June 26, 2008 | Comments: (0)
SAP sticks its head in the ground
The contrast between old and new software couldn't have been stronger this week.
With his company beset by competition from Oracle, Microsoft, and Salesforce.com and with new technologies such as software as a service and cloud computing redefining how enterprises think about software, you'd think SAP's CEO would put on his visionary's hat and talk real strategy. You'd be wrong.
In an interview with The Wall Street Journal, Henning Kagermann airily dismisses software's new direction. His exact words weren't published, but here's the Journal's summary: "That's not to say there isn't a role for software from companies other than the SAPs and Oracles of the world. But Mr. Kagermann says that these systems will complement, not replace, traditional business software."
Days later, Salesforce.com CEO Marc Benioff announced that his company is making it easier to integrate Google Apps with the Salesforce platform. Benioff, and his "end of software" mantra can be annoying, but his company changed the game in enterprise software and keeps pushing out new ways of extending its platform. What a contrast to SAP, a company so stuck in the 20th century that its on-demand efforts (along with attempts to reach the small-business market) are pitifully weak.
Salesforce.com does Google
Salesforce.com released tools that allow developers using the SaaS pioneer's cloud-based development platform to integrate with data from Google services via Google Data APIs. Sure. That's an incremental step, not a leap. But it's yet another move toward the day when enterprises will make serious use of Web 2.0 mashups, instead of expensive, proprietary applications.
Ryan Boyd, of the Google Data APIs team, says in his blog that "the new toolkit enables server-to-server communication between the Force.com platform and your favorite Google Data APIs." What's more, developers can use Apex code to access the APIs for the Google's Contacts, Calendar, Spreadsheets, Documents, and Blogger tools.
Boyd says that "CODA, a European Financial applications provider, has used this new library to build a prototype Web application which enables an exchange of data between Google Spreadsheets and their CODA 2go financial application built on the Force.com platform." The end result is an easily made cost allocation spreadsheet -- an important accounting tool.
I'm not a programmer, but it certainly seems that these tools are easy to use. For example, Salesforce.com posted an entry on Monday showing that a developer can pull events from Google Calendar with only five lines of code.
Small but useful
Don't underestimate the power of small companies to develop applications that are useful for business.
A company called Astradia used this week's Salesforce.com/Google event to demo a couple of interesting apps, including one that makes it simple to create and save customer-ready quotes within Salesforce.com.
What's more, the ability to integrate existing business processes with new enterprise applications is an important selling point for a host of new players. For example, NetroMedia, a Canadian provider of streaming media services to customers in 77 countries, needed to update its CRM system. CEO Matt Carson told me that he looked at SAP, but found it too closed, too hard to customize for some of the specialized billing applications needed by his company. Instead, he opted for SplendidCRM, a tiny, open source provider.
Losing NetroMedia's business makes no difference to SAP's financials, of course, but the incident is a great demonstration of why the German software giant has gained no traction in the small-business market and is losing more significant business to Salesforce.com and other, more nimble players.
No, I'm not predicting doom for SAP. Google Apps are rather lightweight, of course, and SAP unquestionably delivers real value. But as businesses get evidence that Salesforce.com and other 21st century-oriented software providers can also provide serious business value -– at less cost and less aggravation -- Kagermann may be eating his words.
I welcome your comments, tips, and suggestions. Reach me at bill_snyder@infoworld.com.
Posted by Bill Snyder on June 26, 2008 03:00 AM
May 08, 2008 | Comments: (0)
Out in the cold: small businesses' ERP deficit
It took the United States just 45 months to defeat the combined forces of Germany, Japan, and Italy. It has taken SAP 48 months to get Business ByDesign, its SaaS (software as a service) play for the SMB market, off the ground. And it still isn't ready for prime time.
Oracle, meanwhile, doesn't even pretend to care about smaller businesses; CEO Larry Ellison has repeatedly said that it costs too much to go after a relatively low-margin market. And Microsoft? It has a tentative SaaS offering, and just for CRM at that.
So small businesses' on-demand ERP options are limited to offerings from small providers such as Intacct and RightNow Technologies.
The real problem here is that the major enterprise software players are structured to deliver massive, on-premise business applications like SAP R/3, Oracle E-Business Suite, and Microsoft Dynamics. Doing anything else requires not just technological change but cultural change -- as well as a willingness to accept a new business model. And there's no better example than SAP.
NetWeaver sinks Business ByDesign
Last week, the German software giant put the brakes on Business ByDesign, just days before the opening of its annual Sapphire conference in Orlando, Fla. "We have to work out how expensive it will be for SAP if we run this product in a hosted environment. We have to make sure we make enough money with the product," said co-CEO Henning Kagermann.
The company is now projecting "substantially less" than the originally targeted 1,000 customers in fiscal 2008 and is pushing back by as much as 18 months the previously stated targets of 10,000 customers and $1 billion in revenue by 2010. Not only is the company pessimistic about BBD's rate of growth, it's cutting back spending on the program by some $160 million this year, notes Sanford Bernstein analyst Charles Di Bona.
Digging a little deeper, it appears that a large part of the messy economics of BBD is (big surprise) Netweaver 7.1, SAP's latest iteration of the big honking platform that nobody likes.
In an interview at Sapphire with a group of industry watchers called the Enterprise Irregulars, Kagermann spilled the beans, saying, "We know we can have TCO, but need NetWeaver enhancements. There's a very close link between the TCO of Business ByDesign and NetWeaver." SAP set a price of $149 per user and tried to work backward to a cost structure that allowed for a reasonable profit, but hasn't been able to do it.
Kagermann deserves credit for frankness, but that's about all. SAP has talked about the SMB market for years, but has yet to get the program off the ground. Jeremiah Stone, a solution manager for Business ByDesign, says BBD has been cooking for four years, including two years of application development. Think about that: four years of development without serious thought to the business model. And now, it's cutting spending on a program it once called critical to the success of the company. Astonishing. Makes me glad I'm not a shareholder.
Henning, meet Marc
If SAP were really serious about succeeding in the SMB market, it would have to make a very serious move. My idea: Buy Salesforce.com. It's no secret that Salesforce.com founder Marc Benioff has toyed with the idea of selling his company, and SAP could certainly afford it. Salesforce.com has long since solved the technological problems that caused a spate of embarrassing outages a few years ago, and it has a large and loyal SMB customer base.
I don't expect that to happen; it would be an admission that SAP -- a well-known sufferer of the "not invented here" syndrome -- has failed a crucial test. And in a larger sense, that failure speaks to the larger failure of enterprise software to meet the needs of smaller businesses.
The wave of consolidation that has swept the enterprise software world since Oracle bought PeopleSoft has been accompanied by a drive on the part of the largest survivors to build and sell complete software stacks. Although there are reasons that the stack strategy offers benefits to the enterprise customer, it clearly doesn't serve the interests of the little guy.
Luckily there is a wealth of smaller companies busily adopting open standards and moving toward the SaaS model. If you're responsible for IT in the SMB world, that's the place to look.
I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com.
Posted by Bill Snyder on May 8, 2008 03:00 AM
December 03, 2007 | Comments: (0)
Reuters carried a short item out of London today, reporting speculation that Microsoft has revived its effort to buy SAP. Wow, that would be a story.
However, it doesn’t look like Wall Street gives the rumor much credence. Shares of SAP closed up a bit Monday, gaining just 60 cents, or 1.2%. That ain’t much. Another good indicator of investor interest was flat as well. Volume, that is the number of shares traded, wasn’t much above normal, and after a flurry of trading in the first hours of the session, it dropped way off.
I was sitting in Federal Court back in 2004 when Oracle was duking it out with the feds over its planned acquisition of PeopleSoft. With little warning, Microsoft introduced evidence that it had been talking merger with SAP. I know its an over-used phrase, but most of the reporters and lawyers who were listening practically fell out of their seats, it was so surprising.
As you know, the talks failed. Remember, Microsoft said one issue was the complexity of integrating two very large -- and culturally dissimilar -- organizations.
As Eric Savitz pointed out in Barron’s earlier today, that hasn’t changed. It would still be very hard to weld a slow-moving, ERP-rooted German giant, and an American giant with roots on the desktop.
It would also be incredibly expensive. SAP’s market cap is $62 billion. Even discounting cash on hand that’s a huge buy even for Microsoft.
Is it impossible? I guess not. Some people may be thinking that since IBM is moving into apps (witness the purchase of Cognos), and since Microsoft’s enterprise applications are still small potatoes in this league, the takeover would make strategic sense. But I wouldn’t buy stock in SAP on the assumption it will sell at a premium.
I welcome your comments, tips and suggestions; reach me at bill.snyder@sbcglobal.net.
Posted by Bill Snyder on December 3, 2007 04:32 PM
November 18, 2007 | Comments: (0)
The Legion of the Disappeared or Where Has All the Software Gone?
I was updating some files recently and I came across a list of the companies that made up the Goldman Sachs Software index just two years ago. Of the 46 large and mid-cap companies on the list, ten no longer exist or have been merged into a larger organization. Most of us are well aware of the wave of consolidation that has swept the industry, but it’s striking to see how many important companies have been taken out.
Those gone from the GSTI (short hand for the index) are Aspect Telecommunications, Cognos (as soon as the purchase by IBM closes), Filenet, Hyperion, Internet Security Systems, McAfee, Mercury Interactive, Siebel Systems, THQ. And remember that was just a list that the Goldman team deemed representative of the sector. There are plenty of other major software companies that have gone away, including most recently Business Objects, Retek, PeopleSoft, Oracle’s first major conquest, and Veritas, which developed storage-related software and is now part of Symantec.
Heck, Oracle alone has swallowed more than 30 companies in the last three years or so, IBM software is a frequent buyer, and now SAP is getting into the act.
I’ve complained about the collateral damage
caused by the wave of software M&A -- loss of jobs, less competition and less innovation -- in these electronic pages before so I won’t repeat myself. But it’s becoming clearer and clearer that the market will pretty much support only large-cap, integrated software companies, and nimble little niche players. The great unwashed of the mid-range are disappearing rapidly and won’t be back.
Although, some of those companies, Mercury Interactive comes to mind, shot themselves in the foot via bad management practices, many of the disappeared had solid businesses and decent (sometimes excellent) management. This is altogether different from the dynamic that reduced the major players in the PC industry to a handful. In that case, the PC became a commodity and it made no economic sense to build them without huge economies of scale. A similar dynamic radically thinned the ranks of hard drive makers.
I think Marc Benioff of Salesforce.com overstates when he talks about the end of software, but we are most certainly going to see the end of more mid-sized software companies in the next few years.
Posted by Bill Snyder on November 18, 2007 12:42 PM
October 25, 2007 | Comments: (0)
Forget today’s ticker. Tech is showing strength across the board
In a nervous market, share prices can bounce around like corn in a popper. But with the fall earnings season at the midpoint, tech companies are showing strength across multiple sectors.
There have been solid reports from chip makers, including Intel; outsourcers such as Satyam; Google, Amazon and Yahoo! in e-commerce; Seagate, whose sales are largely tied to the health of the PC industry; and Apple.
Software is still something of a mixed bag; IBM’s software business was weak, SAP is problematic and Microsoft won’t report until Thursday afternoon. Oracle, the other software bellwether, posted a 25% quarterly gain in profits when it issued its financial report last month.
Results aside, the volatility has been rather amazing. On Tuesday, Amazon, Google, and Research in Motion, chalked up big gains in share prices. Amazon’s bump was driven by a very strong quarter. But then the market decided that the online seller’s margins might not be good enough for the Christmas season, and the stock tanked Wednesday morning, taking much of the NASDAQ with it.
Even worse for the broader market was the terrible report by Merrill Lynch which reminded investors that the credit crunch is far from over. Even that could have a bright side: some Wall Streeters figure the news could convince the Fed to cut rates a bit more.
Meanwhile, it looks like Microsoft, whose share price moves at glacial speed, will give investors something to cheer. Analysts polled by Thomson Financial are forecasting 39 cents a share for the September quarter on $12.6 billion in revenue.
Both profit and sales figures would represent double-digit percentage gains over the numbers the software giant posted for the same period last year.
Halo, Microsoft’s popular first-person shooter, drove a boatload of Xbox 360 sales last month. According to NPD Group, a research outfit that specializes in retail sales data, sales of the game console hit 527,800 units during the month, nearly double the number of units sold in August.
Xbox sales are somewhat paradoxical because Microsoft loses money on each one it sells, so better sales equal slightly lower earnings. Contract manufacturer Flextronics, on the other hand, does make a profit on the Xboxes it makes for Microsoft and that helped the company post a strong quarter.
Seagate is interesting as well. In an interview with Barron’s, CEO Bill Watkins said that his company has sold out its production for the fourth quarter, and is turning away orders for millions of units. He also said that Seagate has no current plans to increase its capacity, a refreshingly conservative move in an industry driven by frenetic boom and bust cycles.
Apple hit a home run, as we all know, but it’s still worth noting that very strong iPhone sales gave AT&T a boost; the telco giant netted 2 million new subscribers in the quarter, the biggest jump in the company’s history.
EMC reports early Thursday, and it should give us answers about the enterprise storage market and important clues about the strength of business spending on IT.
And finally, the PC market: We won’t hear from Dell and Hewlett-Packard until next month, but the strong showings by Intel and Seagate certainly indicate strength in demand. Moreover, worldwide PC sales sped up in the quarter with 15.5% year-over-year growth, according to research firm IDC. Sales by Dell finally accelerated, particularly in Europe and Asia.
The bottom line: This is a brutal, volatile market. But tech’s losses have been largely caused by larger worries about the credit crunch and its parent, the sub-prime mortgage meltdown. I’d be sweating a lot more if I didn’t see solid sales and earnings by the major players.
I welcome your comments, tips and ideas. Write me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on October 25, 2007 03:00 AM
October 11, 2007 | Comments: (0)
Why SAP's purchase of Business Objects will be bad for employees, buyers, and innovation
Shareholders of Business Objects are making out like bandits. But if the acquisition by SAP runs true to form, expect to see job losses, less competition in the business intelligence market, and fewer choices for buyers. And we're not done yet; more business software companies are likely headed for the auction block.
First the numbers: SAP will pay $6.8 billion, or $59.37 a share, for the Paris-based vendor. That's a premium of 18 percent over the stock's $50.27-closing price before the deal was announced on Sunday. Not a bad payday. There's been some speculation that another buyer might appear and attempt to outbid SAP, but that's not likely. The weak dollar makes BOBJ, as Wall Street calls it, about 30 percent more expensive for a U.S.-based bidder.
The buy is a major departure for SAP, a company that tends to grow its own software rather than make splashy, Oracle-style acquisitions. In April 2006, CEO Henning Kagermann said this: "We are not growing organically because we had no other choice. We think it is a better strategy." Kagermann's remarks were seconded by board member Leo Apotheker, who said at a San Francisco press conference that organic growth results "in a higher return to shareholders."
Hello? What's changed? Although they'll deny it, SAP has been hit hard by competition from Oracle, which has spent about $25 billion in the last three years in a series of major acquisitions largely aimed at strengthening its position in the business applications market.
Hyperion, snapped up by Oracle earlier in the year, was a major BI provider, and Microsoft has significantly beefed up its business intelligence capabilities through improvements to SQL Server. Despite some slowing, at approximately $6.4 billion (according to AMR Research), the BI market is a prize worth pursuing.
Kagermann has committed his company to more than doubling its customer base to 100,000 by 2010. BOBJ boasts more than 44,000 customers worldwide, although there’s obviously a certain amount of overlap.
SAP says it will run Business Objects as a stand-alone company, with John Schwartz holding on to the CEO’s chair. This is somewhat different than the way Oracle usually works; its acquired companies are generally merged into one business group or another, with heavy job losses.
When Oracle bought PeopleSoft in early 2005, it cut a total of 5000 jobs, or 10 percent of the combined workforce. (Many of the pink slips went to Oracle employees, by the way.) SAP won’t be quite that heavy handed, in part because those crazy French have labor laws that don’t allow wholesale firings. Indeed, BusinessWeek reported that those laws were one reason Oracle decided not to buy BOBJ.
Even so, jobs will go. They have to, or the acquisition won't work. It makes no sense to duplicate functions, especially when the purchase price is so high. And like every other executive of a public company, Kagermann has to show bottom-line growth. And sadly, reducing head count, as firings are euphemistically called, is a very easy way to do that.
The consequences don't stop there. With Hyperion and now Business Objects grist for the merger mill, Cognos and MicroStrategy are the last of the major BI players standing. But for how long? News of the acquisition gave shares of Cognos an immediate boost as investors figured that it was next in line to be taken out. MicroStrategy could be a target as well, but I suspect that CEO Michael Saylor, who is also a major stockholder, is unlikely to sell. Privately held SAS Institute would be an expensive, but tasty morsel for the likes of IBM, Hewlett Packard, or (less likely) Microsoft.
I'm not saying the sky will fall on software buyers; the big players will still compete aggressively with each other. However, the history of the industry shows us that an enormous amount of innovation flows from smaller, highly motivated players. That's disappearing along with some pressure to keep prices in line.
I don't begrudge BOBJ's shareholders their profits. After all, being rewarded for risks taken is what business is all about. But it's sad that those profits will come at the expensive of so many others.
I welcome your comments, tips and suggestions. Write me at bill.snyder@sbcglobal.net.
Posted by Bill Snyder on October 11, 2007 03:00 AM
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