Chicago Software Licensing Lawyer & Attorney : Sam Conforti Law Firm : Master Service Agreements, Negotiations, Outsourcing : Cook County, Illinois

BMC’s purchase of ITM is only the latest in its string of acquisitions calculated to make it a formidable player in the ERP market. This four year march included the following acquisitions:

• RealOps which automates IT processing: see BMC Buys Into IT Process Automation

• Calendra an identity management specialist: see BMC Grabs ID Management Vendor

• BladeLogic a player in the field of change management: see BMC to Buy BladeLogic For Nearly $800M

ITM’s software integrates the segregated silos of the IT management of the past to provide “visibility, coordination and control” for the CIO. This translates into a more efficient decision making process. BMC’s vice president, Herb Van Hook, described ITM as

a set of very high-level applications IT uses to run itself as a business organization within the enterprise

and the software

asks whether you're doing the right projects; what is the business impact of this project versus that project

See Richard Adhikari’s excellent article in InternetNews.com BMC Completes ITM Acquisition: Software company moves toward a business-oriented view of IT. In it he details the ITM acquisition and discusses the competition in the IT Resource Planning (“ITRP”) space. Adhikari reports that BMC’s acquisition strategy is aimed at partners and so there is “very little overlap” which translates into less integration in its software suite. It remains to be seen if BMC can rollout this new product into its customer base.

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Daniel Druker posted an interesting article in his blog SaaS 2.0 entitled Sage Advice. In it he explores an interesting twist to the value of SaaS to the Channel Partner. SaaS is not only the wave of the future, but it also fits quite nicely into one’s retirement planning.

Druker points out that the Value Added Reseller (“VAR”) has a business model that emphasizes upfront revenue. They sell the software and can also look to implementation as another source of revenue, but by and large there is no steady stream of cash that hits the P&L. The value of the Channel Partner’s business is dependent on finding new customers and selling year after year.

The missing element to the cash flow problem is what the SaaS business model can provide, Contracted Monthly Recurring Revenue (“CMRR”). See my post in this blog March 2nd entitled Best Practices for the SaaS CEO – Top Ten Rules. Byron Deeter’s first rule is that “Cash is King”.

In Daniel Druker’s article he recounts a discussion he had with an established Channel Partner thinking about retirement and the selling of his business. Adopting the SaaS model seems to provide the answers this VAR owner needs. As Druker points out:

• the valuation of any business is driven by future cash flows
• shifting to SaaS will mean a much higher valuation and selling price

Albeit not entirely altruistic, yet another reason to adopt the SaaS approach.

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In my reading of interesting and relevant articles posted on the web, there have been several follow-on articles which expand on some of my more recent posts to this Blog. Due to the number of articles that I have come across, I thought it best to cite to some these articles, with a line or two of brief explanation, and let the reader pick and chose any article(s) of interest. I found the following to be of particular interest:

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  Time to Scrap Your BPM Spreadsheets? SMBs have powerful SaaS alternatives: Here is a way to streamline the budgeting and financial planning process. This will facilitate collaboration, what-if scenarios, and contingency planning.
• 
  Apple Watchers Salivate Over 3G iPhone Rumors - Developer conference expected to be launch venue for new iPhone: This will be one to watch this week. Apple’s Worldwide Developers Conference (WWDC) starts Monday, June 9th in San Francisco. Could this be Apple’s answer to the recent flurry of applications announced to be integrated into the BlackBerry?
  
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  Software Sales in 'SaaSy' Transition - The consumer-inspired trend of easy, online access to applications is finding a ready market in the enterprise: What can I say. We told you so. This is a discussion about applications designed for the end-users and not colorful reports to impress the top brass.
  
• 
  BlackBerry Defies Stagnant Tech Spending - Companies are untying IT purse strings for smartphones but not for much else these days: With IT spending slowing down, RIM’s market share is estimated to reach 82% this year.
  

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There is a revolution of sorts going on in the computing world. I do not want to over-dramatize this fact; however I am reminded of author and pamphleteer Thomas Pain who wrote:

• “Lead, follow, or get out of the way”
• “These are the times that try men’s souls”
• “The harder the conflict, the more glorious the triumph” (yes, this is drama)

Why all the drama? Well, I recommend you read Tien Tzuo’s article entitled The Global Transformation to On-Demand. Tzuo’s subtitle may aid in understanding my reference to the drama (i.e. “Why the world is moving to subscriptions and what it means for businesses”). This article should be read in conjunction with Daniel Druker’s article Different is hard: SAP - (Not Too Much) Business by Design.

Let’s start with Tzuo’s rather succinct history of the change in the paradigm from on-premises computing to subscription buying via the internet. Tzuo was on the cusp of the wave that brought in the SaaS business model. The guiding ideology for Tzuo and his contemporaries regarding SaaS is that

“ … software belonged on the Internet, not on a CD, and in that process it is transformed from a product that you buy to a service that you subscribe to.”

Tzuo’s analysis of why the trend towards subscriptions (i.e. On Demand or SaaS) rather than the traditional purchase or licensing model covers a broader spectrum than just the software industry. He explains that the internet has transformed the way people buy. The purchaser now has more options from more packages and as their needs change so can their subscription. Buyer’s remorse is eliminated.

“no large up front investment, no ongoing maintenance costs or hassles, no insurance costs – just pay for how much you use.”

Tzuo points out that there are significant differences between the processes for managing a subscription business versus the traditional product for sale business. These differences are:

• The ability to offer your product in parts, as well as full packages
• Invoicing and payment terms must be able to track the flexibility in the product offerings
• There are constant changes in the subscription and the revenue collection process becomes convoluted
• The metrics for this type of business differ from the usual billing metrics and so the ability to measure success and redirect efforts must adapt

The difficulties in managing a subscription business can be demonstrated by reference to the current situation at SAP and its announced delays and reduction in investment in its hoped for SaaS offering, Business by Design. Daniel Druker presents an in-depth analysis to the possible problems facing SAP. He lays out the trials and tribulations that a mega-corporation must face when trying to adapt to the changes in the industry. Instead of the purported technical issues facing this new service such as the “Mega-tenancy” model that a company the size of SAP is trying to implement, Druker sees the problem as the age-old issue of resistance to change. He labels this the “innovators dilemma”. The best and the brightest personnel shun the new innovation, especially if the promise of returns is far removed from the fundamental business model. It almost seems as though the company sets up its own barriers. A matrix organization, such as SAP, organized by country or region, is more inclined to focus on hitting their sales goals for the quarter or month and less likely to assist in the latest project.

In addition to the innovators dilemma, Druker also includes a discussion much like Tzuo’s differences between a subscription run business and that of the traditional product driven business model. Simply put, the business processes needed to run a subscription business do not yet exist, and when these new business processes do come on line, they will be incompatible with the existing business processes for a large enterprise software company.

Druker concludes by stating that, “SAP is an amazing, well run company”. It remains to be seen how well they will manage this latest innovation in the computing world.

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Far be it for me to offer anyone advice on their taxes. Lucky for us R. Ray Wang has done the due diligence and reports in his blog for May 19, 2008 that the Economic Stimulus package signed by President Bush this past February contains two (2) provisions that may spur the purchase of software to the SMB marketplace. He identifies these 2 opportunities at tax savings as follows:

• “Bonus depreciation”: SMB purchasers of software can forgo the 5 year straight line write-off for depreciation and take a full 50% depreciation expense in the first year.

• “179 deduction increase”: The annual purchase of such capital qualifying for such a deduction has been increased from $500,000 to $800,000 with an increase in the deduction allowed for such qualifying purchases by SMB’s from $125,000 to $250,000.

For those of us not up to speed on what a 179 deduction is, Wikipedia provides this brief description:

Section 179 of the United States Internal Revenue Code (26 U.S.C. § 179), allows a taxpayer to elect to deduct the cost of certain types of property on their income taxes, as an expense (rather than requiring the property to be capitalized and depreciated). This property is generally limited to tangible, depreciable, personal property which is acquired for use in the active conduct of a trade or business. … The 179 election is NOT mandatory, and the equipment may be depreciated according to sections 167 and 168 if preferable for tax reasons. Further, the 179 election may only be taken in the year the equipment is placed in use and is waived if not taken in that year. However, if the election is taken, it is irrevocable unless special permission is given.

As a non-tax expert, it appears that the above items allow for a faster write-off of the expense (i.e. purchase of the software). The conventional thinking is the more one is allowed to expense, the lower the taxable income. This should provide an added incentive to the SMB purchaser to complete the purchase, however, as Wang emphasizes, the software must be deployed this year in order to take advantage of the additional tax savings.

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Let’s start with full disclosure – I own a BlackBerry Curve. It provides me the freedom I require. I am not tied to the office. I can be out of the office and still receive my emails and determine if the email or document promised to be sent to me has indeed arrived. I can also get a quick note out and/or be responsive to a client’s email and simply state “Not in office. Call U later.” Instead of waiting to the end of this article for the “Moral of the Story”, let me state upfront in my opinion that the secret to high-tech (and especially wireless) should be to make the technology work for you and not the other way around. As of late, there has been a flurry of news surrounding 3G and RIM’s BlackBerry and so I am not quite sure that making the technology work for you instead of you being tied to the technology can remain as my mantra, but I will try. I do not intend for the following to sound like a commercial, but I confess that it might.

RIM announced its latest handheld device, the BlackBerry Bold. We can expect to see this new smartphone this summer. While the corporate customer is RIM’s target market for now, the added features to the BlackBerry Bold may help extend RIM’s reach into the consumer market as well. The new BlackBerry Bold will have “the most vivid display ever on a BlackBerry, a 2-megapixel camera with video recording capability and a media player for watching movies and managing music collections.” To be more descriptive, “the enhanced display” will be “twice the resolution of the Curve. The half-VGA color LCD is ‘fused’ to the undersurface of the device lens, which RIM says, improves definition and clarity.” Further the new BlackBerry Bold is “Sleek, shiny and sharp in design” and comes with “a newly designed full QWERTY keyboard, integrated GPS and 802.11 Wi-Fi. In addition, the unit has a 624MHz mobile processor for faster document downloading and support for triband HSDPA networks.” The more consumer-friendly features of this new device puts Apple’s iPhone squarely in its crosshairs. Read all about these new features in the article as reported by Reuters in the Internetnews.com post A Bold New BlackBerry for Business and also Judy Mottl’s article BlackBerry Goes Bold for Market Gold.

Continuing with this flurry of announcements, as I explained in my post of May 8, 2008, SAP Sapphire 2008, SAP will be integrating its CRM functionality into the BlackBerry with an aim at integrating all the functionality of the SAP software suite in the near future. This announcement was quickly followed by Microsoft announcing that it will make available Windows Live service on the RIM device as well. Users will now have available Windows Live Messenger and Hotmail. If this wasn’t enough, IBM announced that it is making the BlackBerry the only handheld enterprise device to have full mobile access to all Lotus collaboration solutions which includes Lotus Notes and Sametime. Users will now be able to collaborate across documents. “With the Lotus Collaboration Software suite, enterprises also gain access to IBM WebSphere Portal technology. The IBM dashboards software lets businesses build Web sites and single screen dashboard views that deliver information, applications and processes personalized to the individual BlackBerry user.” Judy Mottl reports this and more in her article IBM Lotus Goes Mobile Via The BlackBerry.

And if you aren’t out of breath yet from all these announcements, I’ve got one more. Mottl reports further that the BlackBerry will carry the RSA software in her article BlackBerry Becomes Security Token Device. With this new technology from RSA, the BlackBerry will be able to function much like a key fab security token. “The software generates a one-time passcode that users copy and paste to log in to corporate VPNs, enterprise wireless networks or network applications.” This technology will give greater security for network connectivity. As Mottl points out, such a need for this type of security for our mobile devices was magnified when several White House staffers’ Blackberries went missing during a recent visit from the President of Mexico.

That’s all I have for you now. But ask yourselves, with all this new functionality will we really be making the technology work for us or will we be working more because of the technology. At this point I am not certain.

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As many of you may know already May 4th to 7th was Sapphire 2008. This year it was held in Orlando, Florida. What is Sapphire? Well, it is SAP’s annual international customer conference. It is the place where the enterprise’s decision makers come to see the latest business solutions that SAP has to offer. There are a plethora of announcements and it is difficult to keep all the facts and details straight in one’s mind. I have listed below what I found to be a few of the more noteworthy announcements with a brief summary and if any of these are of interest follow the links for more details.

First on the list was the pre-conference announcement. My guess is that this was sort of a primer for things to come. The “mobile workforce”, many of whom are users of the ever popular hand-held device from Research in Motion (“RIM”) known as the Blackberry, may be interested to know that they will have access SAP’s CRM functionality in the coming months. The plans are to eventually integrate the rest of SAP’s functionality into the handheld device. As a Blackberry user myself, I think the implications of this could be enormous. Just the mere fact of being able to send and receive my emails wherever I happen to be is a huge advantage to me. SAP and RIM are talking about a mobile workforce now with access to all parts of the enterprise including order applications and inventory management. A more detailed description can be found in the Internews.com article SAP Is Wooing the BlackBerry CRM Crowd.

The next announcement I found to be of interest was that Rimini Street, the low-cost third-party provider of support, will be providing support for the SAP R/3 ERP suite. The concerns about SAP pulling support for its older versions was alleviated a bit when Rimini Street pledged to continue supporting the older versions without any upgrades until the year 2020. The cost savings for the R/3 user base could be significant. SAP had recently announced that it would raise its maintenance fees from 17% to 22% to keep up with the industry standard, particularly Oracle. Now with the availability of support from Rimini Street, CEO Seth Ravin, boosts, “Most of our customers are saving on average 70 percent against overall maintenance costs and at least 50 percent on their annual maintenance bill. We cut customers' costs in half and still make a very hefty profit." Ravin’s approach is that R/3 users don’t want to move to the next platform since “they spent years and a ton of money to get it working right and,…there's nothing that justifies the cost of upgrade, disruption and opportunity cost…” To read more see Rimini Street Adds SAP, Passes on TomorrowNow.

Following the Rimini support announcement, SAP made another announcement concerning its own Enterprise Support. This new approach to support from SAP will be more of a holistic approach and not the usual patches sent to fix bugs in the software. SAP will be supporting SAP solutions as well as non-SAP solutions and focus its attention on SOA. To learn more about the components of this Enterprise Support offering from SAP read SAP Beef’s Up Enterprise Support. This article also contains Oracle’s perspective on SAP’s offering and how it competes with SAP.

The last announcement coming out of Sapphire 2008 that I will discuss are the two add-ons that will assist in the design and execution of new business processes without the need for new code development, SAP NetWeaver Business Process Management (BPM) and SAP NetWeaver Business Rules Management. With close to 39,000 NetWeaver deployments, these new add-ons continue to emphasize SAP’s push into SOA. SAP's NetWeaver BPM will provide the ability to implement and manage complex business processes. In essence it simplifies the implementation of an SOA environment. As stated in SAP Add-Ons Aim to Simplify BPM for NewWeaver, “NetWeaver BPM's unified modeling capabilities mean that a single version of a business process will be available throughout an enterprise, and its users will be able to edit it and make changes without losing details in translation.”

The above discussion is only a sample of the announcements that came out of Sapphire 2008.

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Maryann Jones Thompson interviews Sybase CEO John Chen in an Op-Ed in SandHill.com. Thompson artfully takes the reader through the strategy and growth of Sybase and allows Chen to discuss his stewardship of the company from 1998 to the present.  What I found of particular interest was Chen’s response when asked why Sybase was slow to embrace SaaS, Open Source, and other new technologies.  Chen responded as follows:

“In the 1980s during the transition from mainframes to UNIX, everyone forecasted the death of mainframes. Then NT arrived and the end of UNIX was proclaimed. Now people are talking about open source or SaaS in the same way. But the reality is that every new technology and every new method will have its audience – but it won’t wipe out the previous ones.”

To me this answer is right on and makes good business sense.  Chen’s approach seems to fit quite nicely with another SandHill.com Op-Ed piece written by M.R. Rangaswami entitled Old Rules for a New Era.  It appears that Rangaswami has a similar view vis-à-vis Chen’s recognition that new methods come online and attain their own audience.  I think implicit in Chen’s comment is what Rangaswami discusses regarding the fact that today’s IT Buyers struggle with the ever-changing new models and technologies such as SaaS, Cloud, and SOA.  Yes, the future does look bright as these new products come to market and affect the technology strategies of today’s global enterprises.  However, the proliferation does have its drawbacks. Just how can the software vendor get its products noticed?  In essence the question becomes ‘Just what is it that the IT Buyer wants’.  The answer to this question is alluded to in the subtitle to Rangaswami’s article, “Software vendor success will not be determined by a specific technology or model but by meeting customer expectations”.  Here are those expectations as developed by M.R. Rangaswami:

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  Reliable – Products will be expected to work out-of-the-box and continue to do so as they interoperate with other products. Heavy integration work will not be expected or tolerated.
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  Secure – Software must be secure beyond today’s acceptable levels. Vendors must provide guarantees and incentives to convince buyers of this heightened security.
• 
  Fast – Solutions have to be able to be deployed quickly and offer a speedy time-to-value. If it can’t be on-demand, then it needs to be close.
• 
  Simple – The hallmark of next-generation software will be its ability to be intuitive for its users – as intuitive as an online application aimed at consumers. No training should be required. It must also be simple to purchase and deploy.
• 
  Innovative - Buyers will expect vendors to continue to innovate their solutions. They will value new approaches to solve the same problems as well as attempts to solve entirely new business problems.

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Andy Patrizio reports for InternetNews.com on a new offering from Sun Microsystems that will allow software vendor’s customers to convert from an on premise version of their application to SaaS using existing technologies.  The good news is that this conversion can be done without rewriting code, which in some cases can take many engineers an inordinately long period of time to design and then test the new architecture.  This is all made possible through Sun’s new “virtualization service”.  Sun or a Sun partner will then host the application.  Of course the service only “supports applications hosted on a Sun server using Solaris, Solaris' Containers virtualization technology and xVM, Sun's virtualization software.”

The advantage to this service was explained by Vince Vasquez, business development manager for SaaS programs at Sun:

"People see the demand for on-demand but they are stuck with a year or more of development time without actually knowing if there's a market there for their product.  With virtualization, they can get into that market right now."

If this is of interest, I strongly recommend reading Patrizio’s article entitled, Sun Latest to Help App Vendors Get 'SasSy'.  In it Patrizio reports on the success to date of this service with a case study and also discusses pricing and Sun’s 90-day free trial offer.

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