku?

Rimini Street to Oracle: don't expect us to roll over

As everyone knows by now, Oracle won a huge ($1.3 billion) judgment in its lawsuit against SAP/TomorrowNow (TN) for copyright infringement. SAP had acquired its now-shuttered TN unit to provide third-party support for some Oracle business applications in hopes of winning those customers over to SAP. SAP is considering an appeal of the jury verdict, the largest ever in a copyright case.

In the meantime, Oracle has a lawsuit pending against another third-party support provider, Rimini Street. At first glance, Rimini Street "looks like" TN in that both are/were providers of third-party support for Oracle applications. Furthermore, Oracle's lawsuit makes similar allegations--some of it appears to have been cut and pasted from its suit against SAP.

So it would be easy to assume that Oracle's hand against Rimini Street has been strengthened by its win against SAP.

Why Rimini Street isn't TomorrowNow

It would be easy, but it would be wrong. Here's why:

• Admission of liability. Nearly from the start, SAP admitted that something was wrong down at its TN unit. By the time the case went to trial, SAP had basically thrown in the towel, admitting not only that TN had violated Oracle's copyrights but that SAP itself knew about the illegal behavior.
  
  In contrast, Rimini Street is making no such admissions. It has from the beginning steadfastly rejected all allegations that it is violating or has violated Oracle's IP rights. In several interviews I've conducted with the firm's executives over the past three years, it has claimed to have established clear policies and standards to prevent such misuse and has offered to have Oracle audit its practices. Oracle has refused such offers, choosing instead to file a lawsuit. So much for allowing Rimini Street to compete fairly.
  
  
• Counter-punching. From the start, SAP was playing defense against Oracle's allegations. It never counter-sued or alleged misdeeds on the part of Oracle.
  
  In constrast, Rimini Street is fighting back. In a statement sent to me by Rimini Street last week, the firm writes, "While SAP chose not to challenge Oracle's allegations of liability, Rimini Street is aggressively challenging Oracle's allegations and prosecuting its own claims against Oracle."
  
  It goes on, "While SAP chose not to challenge Oracle's allegations, Rimini Street has countersued, accusing Oracle of defamation and using illegal and unfair practices to stifle competition for the lucrative support and maintenance business. Rimini Street intends to stop what it believes are Oracle's illegal actions and is seeking to hold Oracle responsible for its conduct."
  
  In other words, if Oracle thought Rimini Street would simply roll over, it thought wrong.
  

I suspect Oracle would like to have these two lawsuits run together in the mind of customers, prospects, and the general public. But, Rimini Street appears determined not to let that happen.

SAP's hands were tied against Oracle

The ironic part of the Oracle v. SAP/TN case is that SAP couldn't mount a vigorous defense without shooting itself (forget about the foot!) in the head. SAP, like Oracle, is addicted to its lucrative maintenance business. It is baffling why SAP chose to acquire TN in the first place, for some tactical advantage in converting a few Oracle customers to SAP? While undermining its whole business model for sustaining revenues from its installed base? What was SAP thinking?

So, when Oracle filed suit against SAP, what was SAP supposed to do--counter-sue Oracle for restraint of trade and unfair competition, and thereby conceding to any large hungry system integrator or competitor (think, IBM or HP) that its own installed base maintenance revenues were ripe for picking? Of course, SAP had to defend itself. But it couldn't defend itself too strongly, lest it wind up giving legal precedent to the third-party support industry. As it turns out, as the case proceeded through discovery, Rimini Street announced it would begin offering third-party support services for SAP's customers in addition to the services it was offering to Oracle customers. So, SAP was stuck between the proverbial rock and a hard place.

Rimini Street has no such baggage. It can and appears to be willing to mount a vigorous defense of its own rights to offer third-party support services, based on the contractual rights of customers to self-maintain their licensed software, while respecting the IP rights of OEM software vendors.

Why Rimini Street's case is important

As Rimini Street stresses in its statement this week, "both Oracle and SAP have acknowledged that third-party support is legal." I covered this point back in 2008 in a post entitled, Legal basis for third-party ERP support industry. In a little-noticed letter filed by SAP as part of pretrial discovery, TomorrowNow strongly asserted its legal right to offer third-party support for PeopleSoft customers, and PeopleSoft backed down from its claim that such support was illegal. Furthermore, to my knowledge, Oracle has not gone so far as to argue that TN had no right to offer support. Only that it did so by stealing Oracle's IP.

Rimini Street is strongly claiming not to be infringing on Oracle's IP. If it can back up that claim in court, then, in my opinion, a strong legal precedent will be established for the third-party support industry. Furthermore, if Rimini Street is successful in its counter-claim against Oracle, it will strongly restrict the attempts of vendors to prevent customers from seeking third-party support--which, ironically, SAP itself appears to have tried to do in 2009!

Strange, isn't it? SAP was defending itself as a provider of third-party support for Oracle customers, while at the same time apparently trying to prevent its own customers from using third-party support.

So, SAP was fighting Oracle with one hand tied behind its back. As Rimini Street's statement now points out, "Had SAP availed itself of the claims and defenses pleaded by Rimini Street in its case against Oracle, SAP would have placed its own policies and third party revenues in jeopardy. "

So, why is the Rimini Street case important? Because the rights of customers to not be locked into a single source for maintenance and support needs to be preserved. As I've written many times in the past, when you buy a Lexus, you have the right to take that Lexus to any third-party repair shop. Lexus cannot try to stop you or threaten to void your warranty if you do so. If they tried, the US Department of Justice (DoJ) and 50 state attorneys general probably would file suit. Why should the enterprise software industry be any different?

DoJ is reported to be looking into the Oracle/SAP matter. If so, and while it's learning about this industry, it should also take a look at the restraint of trade and antitrust implications of both SAP and Oracle's behavior in attempting to prevent a viable third-party support industry.

Statement from Rimini Street

Here is the full statement from Rimini Street, sent to me last week.

While SAP chose not to challenge Oracle's allegations of liability, Rimini Street is aggressively challenging Oracle's allegations and prosecuting its own claims against Oracle.

We believe the resolution of the Oracle vs. SAP case does not impact Rimini Street’s case against Oracle and does not change anything in the fast-growing third-party support market.

A few key facts:

Both Oracle and SAP have acknowledged that third-party support is legal. Oracle's claims relate to the specific processes and procedures used to provide support for their products. The processes and procedures used by Rimini Street are very different from those used by SAP.

The only substantive similarity between the offerings of SAP/TN and Rimini Street is that they both provide third party support at 50% off the software vendor's annual fees. As clearly articulated in the court documents and the thousands of pages of process documents provided to Oracle by Rimini Street, every other aspect of Rimini Street’s operations is significantly different that the operations of SAP/TN. Oracle knows this to be true.

We believe the magnitude of the damages award is a result of SAP's peculiar decision to concede liability and ultimately not challenge Oracle's claims. It bears noting that SAP, like Oracle, derives many billions of dollars from maintenance and update services to its customers with profit margins not unlike Oracle’s.

SAP’s practices and conduct in their attempts to chill growth of third party maintenance are similar to Oracle’s. Had SAP availed itself of the claims and defenses pleaded by Rimini Street in its case against Oracle, SAP would have placed its own policies and third party revenues in jeopardy. SAP abandoned these claims and defenses at its own peril, as the size of the damages award illustrates. While SAP chose not to challenge Oracle's allegations, Rimini Street intends to stop what it believes are Oracle's illegal anti-competitive actions and will hold Oracle responsible for its actions.

While SAP chose not to challenge Oracle's allegations, Rimini Street has countersued, accusing Oracle of defamation and using illegal and unfair practices to stifle competition for the lucrative support and maintenance business. Rimini Street intends to stop what it believes are Oracle's illegal actions and is seeking to hold Oracle responsible for its conduct.

Update, 1:40 p.m.: Dennis Howlett has a good post on the long-term implications for customers if vendors can get away with squashing the nascent third-party maintenance industry.

Related posts

SAP and third-party maintenance: good for me but not for thee
Legal basis for third-party ERP support industry
Oracle slams Rimini Street with lawsuit over third-party maintenance

Oracle applications customers: wedded bliss or battered wives?

The results of my Oracle Apps customer survey have just been published by Computer Economics, and I've been fielding calls from media representatives on the findings. The most common question: if customers are so unhappy with the quality and cost of Oracle apps support, why do they keep spending money with Oracle? Why do they stay in this relationship?

It's not an easy question to answer. But first, let's summarize several main findings of our study.

Three negatives for Oracle

The Computer Economics Media Alert and Research Byte provide a more complete description of the report. But let me point out three major negatives for Oracle in the findings:

• Apps customers unhappy with Oracle support. There is no way to avoid the conclusion that there is tremendous customer dissatisfaction with the quality and cost of Oracle support. Specifically, 42% are dissatisfied with the quality, while 58% are dissatisfied with the cost. This is across the board for all products, including E-Business Suite users, but is especially pronounced among PeopleSoft customers. The respondent comments in this section are devastating.
  
  
• Fusion apps not top-of-mind for Oracle customers. Oracle’s next-generation applications, dubbed Fusion Applications, are not on the radar for most customers, with only 10% planning to migrate to Fusion. There is substantial difference in migration plans, depending on the Oracle product currently installed.
  
  
• Oracle apps customers not flocking to Sun hardware. Only 25% of Oracle application customers are currently users of Sun hardware, but among these customers, expectations for increasing support costs are high. Very few Oracle application customers have plans for Oracle’s new Exadata storage systems.

As I said, not good news for Oracle.

But most customers sticking with Oracle

At the same time, despite their dissatisfaction with Oracle support, their lack of interest in Fusion, and their complaints about Sun costs, only 25% of our respondents expect Oracle to have a smaller share of their IT budgets over the next three years. Another 37% indicated such factors as organic growth, purchase of additional Oracle applications, and standardization on Oracle technology would result in Oracle having an even larger share of their IT budgets. The remaining respondents judged Oracle’s share of their IT spending would be about the same in three years.

In other words, whatever their complaints, the majority of Oracle apps customers do not plan on changing course.

So why do customers stay?

This is the big question. If things are as bad as our respondents say they are, why aren't they moving en masse away from Oracle? We didn't specifically ask this question in our survey, but based on many of the comments, I can postulate three types of Oracle apps customers:

1. Organizations that have standardized on Oracle products. These are like married couples in a committed loving relationship--they may have their squabbles from time to time, but their commitment is secure. These include died-in-the-wool "red stack" customers, those that have committed to do most new development on Oracle database and tools. Most of these customers are running E-Business Suite and have no intention of leaving. These are the ones that are most likely to be considering a migration to Fusion Apps, when they are generally available. These also include users of other Oracle applications, such as JD Edwards, PeopleSoft, and Siebel, who are generally satisfied and see no overriding reason to abandon them.
   
   
2. Organizations that find breaking up hard to do. These are like wives that would like to divorce but decide to stick it out for the kids' sake. They are miserable, but they are going to hang in there, at least for the time being, as making a change is simply too difficult. Many customers have made substantial investments in their current Oracle systems, either in predecessor applications (e.g. PeopleSoft, JD Edwards, Siebel) that Oracle acquired, or in Oracle's own E-Business Suite. In many cases, it's not easy to replace these systems. The apps are deeply embedded as part of how business is done, or if enhancements have been built on top of these apps.
   
   
3. Organizations that don't see an alternative. These are like wives that would like to be married to someone else, but don't see any attractive choices. These organizations are likely to be running Oracle's E-Business Suite. If they are of sufficient size and complexity, they may perceive that there is really only one other choice: SAP, another large Tier I vendor. From what they've heard--rightly or wrongly--that might not be a happy marriage either. And, they don't realize that in many cases, there are other choices, whether as a complete replacement for Oracle or as a partially replacement as part of a so-called two-tier ERP strategy.
   

Nevertheless, comments from respondents make it clear: a substantial minority of customers are planning to completely or partially replace Oracle in their applications portfolio. They are planning either for a total replacement of their existing apps, or to make new investments with technology from other vendors, around the edges, especially with SaaS solutions.

Make no mistake: Oracle has some great software and some great people. My own dealings with Oracle find that there are many outstanding professionals within the ranks of its applications business and its partners--smart folks that really care about serving customers.

For example, I know quite a bit about FDA requirements for electronic records and electronic signatures, and I find Oracle's approach with its E-Business Suite to be about the best I've seen from any vendor. Furthermore, by many accounts, its next-generation Fusion Apps raise the bar for ease of use, embedded analytics, and enterprise collaboration. I could list many other examples. As in any relationship--for many, being an Oracle customer has its good days and its bad days.

Chances squandered

Ultimately, though, it is hard to avoid the conclusion that Oracle is missing a major opportunity. By its own admission, Oracle makes at least 85% margin on its maintenance and support programs. In fact, it's nearly ALL profit. If Oracle would just take a 2% or 5% hit on that margin and invest it into improving the quality and reducing the cost of its support programs, it could probably reduce the level of complaints and engender tremendous good will among its installed base. Customer retention would not only increase, but it would open the door to additional purchases from these customers. And it would be a positive response to the threat of third-party maintenance.

Postscript: So, is Oracle planning any improvements in its service and support programs? It's possible. Oracle recently brought Charles Rozwat, a respected Oracle executive, back from an extended leave of absence, to head up its worldwide support organization, and he reports directly to co-President Mark Hurd. But I have no idea what changes may be planned. Oracle refused my repeated requests to make Rozwat--or anyone else--available to discuss these matters.

The full report, Go-Forward Strategies for Oracle Application Customers, is available for sale on the Computer Economics website.

Related posts

Oracle confirms: maintenance fees are virtually all profit
Oracle profits strong, thanks to your maintenance payments