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
February 11, 2008 | Comments: (0)
Interesting rumor making the rounds this morning that Salesforce.com has approached Oracle and offered to sell itself for $75 a share. Wall Street is paying attention; shares of Salesforce.com have been trading as high as $10 a share above Monday’s opening price. If true the offer would be a huge premium over Friday’s closing price of $50.87 a share.
The rumor apparently started with a blog posting by Tom Foremski on his Silicon Valley Watcher Site. Foremski, a former reporter at the Financial Times and a reputable guy, attributes his scoop to a “reliable source.”
No way to know if Foremski’s source is accurate, but even if he or she is, I’d be surprised if Oracle is really interested. In a quick note this morning, Cowen analyst Peter Goldmacher, who has followed both companies closely for some time, says “While we would not be surprised if [Salesforce.com] made such an overture, we would be very surprised if Oracle didn’t laugh them out of the building.”
Goldmacher notes that the deal would start by knocking a full point off Oracle’s margins and would take Oracle way down market (that is, to smaller customers) an opportunity the company has repeatedly said it has no interest in. It’s also worth noting that most Oracle acquisitions have been very bottom-line-oriented. That’s because most of the targets have had large streams of recurring maintenance revenue, which helps margins and earnings. Salesforce.com’s software as a service model is completely different.
To be candid, I was wrong about Oracle and BEA Systems. So maybe I’m misreading this one as well. But for now, I’d remain very skeptical.
I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com
Posted by Bill Snyder on February 11, 2008 11:25 AM
January 21, 2008 | Comments: (0)
EMC has never been shy about straying from its core business of enterprise and network storage. It jumped into virtualization via the purchase of VMware and moved into document management when it took over Documentum.
The results have been good. In its most recent reported quarter software license and maintenance revenue increased 25% year-over-year and accounted for 41% of revenue.
Now EMC is hopping to leverage last fall’s $76 million purchase of Berkeley Data Systems into a seat at the SaaS table.
As of Tuesday, EMC is offering an online backup and recovery service based on Berkeley’s Mozy technology. EMC is already managing 5 petabytes of Mozy storage at two centers in Utah, for more than 500,000 devices. Most Mozy customers are smaller businesses and even consumers, with the notable exception of GE, which uses the services to back up data from thousands of notebooks, desktops and remote servers.
Since Mozy customers pay by the byte via a monthly subscription, and since the data is housed remotely in a multi-tenant infrastructure, EMC is now playing the role of service provider. Indeed, the company has just created a new business unit to handle its SaaS business, and MozyEnterprise, as the new service is called, is the unit’s first product.
EMC’s SaaS roadmap is not altogether clear, at least for public consumption, but in an interview shortly before the news was announced, Roy Sanford, VP of marketing for the new unit, gave some pretty broad hints. Customers, he said, have asked for SaaS-enabled offerings in security, compliance, content management and email. Expect to see more offerings from the new unit later this year, he said.
The Mozy offering itself doesn’t strike me as all that exciting, and I doubt that it will have much of an impact on the company’s top and bottom lines, at least in the short run. But the fact that EMC is moving into SaaS speaks volumes about the rapid pace of change in the software business and EMC’s determination to find new areas for growth.
Why is EMC moving towards SaaS? Customers have asked for it, says Sanford, and the technology, which wasn’t robust enough to support the old ASP model, is now ready for primetime. It expands EMC’s addressable market into the SMB and consumer spaces, and will provide a relatively predictable revenue stream.
It will be interesting to see how EMC deals with consumers, a pesky and sometimes expensive customer set, and to see if events bear out Sanford’s contention that MozyEnterprise won’t cannibalize existing EMC sales. It won’t, he says, because Mozy did not and will not include data center backup, a big part of EMC core business.
(Disclosure: I have a small position in EMC.)
I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com
Posted by Bill Snyder on January 21, 2008 10:34 PM
January 14, 2008 | Comments: (0)
The tech team at Cowen & Co. on Monday published a note containing its picks for potential surprises in the technology business this year. One of the most interesting: “The Growth of On-Demand Software Vendors Hits a Wall.”
Analyst Peter Goldmacher, who has followed the fortunes of the on-demand vendors for some time, had this ugly bottom line: Share prices of Salesforce.com, Concur, Taleo and Vocus could trade down as much as 30% - 50% relative to the market as investors decide that these companies don’t really have bulletproof business models.
There’s an unpleasant corollary as well, although the Cowen team doesn’t mention it. Salesforce and brethren have been fertile fields for IT job seekers. That could change very quickly.
The conventional wisdom, Goldmacher says, holds that SAAS will do well even if IT budgets contract because “software delivered as a service can be deployed for such a minimal up-front investment that new customer signings and net subscriber additions will continue to grow at a rapid clip.”
But those claims have not been tested in a slowing economy, he says.
HR and marketing departments -- important consumers of on-demand software -- traditionally bear the brunt of corporate belt tightening early in a business downturn, and that could but a dent on new deployments, and the growth of seats at established accounts.
The exposure of SaaS vendors is heightened by the fact that nearly all are one-product companies and are fighting the increasing inclination of corporate IT buyers to consolidate spending with a few large vendors such as Oracle, the analyst writes.
None of the potential surprises are billed as sure things; the hit to SaaS is given a probablility of 30%. Indeed, to make Cowen’s list, events had to have a probability below 50%. Still it’s interesting reading and good food for thought.
Here’s the rest of the list. Items are listed in descending order of probability; the higher up they are on the list, the more likely they are to occur.
10 - The Telco Threat to Cable Becomes Glaring
9 - The Growth of On-Demand Software Vendors Hits a Wall
8 - U.S. Legislation Favorable to Alternative Energy Is Passed During an
Election Year
7 - Google Experiences Meaningful Adoption of .Google Apps. By Medium
& Large Businesses
6 - Qualcomm Abandons Gobi
5 - PlayStation 3 Fails to Achieve Critical Mass, Developers Shift Focus to Wii
4 - AMD Loses its Infatuation with 30%+ Market Share to Focus on a
Profitable Niche Strategy
3 - DRAM Market Conditions Turn Favorable by Mid-year
2 - Cisco Lands a Major Wireless Infrastructure Deal with a Tier-1 Service Provider
1 - Hollywood Studios Announce Intention to End Physical DVD
Distribution and Embrace Cable VOD and Broadband Downloads
I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com
Posted by Bill Snyder on January 14, 2008 01:19 PM
