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

 

 

As many of my readers know, I am a member of the business networking site LinkedIn. In my practice I have had numerous inquiries regarding SaaS agreements and many requests to draft such agreements from my clients. I found and joined a very good group on the LinkedIn networking site entitled Software as a Service (SaaS) Group. The group site itself has a lot of information and discussion groups and news items and I found it to be a good resource when I encountered some unusual issues. So one day I’m sitting in front of my computer when a LinkedIn notice pops into my inbox from Justin Pirie entitled “Your guide to the week’s events in SaaS for the Linkedin SaaS group by Justin Pirie.” He got my attention and so I checked it out and I am glad that I did. His site Paradigm Shift Actionable Insight for a cloudy world has a plethora of information. It is current, it is informative, it is hard hitting, and a must read. I like the sources he cites. It is a bit of a “No holds barred” approach. 

As an ex-SAP employee sometimes it is hard to see the forest through the trees and I tend to tread lightly, especially since a significant part of my current practice involves SAP licensing and drafting of Master Service Agreements for the implementation of SAP software. However I also am aware that it is also important to be forthright and recognize the issues and Justin Pirie does that in his blog. With the current news regarding SAP and the upheaval that has ensued, I think Justin’s approach is the right one. He starts with a cite to Paul Hamerman’s article for Forrester entitled SAP Announces Changes at the Top; Hasso Steps Up. He follows up the hard-hitting truth of Hamerman’s article with more of the same with a quote from Jeff Kaplan of THINKstrategies and his February 8, 2010 article entitled SAP Needs Strong Leadership to Stop Sinking as follows:

 

“The significance of this event was clearly underlined by the role SAP’s Co-Founder and Chairman of the Supervisory Board, Hasso Plattner, played as the primary company spokesperson during a corporate conference call this morning.

During the call, Plattner made an emotional defense of the company’s strategies and tactics in response to rising criticism in the face of SAP’s financial struggles. Plattner used the occasion to dispute claims that SAP isn’t moving fast enough to respond to changes in the market by proclaiming that SAP is well on its way to becoming a “multiple product company”. He gave Apotheker credit for “turning around” BusinessByDesign and said the rollout of the v2.5 of the on-demand solution is “close”.

The reality is that BusinessByDesign has only had isolated success in a handful of deployments in the field, and its scalability from a technological and go-to-market point of view is yet to be proven.

The truth is that BusinessByDesign’s lack of success is a reflection of SAP’s lack of commitment to the solution and an overall SaaS strategy.

The company’s leadership has never fully acknowledged the fundamental changes disrupting the software industry as a result of rapidly changing customer preferences and competitive pressures. For example, various SAP leaders in the past have suggested that BusinessByDesign would primarily serve as an ‘on-ramp’ to its on-premise customers rather than a solid standalone solution. This half-hearted approach not only turned off prospective customers, it didn’t incent its own staff to make a concerted effort to develop and deliver a competitive solution. (Emphasis Ed.)”

 

Justin Pirie follows up this strong dose of truth with yet another quote from Vinnie Mirchandani’s article entitled Enterprise Software is Entirely Bereft of Soul:

 

“But the reality is the customer has been forgotten in enterprise software, not just at SAP. It’s about squeezing as much out of old technology as possible. As I wrote earlier in the week. “I wish the other bigger vendors had the cajones to acknowledge they similarly mostly live off profits from software 15- 20 years old, from consultants which implement that old software and provide services from data centers which were designed during the Cold War.”

Leo was expected to do more of the same in his new role as CEO. So, he did – unbelievably pushing maintenance price hikes in the middle of the deep recession. For all his talk about taking on the partners who have piled 5 to 10X costs on top of SAP’s own expensive solutions, he really could not – they were part of the “field” he created.

SAP needed someone to dismantle that “old field” as the market transitions away from the big, honking upfront license and implementation and operating cost model. It is screaming for soul and innovation. Instead they rewarded Leo. Surely, they did not expect him to choke his own baby?”

 

At this point, I’m not sure if another dose of reality is needed. Enjoy the articles and do stop by Justin Pirie’s blog.

 

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Facebook’s most popular feature, News Feed, has been patented thus locking in the Intellectual Property Rights. This popular feature shows a member’s activities, to those allowed to view it, across the site.

Kenneth Corbin reports in his Internetnews.com article entitled Facebook Lands Patent for News Feed that facebook described the feature in its patent application as follows:

“The method includes generating news items regarding activities associated with a user of a social network environment and attaching an informational link associated with at least one of the activities, to at least one of the news items, as well as limiting access to the news items to a predetermined set of viewers and assigning an order to the news items. The method may further include displaying the news items in the assigned order to at least one viewing user of the predetermined set of viewers and dynamically limiting the number of news items displayed.”

 

There have been numerous privacy concerns and protests from members regarding how much of one’s activities could be broadcast on the site. However, these privacy protests have waned as other social networking sites such as MySpace, Twitter, and LinkedIn have imitated the feature.

So what are the ramifications? With the granting of the patent, Facebook may now sue any social networking site that includes an algorithm-driven mechanism for sharing and distributing information.

In a related Reuters’ story Military Allows Twitter, Other Social Media:

The Pentagon announced on Friday it has authorized the use Twitter, Facebook and other so-called "Web 2.0" sites across the U.S. military, saying the benefits of social media outweighed security concerns.

The decision, which comes at a time of growing concern over cyber-security, applies only to the military's non-classified network.

"The purpose of the policy is to recognize that we need to take advantage of these Internet-based capabilities. These Web 2.0 tools need to be part of what we use," David Wennergren, a deputy assistant secretary of defense, told Reuters.

Defense Secretary Robert Gates, 66, has said that he wants to use social networking to help the Pentagon interact with U.S. military members, many of whom are in their early 20s.

But opponents have cited the risks of information leaks, of opening gateways to hackers, along with a potential overload of precious bandwidth on the Defense Department's network.

Training people so they know what can and cannot be disclosed on the Internet is a more effective policy than simply banning use of social media on work computers, he said.

"So part of this is about having a trained workforce that is savvy in how you operate in the information age."

Copyright 2010 Reuters. Click for restrictions.

 

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A short 11 months ago on March 15, 2009 I posted an article in this Blog entitled Oracle Maintenance Fees Under Attack. At the time we, as a nation, were (and arguably still are) in the worst recession since the Great Depression on the 1930’s. The installed customer base of many of the large ERP vendors, as well as, prospective customers were all searching for a way to cut costs. The larger ERP vendors, in particular Oracle, soon to be followed by SAP, had raised their annual maintenance fees to 22%. One solution highlighted in the March ’09 posting was to take advantage of the services being offered through the third party maintenance provider, Rimini Street. Claims of 70% savings on an overall maintenance bill and 50% savings on the annual maintenance expense were being made by Rimini Street’s CEO, Seth Ravin, see May 8, 2008 posting this Blog entitled SAP Sapphire 2008.

Now here’s where it gets a bit convoluted. Seth Ravin is co-founder of a company called TomorrowNow. TomorrowNow touted its ability as a third party maintenance provider and the savings it could provide to the Oracle installed base. SAP purchased TomorrowNow in January 2005 and Ravin used those profits to start Rimini Street in September of that same year. It is of particular interest and can shed some light on the attitudes and approaches of those involved in this mix if you read Richard Adhikari’s article entitled Rimini Street Adds SAP, Passes on TomorrowNow  cited in my May ’08 Blog posting. In particular pay close attention to the following subsection entitled Who needs TomorrowNow? Here is a brief snip-it:

“While Rimini Street is gearing up to add new support offerings to the mix, one way it's not planning to expand its business is through acquiring TomorrowNow.

Rimini Street had at one time been widely viewed as a likely purchaser of the firm, a provider of third-party support for Oracle applications that had been co-founded by Ravin. He ultimately sold the firm to SAP in 2005.

Rimini Street executives shrugged off their decision.

‘We don't have to buy TomorrowNow because we're getting all their customers already and there's no sense in paying for it,’ Ravin said.”

Then in 2007 Oracle sues SAP, claiming that its new business unit TomorrowNow illegally obtained Oracle copyrighted maintenance materials by using customer log-in ID’s on its password protected web-site.

This all brings us to the latest in this soap-opera which comes to us from Reuters via Internetnews.com’s article entitled Oracle Sues Rimini Street:

 

Oracle has filed a suit against a little known rival that provides low-cost software maintenance services, in a case similar to one that Oracle is fighting against rival SAP AG.

 

The lawsuit, filed in U.S. district court in Nevada on Monday, alleges that privately held Rimini Street stole copyrighted material using the online access codes of Oracle (NASDAQ: ORCL) customers.

 

Rimini Street Chief Executive Seth Ravin denied the allegations, saying in an interview on Thursday that his company had done nothing wrong.

 

"We are going to fight this battle," he said. "The specific allegations we are going to be answering vigorously and aggressively when the time comes in court."

 

Las Vegas-based Rimini Street sells updates and bug-fixes to Oracle's software for about half of what Oracle charges its customers. Ravin said his company booked about $150 million in business last year.

 

The charges are similar to claims that Oracle made in a high-profile lawsuit against SAP's TomorrowNow business unit.

 

That case is due to go to trial in San Francisco federal court in November.

Maintenance service contracts worth billions

 

Maintenance services are one of Oracle's core profit generators. That business generated $11.8 billion in its most recent fiscal year, or about half Oracle's total revenue.

"We are committed to enforcing our intellectual property rights against those who steal or infringe" upon them, Oracle spokeswoman Deborah Hellinger said in a statement.

Copyright 2010 Reuters. Click for restrictions.

 

For additional information and more on this saga see also Paul McDougall’s article in InformationWeek entitled Oracle Sues Rimini Street For 'Massive Theft'

 

 

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Rob Ederle in his article in Datamation.com entitled 2010: The Year and Decade of the Cloud has an interesting theory on the circuitous nature of the computing populace and the nature of the industries that feed into this arena.  Enderle surmises that we have come, or will be coming, full circle in our approach to computing in this second decade of the 21^st century. He notes that we started this journey with huge centralized computing and dumb terminals, and now with the surge in growth of Smartphones and Smartbooks, we may be headed back to that original configuration, but this time in “The Cloud”. Enderle’s advice for companies to survive is to change their approach of how they view the market. Larger vendors ensconced in the large systems approach may have a leg-up on their competitors who were more user-focused; however, these larger vendors must accommodate these user’s demands or risk alienating them. Similarly, the more user-centric vendors must adopt the large centralized systems approach or be left behind. Enderle foresees the most likely way these vendors, large systems vendors and more user-centric vendors, will survive and evolve is through partnerships. He predicts Google as a likely survivor if this decade of cloud computing pans out the way he envisions it.

Ederle gives us a quick definition of what he calls Services-Based Computing, otherwise known as “The Cloud”. He takes a retro look back and states that is what IBM started. I’m not sure if I buy a direct correlation to what was the IBM leasing/services model and what the new cloud computing will become, but I at least understand where he is going with this perspective.

Ederle’s article makes an interesting observation and distinguishes between “Public” cloud computing and “Private” cloud computing. It is easy to guess, and Ederle’s article is quite clear, that the Public brand of cloud computing would be lower cost while the Private brand will be more concerned with security, but at a higher cost.  As a neophyte when it comes to cloud computing (well I guess most of us are neophytes at this point in time), I am not sure I can make the distinction between Private cloud computing and a Managed Hosting arrangement, or is this a distinction without a difference? Further in his article there is a discussion how the enterprise vendor (i.e. the large centralized systems vendor) must meld its strategic efficiencies with the more user-centric vendors who have the knack for responding to the needs of the line managers who have become the new decision makers when it comes to technology spending.

Ederle’s solution, or at least his prediction, is that companies will need to form partnerships with each partner having the right mix of Public and Private components. He concludes his article by stating that the companies that exit the new decade of cloud computing will not resemble anything like they were when they entered this new decade.

 

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Did somebody famous ever say “We won’t know where we are going until we know where we’ve been”? I did a quick Google search and could not come up with this quote being attributed to any person. If somebody did say this, then I’m borrowing the line for this posting. If not, then feel free to use it (but mention my name please). As my regular readers can imagine, I’ve been gone for about 3 weeks simply due to a very busy fourth quarter/year-end close. While scanning the internet recently for interesting and important information to bring to your attention, I stumbled upon a very interesting and thought provoking article in Internetnews.com by Kenneth Corbin entitled The 10 Most Important Social and Digital Media Developments of 2009. As I have stated in the past, I am a bit of a History Buff (What’s a Buff? See definition 2; enthusiastic, yes; knowledgeable, maybe). So I like to know the background of why things are as they are; and so I think it is nice to know what has happened in the past relating to technology in order to get a better understanding of where we may end up in the technological future. Corbin’s article is a gem. It informed me more fully of things I might have heard but should know more about. It reminded me of things that happened and how society dealt with it. It made me laugh (e.g. someone threatened to kill their cat if Miley Cyrus did not reinstate her Twitter account – really). And it made me wonder about the future. Here is a brief synopsis of Corbin’s Top Ten List peppered with my editorial comments. I hope I can do it justice:

#10.       Amazon.com’s Kindle will change the world: I read somewhere that the Invention that changed the world was the printing press. Well move over Gutenberg, the Kindle has arrived. In 2009 Amazon sold more digital books than printed editions. This e-reader will change the world. For an interesting take and a more in-depth analysis see Don Reisinger article entitled The Most Important Tech Product Is the Kindle, Not the iPhone.

#9.          Craigslist Killer: Some med student solicited an escort off of Craigslist and murdered her. The story was sensationalized due to the use of this new technology. As Corbin correctly points out, this story would have not garnered the attention that it did if the escort was solicited from the many personal ads or from the too numerous to mention yellow page advertisements.

#8.          Social Networking Sites Made Money: Facebook and Twitter, both a free service to their customer base of MILLIONS (yes I’m shouting MILLIONS) managed to figure out a way to make money. Facebook does it through advertising and the sale of virtual products; and Twitter did it by licensing the ability to add real-time content to Search Engines Google, Microsoft, and Yahoo.

#7.          Social Media in the Government: Is this a good thing? I don’t know. The Obama Administration seems to think so. They’ve done weekly addresses to the nation on YouTube and hosted online town hall meetings. There are numerous government websites and blogs.

#6.          The slow death of the Newspaper: Is this really happening? Are we really getting more (or most) of our news from the internet? What will the new business model turn out to be? Dare I say, do we need yet another industry bailed out?

#5.          Miley Cyrus deletes Twitter account: I honestly do not understand this phenomenon. Apparently there are millions of fans of all sorts of celebrities and Star Athletes that are interested in knowing and these Celebs/Sport Stars are interested in tweeting what they may be doing most hours of the day. Is this the downfall of our society? Well, it is at least another reason for it. Oh how I long for much calmer days and “Home Tweet Home”.

#4.          Social Web becomes target for hackers: Why do they do it? I don’t know. Some do it for the thrill of the “hack” and some are out to steal our identity. We put too much personal stuff on these social sites. Regulators and privacy advocates have fertile ground for their causes and activities.

#3.          The Twitter revolution in Iran: In June of the last year as Iranian authorities were cracking down on protestors, these same protestors began to twitter their cause, and when the foreign correspondents were thrown out, became the only source of hard data on what was really happening in the country. Corbin reports that the US State Department convinced the people at Twitter to postpone a planned power outage for scheduled maintenance just so they would keep the twitter lines of communication open.

#2.          The growing sense of urgency about information:  It seems that everything is about immediacy. We’ve got to have it real-time. 

And the #1 important issue that materialized last year relating to Social and Digital Media was VIDEO: The web is free and on-demand. How does one derive a business model out of that? TV Everywhere offers paying subscribers the option to watch content on the web. Hulu pulls content from sites, and its owner News Corp is thinking about making it a paid site. So is free TV over the air waves supported by its advertising (i.e. commercials) a thing of the past?

 

 

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In November of this year the staff at CIO Update conducted its annual fourth quarter survey of IT executives in an attempt to get some sense of the coming year’s economic activity. This year the survey included executives in 139 companies in the US and Canada. From the results it appears that the doldrums of 2009 may be replaced with cautious optimism for 2010 (VERY cautious optimism). The survey asked questions such as whether the surveyed companies had made any changes to their in IT Budgets during the last quarter, increases, decreases, or no change. Another question put a slightly different spin to the IT budget inquiry and asked were there any anticipated changes in the coming years IT Budgets. The article posted December 17, 2009 by the CIO Update staff entitled The IT Spending Recession is Over presents the answers to these survey questions in print and in pie chart form as well so the reader can try to put the responses into perspective. While 19% had increased their IT Budget spend for the last quarter as compared to only 11% last year, 29% answered that they continued to reduce their expenditures as compared to 35% from last year’s survey.

Two interesting observations by the CIO Update staff center around their section entitled “Signs of Hope” and also the breadth of the recovery. The CIO Update research has 20 years of data to lean upon, particularly in the response to “Expectations for Change in the IT Operational Budget” category. The results shows 52% of the IT executives expect an increase in their 2010 budgets. Historically, the CIO Update data indicates a recession when that expectation number drops below 50%. So it appears that the trend may indicate that we’ve turned the corner. However, the anticipated amount of those budget increases is not large and hovers around 2%.

A rosy economic picture for the 2010, I think not. However, it is not bleak either. From an amateur economist at best, your humble blogger’s opinion is that the capitalist business model is cyclical and that an economic recovery is inevitable. I think some intangibles would be the uncertainty of the current administration’s spending plans and the affect they will have on any recovery. And there always is the looming Federal Reserve and whether their policies will allow for further growth as the inflationary effects of their 2008 – 2009 monetary policy have as yet to be manifested. The issues not discussed in this CIO Update posting may be addressed in its complete version Outlook for IT Spending and Staffing in 2010. This full version of the report “provides 2010 forecasts for IT operational spending, IT capital spending, and IT hiring, both for the composite sample and by organization size”.

Is the worst behind us? That remains to be seen.

 

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As some of my readers may recall I posted an article to this Blog on October 12, 2009 entitled Microsoft Buys Core Technology to Boost Its ERP Offering. The article mainly commented on Microsoft’s most recent purchasing strategy to boost its Dynamic ERP product offerings. After reading my article, Houston Neal, Website Content Manager for Software Advice for Manufacturing contacted me and asked me to read and comment on his article entitled Microsoft Dynamics for Manufacturing – Understanding the Difference Between GP, NAV, SL and AX. Neal’s take on the current situation is that although Microsoft has tried to establish itself as a player in the ERP market space, enterprises may still be confused as to what product(s) would be suitable to which industry.

I have read Neal’s article and was quite impressed. I’m a person that likes to understand the history behind the product and/or company. Neal does a nice job of detailing the 8 year evolution of Microsoft’s foray into the ERP industry. He starts off with a sort of Gantt Chart that breaks down the different target markets for each of the Microsoft Dynamic products.  From the enterprise size, based on number of employees, it looks as though Microsoft has taken a comprehensive approach to the SME market space and taken aim on competing directly with SAP and Oracle in this space.

I particularly liked the section where Neal describes Microsoft’s initial purchases and the making of the Dynamics portfolio of products. First there was the Great Plains acquisition in 2001 which netted the Great Plains accounting application and the Solomon business management applications. Then there was the Navision purchase in 2002 which garnered not only the human resources and CRM applications, but also the Axapta product line from a recent acquisition by Navision.

So what is Microsoft to do with four different enterprise products (Great Plains, Solomon, Navision, Axapta) each written in a different language, running in different development environments, and using different databases? Neal takes us on a tour of the daunting task that Microsoft laid out for itself to convert all four products to a single code base, Project Green.

Neal includes an evolutionary chart of which Dynamic products have become the product of choice for which industry. He reminds us that over 9000 ISV’s are out there providing customization services and support for these products. He concludes his article by stating that growth in the Dynamic Product line appears evident.

 

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I recently came across a White Paper from Saugatuck Technology, Inc. entitled “SaaS Realities: Business Benefits for Small and Mid-sized Enterprises”. In the spirit of full disclosure, this research paper was sponsored by SAP so there is a one page blurb from SAP at the end of this White Paper which reemphasizes the benefits of SaaS for SME’s and then touts its own SaaS offering Business ByDesign. I chose to post this review of the White Paper since the research is very current, describes the benefits succinctly yet thoroughly, and is also presented in an unbiased format.

The paper is written with the SME in mind, as one can discern from the title, however it begins with a very brief background to the pre-SaaS days. As a bit of a history buff myself, I always appreciate it when an adequate foundation is laid so we can see how things have progressed over time. The paper points out the initial two choices available to us:

·         Purchase of software suite from an ERP Vendor: The enterprise’s IT department is then saddled with all the tasks from selection, installation, maintenance, all hardware, and networking; or

·         Engage a VAR or Systems Integrator (“SI”) to install new software and integrate it with its existing legacy systems: Here selection and installation are handed over to the VAR or SI, leaving maintenance to the Enterprise’s IT department or perhaps outsourcing it.

The authors address the question of when is the optimal time to contemplate a switch in technology from the old approaches mentioned above to the latest alternative, SaaS:

·         Establishing a new location

·         Serving new markets

·         Sudden sustainable growth

·         Preparing for a recession

·         A new sales channel

·         A new supply channel

·         New governance or reporting standards

·         New performance goals

·         Aggressive competition

·         Increased customer expectations

The authors then go into a deeper discussion of SaaS. They begin, as most SaaS discussions begin, with the pricing model, per user / per month, and variations of this model. This is followed by a discussion of what an enterprise is really purchasing with SaaS (i.e. a business service). This business service includes:

“… the entire range of data center infrastructure services: networks, storage, operating systems, databases, application servers, Web servers, and of course, disaster recovery and backup services. Moreover, a full range of data center operational services – authentication, availability, identity management, production monitoring, patch management, activity monitoring, software upgrades and customization …”

The research paper then gets into the heart of the issue, mainly the Advantages of SaaS. There is a very well-written discussion including:

·         Financial Value

·         Time to Value:  Quicker installation, quicker integration, quicker pay-back period.

·         Affordability:  No large up-front costs

·         New technology

·         Continuous innovation:  Multi-tenancy allows for a continuous stream of enhancements

·         Improved Operations

·         Customization: Easily adaptable for SME’s

·         Integration: Service Oriented Architectures (“SOA”) are standard for SaaS providers. Also, three additional means of achieving seamless integration with other enterprise applications on premise include: Web-based SaaS integrators, SaaS integration appliances, and SaaS system integrators.

·         Fewer technical resources needed: Less strain on your IT department and small firms can take advantage of the latest technologies

·         Focus: Allows firm to focus on its core competencies

The research paper concludes by recognizing that SaaS may not be the answer for your particular firm. For example:

·         The application differentiates your firm from the rest of the market (i.e. the application is tied to your core competency); or

·         An existing large investment in your existing IT; or

·         Regulations may require that you keep and manage your data behind a firewall and your SaaS provider cannot accommodate this requirement.

Saugatuck Technology, the author of this White Paper, is a strategic advisor to senior executives, information technology vendors and investors, providing strategy consulting, subscription research and thought-leadership programs focused on emerging technologies, key business / IT challenges, and effective management strategies.

For further readings on this topic, see the following posts in this Blog:

SaaS Customer: A Checklist of What You Need to Know Before Selecting the Vendor

SaaS Contracting: Tips Leading to the Decision and What to Include in the Agreement

Also on the left hand sidebar insert “SaaS” into Keyword search and hit “go”. You will find numerous articles relating to SaaS.

 

 

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First I would like to apologize to my readers for the delay in posting this article. My goal is to post something of interest every 1 to 2 weeks, more often if events warrant it. Unfortunately, my schedule went a little haywire during the closing of the 3^rd quarter and so it has been difficult to meet my self-imposed deadlines. I think I’ve turned the corner.

Barbara Darrow, Senior News Editor for SearchITChannel.com, reports in her article entitled “Microsoft rolls partner technology into Dynamics AX ERP” that Microsoft has embarked on a purchasing strategy to build up its core technology of its Dynamic ERP offerings. The series of purchases (provisos not disclosed) included the following:

·         Fullscope Inc. – process manufacturing technology

·         Computer Generated Solutions Inc. – professional services solution

·         LS retail EHF – retail technology

·         To-Increase Denmark A/S – retail technology

Axapta, now called Dynamics AX, is one of the Dynamics ERP lines from Microsoft that competes directly with SAP’s SME offerings.   This mid market space, what Darrow identifies as the “white space”, is more often than not where VARs and ISVs do a lot of customization. This current round of technology purchases is seen as Microsoft’s attempt to add functionality while at the same time reducing the need for customization. It is probably safe to assume that SAP might not welcome this intrusion into the mid market, but the jury is still out on other VARs that perform application work in the space as to whether the additional functionality will be viewed as a help or a hindrance. Dan Fine, President of Fine Solutions, a Dynamics AX partner, stated:

"They've bought some key functionality for professional services and are putting it into the plumbing. That will let us extend our products more easily into various verticals"

He also remarked that time sheets and billing will be part of the offering.

 

 

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SAP takes majority position in SAF

Alex Goldman reports for Internetnews.com that ERP giant SAP has increased its stakeholding in SAF to a majority position. This retail software provider’s products have been embedded in SAP’s retail solution since 2002. SAF’s 2008 sales were slightly over $19 million.

Seibel Systems Founder Attacked By Charging Elephant

Internetnews.com’s Andy Patrizio reports that billionaire founder of Seibel Systems, while on safari in Tanzania, was a victim of an elephant attack. He and his guide were 200 yards away from an elephant herd when suddenly one broke from the herd and charged. Seibel suffered broken ribs and a gorged left leg and a crushed right leg. He spent 18 days in four separate hospitals in Nairobi before returning home. Wheelchair bound, reconstructive surgery and physical therapy are the next steps in his recovery.

BPM: Europe Exceeds US in its Adoption

Back in 1996 Michael Hammer wrote ‘Reengineering the Corporation’. Joerg Heistermann, IDS Scheer CEO of the Americas, stated, “Once BPM became the buzz in the boardrooms around the world, because of the Hammer book, the business changed and in the 1990s SAP began to roll. Many of our implementations complemented SAP.” The chemical companies, financial institutions, and auto makers of Germany were first adopters. "Culture might have an impact. In the U.S., the focus is on sales and marketing.  In Europe, we are more technicians. We optimize the organization for what's coming." IDS Scheer’s “flagship software” is ARIS. See Alex Goldman’s article IDS Scheer: US Lags in BPM Implementations for more.

 

 

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This sort of activity is common in mergers and acquisitions. I wish I could say that I had experienced this only once, but the sad truth is I have been on the inside and watched this happen several times. And it always is the same. Something big happens, (e.g. a merger, an acquisition, a new “C”-Level Executive) and people leave. In my last corporate counsel position a new CEO was hired just two months after I had come onboard. The General Counsel who had hired me, an intelligent attorney with a superb management style, abruptly announced his untimely retirement just three months later. His replacement lasted a short 12 months. Within a year and a half the new CEO’s friend and confidant had assumed the General Counsel position and the department I had been a part of was completely eliminated.

So is it any surprise that Sun is experiencing a bit of a brain-drain after the acquisition by Oracle? Andy Patrizio reports for InternetNews in his article Defections Batter Sun Microsystems that some key Java-based developers are reading the writing on the wall and have decided to avoid the tap on the shoulder and request to come to some non-descript conference room. Patrizio reports that so far Java’s creator, James Gosling, has not jumped ship. Josh Farina, analyst with Technology Business Research, states:

"It'd be in their best interests to make offers to get people to stay on board … Oracle is really good at making companies run better, but ultimately it needs the talent to stay because … it's in the line employees who make it happen.”

And the affect is not solely on the software side of the business. To get a preview into this slippage in Sun’s sales see the posts in this Blog Oracle’s Purchase of Sun: A Game Changer and IBM and SAP vs. Oracle and Sun: Let the Speculation Begin. Scott Handy, vice president of marketing, strategy and sales support for IBM Power Systems, reports that customers are calling IBM requesting migration assistance. Sun’s customer base looked at Oracle’s track record and see price increases in the future. Handy states,

“They are all quite concerned. When Oracle bought Siebel and PeopleSoft, they increased the maintenance licenses by 25 percent per year. With BEA, licenses went up 45 percent. So they are looking at OPEX going up just to keep what they had".

IBM is geared up and ready for these migrations. In 2003 IBM acquired a company called Sector 7, a company specializing in migrations. IBM created a program entitled Migration Factory and to date have performed over 1800 migrations. Before the Sun acquisition the ratio was about 40% of the migrations were from Sun but now that percentage is starting to increase. For the first six months of this year IBM has migrated over 170 Sun customers and another 66 Sun storage customers. 

It appears that IBM is doing what it has always done and that is using their hardware to get business in the door and then turn that into sales for long-term services and software.

 

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Alex Goldman reports for Internetnews.com on McAfee’s recent announcement of its latest SaaS security software, Total Protection Service 5.0 in his article McAfee Embraces SaaS Security. McAfee’s senior vice president and general manager for SaaS, Marc Olesen, is quoted:

“The SaaS security market is growing a little over 30 percent per year, three or four times faster than the on premises security software market”.

 McAfee feels that its competitive advantage for Total Protection Service 5.0 is the solution’s comprehensive feature covering DLP, compliance, vulnerability scanning, e-mail, network protection, and endpoint protection. Its competitors in this marketplace are Symantec and Trend Micro. Although SMB’s will find the product’s “Security Center” straightforward and easy to use, this solution is not meant for the SMB market alone. McAfee plans to market this solution to the large enterprise customers as well. One interesting feature of this new product is that vulnerability testing can be performed from outside the network at POP’s (public points of presence) at ISP’s. This is something that cannot be done with on-premise software. The product will be user based pricing, subject to the number of modules employed, with quantity discounting available. McAfee envisions that some enterprises may choose a mix of the protections their product provides alongside any competencies the enterprise may build on its own.

 

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So I’m sitting at my desk buried in work one day last week. As an aside, it appears that my writings on SaaS have sparked some interest and so I have been putting together some SaaS agreements for a couple of new clients. My email alert lets me know that an email has just arrived. It is an email from R. Ray Wang, Vice President of Forrester Research Inc. I have been reading a lot of Wang’s writings and research and have been quite impressed to say the least. I have even Blogged on some of his writings. He had a few kind words to say about my Blog and then he attached the latest update to the Enterprise Software Licensee’s Bill of Rights. I promised him that I would read this latest research work and mentioned in my email reply that it would probably be a treasure trove of vital and current information. Well I did read it and my comment hit that nail on the head. As a practitioner for over 20 years, with the last 10 years concentrated in this crazy world we call software licensing, this is a must read. As a Licensee, whether prospective or a veteran of ERP negotiations, perhaps a higher standard is in order, such as mandatory reading material. Here are some highlights from this latest work as detailed by R. Ray Wang:

1. Surveyed 71 vendors and 101 end users.
2. Built best practices from personal experience of 1000 contract strategy interactions.
3. Resulted in the inclusion of 11 new rights that support new deployment options, cost savings, client best practices, and vendor lock in avoidance.
4. Suggested seven simple steps to successfully negotiating enterprise software contract.

Of course reproduction of this research work is strictly prohibited. Regardless of the prohibition, space constraints in this Blog prevent me from adequately commenting on all the salient points. I do not think Wang or Forrester would mind if I whetted your appetite the best way I know how – with Wang’s own words in the Executive Summary.

For Business Process & Applications Professionals

Executive Summary 

July 7, 2009

 

An Enterprise Software Licensee’s Bill Of Rights, V2

 

Forrester Redefines 47 Basic Rights That Licensees Should Expect From Vendors

 

This is the 10th document in the “Building A Long-Term Apps Strategy” series.

 

 

by R “Ray” Wang

with Paul D. Hamerman, Andrew Magarie, and Ralph Vitti

 

 

 “Of all the assets that an enterprise acquires, enterprise software brings with it the most unusual, onerous, and restrictive set of constraints. In most cases, licensees may not resell, reuse, or share their license. Licensees often encounter numerous grievances across the software ownership life cycle from selection to implementation, utilization, maintenance, and retirement. Poor economic conditions have kept vendors from raising prices for now; however, rapid vendor consolidation has eliminated choice and customer leverage in the market. Upon economic recovery, enterprises can expect price increases in software categories where only a handful of solution providers compete. Fortunately, advances in new deployment options (e.g., software-as-a-service, platform-as-a-service, cloud computing, managed services, and virtualization) may slowly shift the pendulum in favor of the customer. Forrester’s updates to its 2006 Enterprise Software Licensee Bill Of Rights (LBoR) reflect these new best practices from more than 1,000 interactions. CIOs, business process and apps professionals, enterprise architects, and procurement experts should immediately review and incorporate these best practices into their vendor relationships, contract strategies, and packaged apps strategies.”

 

 

For information on hard-copy or electronic reprints, contact Client Support.

 

R. Ray Wang’s Blog is A Software Insider’s Point of View.

  

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It appears the tide is turning for the ERP giant. Initially Business ByDesign, the SAP SaaS offering, was targeted to the SMB marketplace. John Wookey, SAP’s new chief of on-demand software applications for Large Enterprises (“LE”) and former head of application development for Oracle, announced at the OnDemand Europe Conference in Amsterdam that SAP will allow online integration with core on-premise or hosted ERP platforms. This is a major switch in their strategy. SAP is determined to avoid the problems of data sharing and integration with this type of approach. Mike Simmons reports for ComputerWorld in his article SAP in SaaS U-turn:

“Wookey will initially promote the LE on-demand offering entirely at SAP's established customer base. Until now the company had been reluctant to sell SaaS products to its installed base, for fear of cannibalizing license and maintenance revenues”

Mary Hayes Weier of InformationWeek reports on her interview with John Wookey in her article SAP unveils SaaS Strategy. SAP will provide “function-specific software applications, available by subscription, that plug into customers' on-site SAP Business Suite systems, and that SAP will host for customers using a multitenant architecture”. 

Weier provides us with a good definition of Multitenancy and how SAP will provide it:

“Multitenancy -- in which groups of customers share the same instance of a software application, even though their data is kept separate -- helps software companies keep costs down for the hardware, software, and energy they use to host customers' applications. In turn, that allows them to offer competitive subscription prices. Wookey describes Frictionless' technology, which will be the foundation of SAP's on-demand platform, as "Java-based with a true multitenant architecture”

Development groups will bring on-demand applications to the market. SAP’s CRM already in the market, although not a multitenant architecture yet, will be a seamless upgrade soon. The other two on-demand products also in the market, e-sourcing and carbon emissions management are a result of earlier acquisitions. SAP’s acquisition of Sky Data will be able to provide a mobile component to their on-demand offerings.

 

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Alex Goldman writing for InternetNews.com in his article Does SAP's Performance Fall Short reports on a survey conducted at SAP’s annual conference for SAP Professionals, SAP Sapphire ’09, held in Orlando, Florida. The study on SAP’s performance was sponsored by Precise Software, a transaction performance management (TPM) provider and was conducted by Dimensional Research. Dimensional Research based its findings from 695 SAP Professionals. The respondents were attendees at SAP’s Sapphire conference and answered questions at the Precise Software booth.   Some of the findings are as follows:

·         62% unhappy with the resolution of performance issues

·         8% reported daily problems

·         68% reported 1 to 5 incidents per month

As to the resolution and/or response times:

·         46% reported resolution in hours

·         22% reported resolution in minutes

·         30% reported resolution in days or weeks

·         2% reported resolution in seconds

Tracking of database transactions through the database and the application servers and into storage can be done for the SAP ERP software. Precise Software is now offering such tracking for SAP’s BI software as well. Zohar Gilad, executive vice president of Precise Software says:

“Traditionally in BI, companies take data from the production ERP system, extract it and scrub it, and load it into their data warehouse.  This can disrupt the production system, companies can fail to move the data in time, and it's tough to access.”

Precise Software is not the only TPM vendor involved in resolving these issues. Attivio and Fiorano are two other TPM vendors using different methods. SAP is also looking for a way to improve its BI and announced it is offering a new search engine to do just that.

SAP had no comment regarding the survey stating that they did not know how the data was gathered nor had they seen the survey.

 

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In light of the recent mega-acquisition of Sun Microsystems by IT titan Oracle, the rumor mill has begun to turn. As a follow-on to my posting in this Blog last week dated May 11, 2009 entitled Oracle Purchase of Sun: “A Game Changer”, I have found two article’s that my readers may find of interest. Here is a brief synopsis of each:

An IBM marriage to SAP:

CNNMoney.com posted a Fortune Magazine article from their Tech Daily by senior writer Jon Fortt entitled IBM-SAP combo not in the cards – exec. In it CEO Sam Palmisano’s spokesman lays out why such an acquisition is unlikely. I cannot help my flair for the melodramatic and immediately what comes to mind is that old line from some film noir movie “Your lips say no, but your eyes says yes”. Some of the points for such a purchase are:

• IBM’s Websphere, DB2, and Cognos provide the foundation for SAP’s business apps.
• IBM is one of the few (Google and Microsoft notwithstanding) that could afford the $50 billion  SAP market value plus a premium.
• Such a combination could in essence provide all the software an enterprise could need.
• Others (e.g. Oracle / Sun) have embarked on this portfolio strategy.

IBM’s retort to the above is a recognition to tread softly as not to upset their existing partnership relations. I’m afraid I’m reminded of yet another famous line (with apologies to the Shakespearean aficionados – if I may be allowed a bit of poetic license) Methinks he doth protest too much. { The original line "The lady doth protest too much, methinks” is from Hamlet Act III Scene II. Queen Gertrude, not realizing that Hamlet has staged this play within a play to trap her and her husband whom Hamlet suspects of having murdered his father, speaks these famous words to her son, Prince Hamlet.  See answers at yahoo.com --- but I digress}

Oracle could play the old IBM trick: 

To continue on with the “speculation” theme of this posting, Rob Enderle examines  the aforementioned mega-acquisition and comes up with an interesting strategy in his article in InternetNews.com How Oracle-Sun Could Use Google to Become the New IBM. Apparently, back in the 60’s when IBM was king, IBM locked in its customer base by bundling software with the lease / purchase of its hardware. Enderle posits that Oracle stand this strategy on its head and proposes that Oracle bundle its software and services with the Sun Hardware and this time it is the hardware that is the free commodity (or close to it) and not the software as was the case for IBM in the 60’s. Enderle has an analysis on UNIX and Linux and how Java is “a bone fide platform in its own right”, but I will have to leave it to you to grasp the nuance, since I cannot. The missing element to this strategy is the desktop component. Enderle closes the loop in this strategy with an Oracle – Google alliance (if this is possible) and has Oracle emerge as the new IBM. Such an alliance seems improbable, but worth the mention.

 

 

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In late April 2009 Oracle announced its $7.4 Billion purchase of Sun Microsystems. As you can imagine, this deal will have a significant impact on the IT industry, but just how much of an impact remains to be seen. Invariably acquisitions of this size and nature will be examined for any possible anti-trust issues such as anti-competitive influences on the market-place. This process by regulators will be done here and abroad and the end-result may be the necessity to sell-off some assets of the newly combined business. If you are looking for an excellent in-depth analysis of this deal I highly recommend Bruce Guptill’s article in SandHill.com The Impact of Oracle – Sun. In it Guptill sees a totally changed IT Industry with Oracle emerging as a “portfolio” company with the following abilities and offerings:

·         Hardware

·         OS

·         Middleware

·         Applications

·         Development tools

·         Databases

·         Production environments for Hosting

·         SaaS

·         On-premise subscription services; and

·         Consulting solutions (vertical and horizontal).

 

Although Sun is primarily a hardware vendor, Guptill sees this as a play for Sun’s software capability. He quotes Oracle’s CEO, Larry Ellison, “Sun's Java programming language and Solaris operating system were the main attractions for Oracle”; and specifically as regards Java, “the single most important software asset we have ever acquired.”  Guptill believes this asset alone places Oracle at the epicenter of the industry. Sun has also played a key role in open source by opening Java and Solaris to developers and this should give Oracle the ability to influence such software development especially in the following specific vertical markets: financial services, government, academia, and high-performance computing. Lest we forget the hardware business, Sun’s server and storage revenue have been estimated at an annual amount of $7 billion and $9 billion respectively. All of the Sun components, from software to hardware, should provide Oracle the foundation to build its SaaS and Cloud Computing services.

Can Oracle successfully integrate the services and hardware businesses that come with the purchase of Sun? Guptill tells us to be on the lookout for Oracle Management to sell of some of these hardware lines, or alternatively as mentioned above, regulators may force Oracle to divest itself of some of these assets.

Guptill concludes his article with a brief description of the impact such a purchase has on several stakeholders and competitors. For example:

For Sun: This probably means the demise of Sun CEO Jonathan Schwartz who had pushed for the IBM acquisition of Sun rather than Oracle. Sun Chairman, Scott McNealy, although a friend of Larry Ellison, will probably go as well since a ship needs only one captain.

For MySQL: It should fit nicely into the Oracle family as a web server database engine.

For IBM: This was a lost opportunity at more profits and the ability to rein in Oracle competition. Also Sun’s capabilities would have enhanced IBM’s Cloud Computing efforts, but now this advantage goes to Oracle.

For SAP: Guptill sees the advantage going to SAP in the interim while Oracle’s sales teams learn how to integrate Sun products into the Oracle family. I am not so sure I agree. In light of SAP’s recent sales history any advantage may be illusory. See SandHill.com Software News Summary article SAP Struggles. The title tells it all.

For Hardware Vendors: For those that have partnered with Oracle in the past the loss could be significant.

For Users: Future investments in Sun hardware may be put on hold as the install base waits for reassurances on the direction of the server and storage lines of business.

Never a dull moment.

 

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Last year, April 19, 2008, I posted an article entitled Is a Clickwrap Agreement Enforceable?. The article defined the terms and gave a general understanding of where we encounter these types of agreements. My editorial comment dealt with my “natural aversion” to the non-negotiability of such agreements. Based on the number of hits the article receives, it is easy to discern the interest in the topic and it seems appropriate at this time to augment the article with a “How To” approach. During the course of my research, a colleague of mine from my days at SAP, Patricia A. Dalki, discussed her views on the subject. Patricia has done the heavy lifting on researching the “How To” approach when drafting  such an agreement and has kindly shared her thoughts on the subject with me. Her research included an article by David L. Hayes of Fenwick & West LLP entitled, The Enforceability of Shrinkwrap License Agreements On-Line and Off-Line and she also cited an article I had included in my original posting mentioned above by Jason Haislmaier entitled, How Do I Build an Enforceable Online Agreement? – Not (Always) the Way SalesForce.com or Google Would.

With the kind permission of my friend and colleague, Patricia A. Dalki, here are some tips how to create an enforceable on-line agreement:

 1.  Record Evidence of User Acceptance

• Record evidence of user acceptance and the formation of each on-line agreement using a consistent, auditable process.
• By procedure – maintain evidence that the only way to access the service or product being offered is to scroll through terms and click “I accept” – user must have accepted.
• To the extent possible, keep records of time, date, and source of acceptance.

2.  Require Acceptance Before Delivery of Services or Payment

• Require acceptance before payment or delivery of the services.

3.  Make Rejection Clear and Simple

• Provide a clear, simple method for customers to reject the contract.
• Allow users to exit the process at any time.
• Do not require the customer to take additional steps or expend effort/money to reject the product or service.

4.  Make Assent Unambiguous

• Secure an affirmative, unambiguous manifestation of assent to the agreement from the customer.
• The more the customer has to do, the better.
• Examples include:

a.         Mouse click “I accept” or “I agree” button;
b.        Type “I agree” and submit (speed-bump for users, but more deliberate);
c.        “I accept” checkbox next to each provision, especially with an unusual or onerous provision; and
d.        Offer alternative “I don’t agree” option with an explanation that the user cannot use or access the product or service.

5.  Condition Use on Acceptance (covered in the introductory paragraph)

• Expressly state the user’s access to or use of the product or service is subject to these terms.
• Expressly state that you will not provide the product or service except pursuant to these terms.

6.  Provide Notice of All Terms

•  Draw attention to the on-line agreement.
•  Make sure the customer sees it, e.g. no “below the fold,” small print, or hidden text.
•  Place the “Accept” option at the end of all terms.
•  Require the user to scroll though all terms before making the acceptance action.
•  Consider requiring the user to check an “ I accept” box for each provision, especially for an unusual or onerous provision.
• No link to terms or scroll boxes
• Advise user to print and keep a copy of the agreement.

 

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If you read Mike Elgan’s article in InternetNews.com, Get Ready for Microsoft’s Big Comeback, you will see that the answer is yes. If the Tech Industry doesn’t have any bailout money foisted upon it, much unlike our banking industry, then this market will do what all markets do in a capitalistic system, i.e. only the strong will survive. That is really what an efficient marketplace does with its competitors. But enough about me griping about the impending fascist state of this administration and in particular the all powerful Timothy Geithner. Let’s get back to Microsoft. Read Elgan’s article. He foresees the impending shakeout in the Tech industry and recognizes that the weak players will fade away and some marginal players will be swallowed up by bigger players. He also takes note of the past miscues in Microsoft’s marketing, the ever unpopular VISTA operating system, and its’ much ballyhooed legal struggles.

Although he mentions it in the subtitle to his article, it takes Elgan a while to get to the pile of cash that Microsoft has been hording. So let’s deal with the 800 pound gorilla in the room first before we get to the nuances of Windows 7 and Microsoft’s plan to leverage it and reclaim its’ reputation and continue to dominate the marketplace. Cash is King. Microsoft has an estimated $20 billion in cash on hand just waiting to exploit a downturn in the market. As for survival and emerging as the dominate player after the current economic struggle, see paragraph one above regarding “only the strong will survive”. Elgan posits that Microsoft could buy Yahoo, Facebook, Twitter, and Hulu all in the same year. He doesn’t predict such a sweeping acquisition scheme, but he does recognize the coming consolidation in the industry and that the cash-rich enterprises will act in their best interests and flourish.

And now for the nuances to their reemergence, Elgan sees Windows 7 as the vehicle Microsoft will use to recapture the glory days of the pre-1990’s debacles. It is not so much a four-step approach; but rather Elgan sees four categories where Windows 7 will dominate:

1.       Netbooks: Mobile computing will kick into high gear. As Windows XP eventually will fade into the sunset, Windows 7 Operating System will be the operating system of choice and not the much beleaguered VISTA.

 

2.       Touch Screens: The transition from mouse, icon, and menu to the mouseless touch will be slow, but Windows 7 is poised to take advantage when the switch gets into high gear.

 

3.       Gaming: Growth in this sector will be exponential. Four categories to watch are i) console, ii) cell phones, iii) internet, and iv) desk top. Microsoft will dominate in 3 of the 4 categories, bowing only to Apple in the cell phone arena.

 

4.       64-bit Computing: Office 11 will ship next year in a 64 bit version and Windows 7 will provide the power boost needed for fast business computing.

 

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Well as the first quarter ends, the staff at CIO Update report on the latest analysis from Gartner regarding the direction of global IT Spending in their article Gartner Calls for Grim Spending Contraction. I guess you can tell from the title which direction IT Spending will go. It appears that the projection for 2009 based on the 1^st quarter results is a decline of 3.7% in IT Spending this year.

The current global economic recession is affecting not only software sales but also hardware sales, IT Services, and telecommunications and this deterioration in sales will surpass the 2001 IT Industry downturn. The contraction in IT Spending is global; however the US and Western Europe will be hardest hit. Global Gross Domestic Product (“GDP”) is forecast to contract by 1.2% which is the largest hit to the global economy since 1982. Government stimulus packages will not have any short-term affect and IT Spending is not expected to improve until global financial markets stabilize.

The report summarizes the expected end results due to this downturn as follows:

• "The slowdown in IT spending will reduce new market penetration and will slow replacement activity.
• The impact of reduced new penetration will be more strongly felt in emerging markets, while the impact of reduced replacement activity will be more strongly felt in mature markets.
• Consumers and businesses will continue switching to lower-cost products, extending the life of existing devices and extending their current contracts and purchasing agreements."

 

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Nobby Akiha reports in SandHill.com on Gartner’s Top Ten “HOT” technologies for 2009. Included in this top 10 list is Business Intelligence (“BI”). Akiha lists the 10 predictions for BI and how BI will surge in 2009 and they include the usual suspects, “The Recession” and “Going Green”; however, the list also gives us some insight into the other salient issues that will cause the use of BI to swell in 2009. For the complete story read Nobby Akiha’s article 10 Predictions For Business Intelligence. Here is a short-hand version of the list:

1.       More Open Source Collaboration: Blogs, online communities, and social networking will help spur the development and use of BI tools.

2.       Rich Internet Applications (“RIA”) for consumers influence the Enterprise:  Workers start to demand the same web applications used at home for the workplace.

3.       The Cycle Goes from Applications – to – Users – to - Better Applications:  It becomes a self-fulfilling prophecy.

4.       A Recession Fighter: BI provides the competitive advantage to analyze costs, margins, and channels to better gauge profitability.

5.       Green: BI assists in the allocation of resources. “Plus, ‘going green’ fits with consumer sentiment and conserving resources conserves cash.”

6.       Regulations are coming: In light of the financial melt-down on Wall Street, it is a foregone conclusion that the Feds will be writing more regulations and these regs will most assuredly require companies to retain and disclose data. BI will help with the data management.

7.       Globalization Increases Competition: BI makes it possible for business decisions to be more informed and in real time.

8.       Wider Access to the Analysis: Decision makers are enterprise wide and as BI gains wider adoption these decisions makers will have access to the informed analysis.

9.       Flexible Reporting: Siloed data isn’t much help to the enterprise at large. BI makes it possible for data to be scalable and viewable in various formats.

10.   More Open Source Deployments: These solutions will be customizable for business decisions.

 

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Well, you just don’t mess with maintenance fees, or so we thought. In my career it has been my experience that a software developer, in particular, the large ERP Vendors, would be willing to grant some pretty large discounts on the licensing of their software. There would be a standard discount and this could be followed by a non-standard discount which could then be followed by a special one-time discount and so on. As long as we could think of inventive names for the next round of discounting and the business approvals kept coming, a savvy customer could get what appeared to be an incredible buy. So you might wonder how a large ERP vendor could discount the initial one-time license fee of their product 50% to 65% to 80% and above. The secret my friends (well it’s not really a secret) is that an annual maintenance fee was exacted as a percentage of the “net” license fee after the first initial standard discount. I remember when this maintenance rate was 15% and then it was raised to 17% and recently it has been raised to 22% by the big ERP vendors. It really doesn’t take a rocket scientist to figure out that after approximately 4 ½ years the customer has paid for the software again. As long as the ERP vendor can receive their annual cash inflow from these maintenance fees on their customer installed base, these vendors will be willing to discount their license fees.

So what does a customer get for this annual maintenance fee? Since we are talking about software, any Director of IT will tell you that maintenance gives you access to the 24/7 help desk. But there’s so much more than the help desk. A customer will need access to the latest patches and fixes that are inevitable when dealing with software. Maintenance also allows the customer to receive the next version and/or release of the software. With the new higher maintenance rates of 22%, the vendors are providing more and more enhanced support in order to justify the higher fees.

However, it seems that the current economic downturn has made the untouchable somewhat vulnerable to attack. For a more in-depth report on this phenomenon read Barbara Darrow’s article in IT Channel entitled Oracle fees for maintenance and support under fire. In it she describes the sea-change in the attitude towards maintenance fees coming from the customer base. There are some reports that customers are switching their application servers just to avoid Oracle altogether. Another approach customers have been taking, but one fraught with pitfalls, is to forego maintenance completely.

“There's definitely been a significant spike in the percentage of clients pushing back on Oracle support rates or who have let support lapse," said Eliot Colon, president of Miro Consulting, a firm that specializes in license negotiations.”

As Darrow reports, one option customers are exploring is to limit their maintenance fees to only what is deployed (e.g. users, modules, functionality). But it looks as though Oracle will not capitulate and only offer an all or nothing alternative. When customers choose “nothing” they run the risk of losing out on new upgrades. Once they decide to reinstate maintenance, they’ll be hit with all back maintenance fees during the period they declined maintenance and also a reinstatement fee.

And still another option for customers is to use third party support. David Rowe, senior vice president of marketing for Rimini Street states:

“Take your existing bill for maintenance, cut it in half, and then cut it further, because we let you drop maintenance for modules you're not using, whereas vendors have some very tough policies on that.”

For further discussion on this topic see also:

• IT shops renegotiate contracts to get savings out of vendors
• Rework vendor contracts to save money in tough times
• IT Shops renegotiate contracts to wring savings out of vendors

 

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Alex Goldman reports for InternetNews.com on two interesting collaborations announced recently by SAP in his article SAP Taps IBM, Intel to Cut Datacenter, SMB Costs. Here’s a brief synopsis:

Ability to create an in-house cloud:

The two giants have been collaborating since 1999 on this particular project. Although the product is not yet generally available, SAP and IBM demonstrated it at the CeBIT trade show. The idea is simply to spread SAP’s utilization across the servers in an enterprise which lessens underutilization of servers while also allowing for spikes in usage. This should be attractive to companies trying to get the most out of their current infrastructure. The technology demonstrated is based on the RESERVOIR cloud computing project. The goal is to make it easier for datacenters to be able to adjust their services to meet demand at different times. 

Xeon-based systems for SMB’s:

Another SAP announced partnership is with Intel. SAP’s Business One customers (i.e. SMB’s) are to be the beneficiaries this time. SAP plans to develop applications for use on Intel's 64-bit Xeon architecture. The end result is a faster deployment for SMB’s using Intel Xeon based systems.

The Green Effect:

The current “Green” craze is not lost in the two announcements above. The parties involved are proud to state that both moves reinforce the output of lower carbon emissions in customers' datacenters.

 

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There is an episode in Seinfeld where Jerry and Kramer are having a disagreement on an accounting issue. Kramer claims that the Post Office can just “Write Off” an insurance claim as a loss. Jerry implies that Kramer doesn’t even know what a write off is. When Kramer retorts, “Well do you?”, Jerry confidently states in a tone of honesty “No, I don’t”. That’s when Kramer comes in and seals the deal with the irrefutable line, “Well they do, and they’re the ones writing it off”.

Well, my friends, I am afraid that there is a bit of accounting “know-how” required to fully comprehend the latest opinion from Gartner analyst Robert DeSisto. As Richard Adhikari reports in his article for InternetNews.com entitled Gartner Warns on SaaS’s Hidden Costs, the Total Cost of Ownership (“TCO”) may be great for the first 2 years since SaaS does not require an initial capital outlay for hardware and the licensing model is pay-as-you-go. However the accounting for on-premises applications flips this advantage since the large capital outlay eschewed by SaaS proponents comes into play in later years. You see the larger expense for infrastructure in the non-SaaS model can be capitalized and any self-respecting accountant will tell you that means this “Capitalized Expense” can be depreciated. In essence the depreciation expense becomes a “Write-Off” against revenues. Oh dear, if I have confused you either see Kramer’s explanation above (or) the September 29, 2008 posting in this Blog, SaaS Contracting: Tips Leading to the Decision and What to Include in the Agreement.

Adhikari includes a rebuttal to DeSisto’s capital expense argument from Raju Vegesna. Vegesna comes back with the fact that SaaS pricing includes maintenance, support, and upgrades. Other SaaS proponents tout the ease of implementation and the favorable pricing model. On the flip side, DeSisto cautions that enterprises requiring tight integration with existing systems might not have the quick roll-out as promised. In addition, although the SaaS pricing model is advertised as a pay for the computing resources used, a significant number of SaaS Vendors have opted for other pricing models. In particular, DeSisto points to Salesforce.com whose pricing requires the customer to purchase subscriptions for a period of time regardless of use. 

I think the jury may still be out on this one. What isn’t discussed at length in this article, but is only hinted at, is the fact that the SaaS model should be attractive to the smaller enterprise and/or the start-up, while the larger enterprises might well be served with the traditional on-premises model.

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Michael Markulec, COO of Lumeta Corporation, writes in CIO Update that the Obama Administration has appointed Melisa Hathaway as Advisor to the President on National Cyber Security. For a more comprehensive review of the appointee and her relationship to the Bush Administration see Siobhan Gorman’s article in the Wall Street Journal, Hathaway to Head Cybersecurity Post. Markulec is all for the newly created position. He points to the disconnect between the federal government and the private sector when it comes to our infrastructure and the necessary control systems in these most important industries. He states the obvious that their connection to the internet leaves us open to a cyber-attack. He also touts Hathaway’s concern that simple hand-held devices can be used to conduct foreign and industrial espionage.

I’m sorry but I just don’t see anything new or any quantum leap towards more effective cyber security from this newly created position. But one only needs to read further and the newness becomes apparent. Markulec predicts, and I agree with him, that new regulations are on the way. He compares the coming new regulations for the IT community and the CIO to the Sarbanes-Oxley legislation aimed at corporate CFO’s. Well, I guess we all know how that went. Do we really need more regulations or do we just need enforcement of the existing laws? If we are using our latest string of financial debacles as our guide, I guess arguments can be made for both sides. Some might say if the Congress didn’t block the creation of regulations for Freddie Mac and Fannie Mae we might not have had the subprime mortgage meltdown. Others might argue if the SEC had only investigated and enforced its own existing regulations the Bernie Madoff Ponzi Scheme would have been discovered much sooner with less devastating financial losses for investors.

I think the Obama Administration may have tipped their hand at what may or may not be coming down the pike as it relates to cyber security, and that I am afraid is more of the same. Gorman reports that James Jones, National Security Advisor, has requested a further study on cyber security. Hathaway is tasked with conducting this 60 day study. And so the end result will be a study that will collect and discuss issues that are apparently known. Will the ends justify the means? Will we have tougher regulations for CIO’s as Markulec predicts, and if we do, will they be enforced and make any difference? That remains to be seen.

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The recession is upon us and from all reports it looks as though it is going to be a long one. I will leave to others to discuss and argue if the current proposed stimulus package is indeed a real stimulus package or just a spending bill that will do little to nothing in the short term. In my practice I am beginning to receive an inordinate number of requests from software licensee’s to either cancel maintenance or reduce user counts in an effort to lessen the annual expense. Chris Dowse and Ben Galison have written a very important Op-Ed piece for SandHill.com entitled Software’s Clear and Present Danger. They begin their article with a no nonsense approach to the subject of maintenance revenues:

“… the software industry’s cash cow, maintenance and support revenue provides high margins that are the funding engine for new product research and development. The maintenance revenue stream is also used as a basis for company valuations in mergers and acquisitions and financing arrangements.”

Dowse and Galison have identified three major reasons placing downward pressure on the maintenance stream:

1.       The customer’s perception of value has affected pricing, the basis for the maintenance calculation.

2.       The recession has caused customers to postpone purchases and upgrades.

3.       End User Monitoring (“EUM”) has created a new view into usage and so under-used applications are being targeted as a drain on ROI.

The approach that Dowse and Galison suggest as a remedy to the threat on the maintenance stream might seem simplistic at first blush. They suggest the Independent Software Vendor (“ISV”) become more customer-centric and strive to have a successful adoption of the software suite as opposed to the traditional implementation services. I suggest you read further and examine their three step approach and follow it in the sequence they suggest. It may be a bit of a paradigm shift for some ISVs, but at the very least it will take a lot of effort. I will try to summarize the three step approach, but please read their whole article to get the full impact. The three step approach is as follows:

1.       Create a Positive Customer Experience: This enhances customer loyalty which is the first step in protecting the maintenance stream. However, more importantly, Support and Services must concentrate on an effective adoption of the applications. A significantly improved customer interaction of the delivered applications can have a direct and positive impact on the customer’s ROI. This should also eliminate the fragmentation that occurs when their customer information gets locked in silos. An effective adoption of the software suite should enable delivery of this customer information across the enterprise. The ISV must encourage cross-functional dialog and empower their employees to identify their Customer problems.

2.       Understand Customer Usage: This has to be a proactive approach, hence my comment above that “at the very least it will take a lot of effort”. The ISV must strive to understand usage patterns and barriers to adoption. This is where the ISV should take advantage of the new EUM technology and use it to get past the reasons for downward pressure on maintenance. Once usage rates are indentified the ISV should intervene with perhaps more training or services. This activity could lead to new products and services to increase usage and eventually ROI.

3.       Deliver Business Value, Not Just Technical Service: Customers want and will pay for services that will lead to effective adoption. Traditional implementation services do not go far enough. Placing the focus on user adoption yields tremendous benefits. Dowse and Galison state it best: “Effective user adoption increases customer switching costs, enables value-based pricing that prevents price erosion, produces visible ROI for customer success stories to drive other sales, and provides a platform for upselling and cross-selling.” Another by-product of this approach is a lower amount of the lower margin traditional implementation services required.   The ISV’s service profitability should go up.

For another perspective on this topic see my November 24, 2008 post in this Blog: How to increase revenue in an Economic Downturn.

 

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Jeff Vance, president of Sandstorm Media, a marketing services firm focused on emerging technology trends, has an article in CIO Update entitled 5 Hot Trends for 2009. This article is the next in his series of predictions as evidence by his article last year entitled 5 Hot Trends for 2008. He begins with an honest critique of his 2008 predictions. I admit I was too eager to find out what was anticipated for this year and so I skipped right to the 2009 predictions. After reading the latest predictions, I confess that my first thoughts were, “Well how good did you do last year?” and so it was easy to find out. Depending on your patience, either order is fine. I’ll give you a brief synopsis of his 2009 predictions and leave it up to you to decide if you agree and need to check his score from last year. For 2009 Vance sees the following unfolding:

1.       Major Mergers and Acquisitions: Vance expects some big names to come in and buy at bargain prices.  One place to look is in the wireless market-space.

2.       Disappointing sales in the mobile market space:  The recession will cause consumers to delay purchases of new handsets with all those nonessential features. One business model to watch is pay-as-you-go.

3.       Virtualization is a winner in 2009: And the reason is obvious, cost. Seems like the recession plays a big part in most predictions for this year. Quicker ROI and less upfront cost will be the tipping point for most technology winners. Vance sees virtualization marching past the servers and moving to desktops and quite possibly the mobile desktop sector as well.

4.       Businesses crack down on social networking: Lack of worker productivity and data leakage are the two main reasons.

5.       IT Spending saves the economy: Admittedly this may be too brash of a boast, but look for major IT expenditures to support a fundamentally changed economy due to the global recession. Regulatory agencies will look to data mining in an effort to detect fraud and forestall market collapses.

So what do you think? If you are interested on how well Vance’s 2008 predictions turned out, read the article, (HINT: he wasn’t too far off).

 

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The business environment for 2009 looks bleak.  Financing came to a screeching halt in the late summer of 2008 and capital markets are still reticent on extending credit.  What is an enterprise to do?  As Bryan Stolle, partner with Mohr Davidow, points out in his article How to Survive - and Thrive, the key is first to survive by assessing the environment, creating a plan, and executing.  Once the economic recovery begins, your company must have differentiated itself from the other companies in its market-space.   

Stolle presents a list of 10 tips for the tech CEO of today.  As he states, some are obvious.  I will try to summarize his action plan below, but for the full impact I strongly suggest you read his article:

1.       Question every expenditure:  If it does not fit into the “Must Have” category, then it should be cut.  Does the spend positively affect the bottom line?  Examine R&D with an emphasis on return on investment and its ability to differentiate your products from your competitors.

 

2.       Everyone is a salesman:  All employees must focus on acquiring new customers and maintaining the current customer base.  All top executives, CEO included, need to be in the field or on the phones.

 

3.       Mirror your customer’s mantra – cut costs:  Your sales pitch must state how much your solution will “CUT COSTS”.  Your customers won’t be listening to anything else.

 

4.       Increase your marketing efforts:  The more spent in this area will help your customers to focus their spend prioritizing on your application, the sales process is enhanced, and competitors will be forced to compete or leave the market.

 

5.       Refocus your distribution strategy:  The search for new channel partners and resellers is a drain on cash.  Funnel your cash into the proven channels and leave the marginal producers for later.

 

6.       Cut headcount – but do it fairly:  In my career I have seen enough of the “Trim the Fat” executives as it relates to personnel and I know the devastating affects it has on the individual, on his/her family, and on company morale.  Stolle also recognizes the need to maintain and “nurture the esprit de corps - not kill it” and advises to give full consideration to the corporate culture.

 

7.       A good time to hire:  As a counter-balance to point 6 above, this may be the time to upgrade your team.  Top-performers in other companies may be getting a bit nervous with their current position in light of the current economic climate.  If offered the right package, these top performers would be happy to join your team.

 

8.       Reexamine the operation and consider a new approach:  Take this opportunity to rethink how the company works.  Perhaps an outside observer can suggest a new approach and re-energize the operation.

 

9.       We are a global economy: Since the internet and global supply chains and global service providers allow us to sell our products and services anywhere in the world, then take advantage of this fact.  Stolle suggest that you find a market that is healthier than the US and Europe and determine if you can sell at or below our current market costs.  If so, then do so.

 

10.   Reject the urge to merge:  In the current economy, the chances are both companies will fail.  Two struggling companies seldom create one strong enterprise.

Stolle’s concluding remarks are right on point and I couldn’t say them better.  He concludes by saying:

“Whether all, or just some, of the above apply to you, to make it through these “interesting times”, you must a) be very sober and realistic about valuations if you must raise capital, b) treat every dollar as if it’s your last to avoid having to raise more capital, and c) lead, lead, lead!

Lead with a vision of how your company will be a winner despite the tough times; lead with a plan that will deliver on that vision and is credible and inspires trust and confidence; lead with execution from the front (as in constantly in front of customers and employees), hammering the vision, the plan for success, and the results.”

 

 

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Richard Adhikari reports for Internetnews.com on a recent Forrester Research report addressing the strategies of CRM Vendors entitled Social Networks Among Trends in CRM for 2009.  The Forrester report discusses the difficulty in these tough economic times of obtaining funding for new CRM projects.  New customers are harder to come by and so one approach for 2009 will be to create customer loyalty in an effort to avert attrition and thereby at the very least maintain revenue for 2009.  CRM Vendors will direct their efforts on adding value to existing applications.  One way to do this is targeted offerings that will incorporate CRM into existing ERP and SCM systems.  These new solutions will utilize the existing systems to provide enhanced customer facing applications.  Forrester also sees the Salesforce.com model of incorporating Social Networking capabilities into its CRM offerings as yet another approach.

On the flip side of this equation, the enterprises will be looking for specific enhancements in their CRM applications in order to justify future projects.  As discussed in Forrester’s report, Customer Data Management seems to be the biggest area for improvement.  The enterprises will also be exploring SOA and SaaS licensing models as alternative means of obtaining value and keeping costs down.

 

 

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Bahan Sadegh, CEO and co-founder of NETtime Solutions and a veteran of the on-demand software industry, has written an article with the SMB Customer in mind.  Sadegh has created a list of questions for the SMB to consider before choosing its SaaS Vendor entitled 10 Questions To Ask A Potential SaaS Vendor.  His list is very informative and it would be wise to keep handy when considering which SaaS Vendor to select.  I cannot attest to the fact that this is an inclusive list, but I will tell you that his discussion of the points he has identified gives the reader enough information to perform their due diligence and ask more questions and there really are more than 10 points to know if one includes all the “sub-points” Sadegh includes.  I will try to provide a brief synopsis of his 10 Questions below:

1.     Billing should be pay-as-you-go: We all know there is a business cycle and your invoice should reflect this cycle.  Also, there should never be any maintenance fee on your invoice.

 

2.     Security:  Sadegh has a very good list of questions to ask in this very important area.  Instead of trying to paraphrase his words, I think it best to directly quote him on this matter:

“Ask your potential SaaS vendor:

-       Does the data center that is housing the servers have physical security 24/7?

 

-       Is the perimeter of the data center secured (do guards walk the perimeter at least once per 24 hours)?

 

-       Who has permission to the access these servers (only internal employees or do contractors also have access)?

 

-       Is there a log that captures who came in and when they left? If so then how often are those logs audited?

 

-       Does the application use industry standard 128-bit encryption?

 

-       If multiple customers are housed on the same server then are they logically/physically separated to ensure your data is not viewed by unauthorized eyes?

 

-       Has the staff of the SaaS vendor who has access to your data gone through a criminal background check? It’s important to know whether or not convicted felons have access to your sensitive personal data.

 

-       Does the vendor have a formal BCP (Business Continuity Plan)? Is the vendor willing to share it with you and does it satisfy your concerns?”

 

 

3.     Solution must be web based:  There should be no requirement to install an application on any computer.     Also any SaaS application should be able to run on any platform and any browser.  In the event of a computer crash, you must have access to your application.

 

4.     An experienced vendor:  Make sure the vendor has experience in hosting.  A vendor experienced in hosting has already addressed such issues as scalability and security and is not merely repackaging their application as SaaS. (NOTE:  See point 8 below regarding MSP’s).

 

5.     Upgrades should be automatic:  You want to be on the latest version and have the most current functionality.  There should be no need to retrain your users.  The upgrades should be seamless.

 

6.     Integration:  You should have the ability to transfer between the web based applications and any on-premise applications.

 

7.     Data must be backed up regularly:  Nightly onsite back-ups and weekly offsite back-ups should be the minimum.  Does the vendor test how to restore their database?

 

8.     Who is hosting the solution:  Is this an in-house hosting arrangement or has the SaaS vendor contracted out with a Managed Service Provider (“MSP”)?  Get a SAS 70 report and verify that in the data center every system has at least one independent backup to ensure availability in the event of system failure; this is known as N+1 configuration.

 

9.     Scalabilty:  Can the SaaS vendor grow as your company grows?  Ask about their largest customer and ask them about their plans for growth.

 

10.  Is the SaaS system monitored:  An easily overlooked question.  Do they have monitoring software and do they test their firewalls?

 

Sadegh concludes his checklist by suggesting that the SaaS Customer perform a bi-annual review of their service with the above checklist in mind.

 

 

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The SaaS story remains the same, but now the approach must shift.  SaaS is cheaper to implement and the enterprise can avoid the upfront capital expenditures for hardware.  Since it is a service, the pricing is based on per seat use and so there is no initial cash outlay for the software suite.  You pay for what you use.  In this current economic crisis enterprises are ripe for a way to lower costs and so the approach the SaaS vendor should take needs to adjust to the times and the SaaS vendor must highlight the advantages in their marketing approach.  Demian Entrekin, founder and Chief Technology Officer of Innotas, has written an Op Ed piece for SandHill entitled 10 Predictions for Software as a Service.  In it he cites a Gartner study that predicts the $6.4 billion in SaaS sales for 2008 will grow to over $14.8 billion by 2012.  In his article Entrekin discusses the 10 key trends that the SaaS vendor should consider in order to expand their market share by encouraging acceptance of their application.  I will provide a brief synopsis of these trends below, but I strongly suggest his article to my readers for the full story.

10 Key Trends to Growth and Acceptance:

1.     Sell the product features:  Abandon the traditional approach of selling the whole product and emphasis the individual product features that address the individual business processes desired.

 

2.     The application is seamless:  SaaS is not restricted to the enterprise and more directed toward user networks.  This should lead to easier adoption.

 

3.     Have an Elevator Speech:  Just when marketing yourself for a job, one needs to be able to sell oneself in the first few moments of the interview, Entrekin suggests the SaaS Vendor be able to demonstrate added value in the first minutes of meeting the prospect.

 

4.     A Deming Approach:  W. Edwards Deming would emphasis “the ability to support a reliable, scale-able service at a low cost.”

 

5.     Emphasis Tier 1 Support:  Stress the capability of your Tier 1 Support and suggest the enterprise eschew the need for high priced consultants to answer what become high priced questions.

 

6.     Product Alliances are key to growth:  Make alliances with other SaaS vendors as a means to growing market share.

 

7.     Video rules the day:  Use video for training and support.  It is cheaper and much more interesting than the traditional text tools.

 

8.     Consider a full service Hosting Provider:  This is the point of most interest to me.  Entrekin points out that the SaaS Vendor obtains the same leverage from an outsourcer that they provide to their own customers.  This has the added benefit of leading to aggregation of applications and partnerships.

 

9.     Grid Computing:  SaaS vendors should build their applications so they are “cloud compatible”.  It remains to be seen if grid computing becomes cost efficient, but the SaaS vendor should be ready to take advantage if such is the case.

 

10.  Your approach can shift from the technology hurdles to a marketing strategy: Entrekin believes the hurdles getting the application to market are slowly but surely being overcome and now is the time to shift to a viable marketing strategy.

 

 

 

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Due to the differences between traditional “on premise” software licensing and the newer software as a service (“SaaS”) offering, there were bound to be required adjustments on how the software customer contracted for these services.  We owe a debt of gratitude to Gene Landy with the law firm of Ruberto, Israel & Weiner, P.C. in Boston, MA.   Landy has put together a list of 8 items in his article 8 Legal Tips for SaaS Vendors that should be considered by the SaaS Vendor while developing their SaaS offering.  Including some or all of these tips in your contract may be a smart decision.  Here is a brief summary of those legal tips:

1.     Look for restrictions in your own software licenses:  As you develop your offering, do your licenses prohibit use as a service bureau or are there restrictions on remote access or use as an Application Service Provider.  You wouldn’t want your SaaS application to be in violation of any of these restrictions.

 

2.     Has your contract model evolved:  Initially the SaaS offering came in a 2 part form - first a software license and then a hosting agreement.  Today the more common contract model is to view this as a subscription and not mention licensing in the agreement.

 

3.     The Tax Man:  Your customers may be interested to know that most states do not levy a tax on services as they do for the sale of a license.

 

4.     Trials:  The SaaS Vendor could include a trial period bundled into the subscription agreement.

 

5.     Required upgrades limit the SaaS vendor’s maintenance costs:  Require customers to upgrade and eliminate having to maintain prior releases.

 

6.     Security:  It is fine to tout your security measures, but never promise 100% guaranteed data protection.  This is IT after all and you are using the internet.

 

7.     Consider SAS 70 as a selling feature:  You can provide your customers with an extra level of comfort and some of your customers may actually require a SAS 70 certification.  This is a certification performed by an outside accounting firm which attests to the accuracy and security a vendor provides.  The certification states that the controls are adequate.

 

8.     Data Breach Notification:  In the event of a data breach most states require a notification be sent out to the subjects of such a breach.  Make sure that your customers do not attempt to place such obligation upon you.  The costs could be prohibitive.

This is by no means an inclusive list, but Landy has hit some key issues. I found it very informative and helpful.

 

 

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Software vendors can increase their revenues during this prolonged recession.  How do these vendors make lemonade out of this lemon of a global economy?  They must look to their installed customer base.  Mike Smerklo, President & CEO of ServiceSource, has written an OpEd piece for SandHill entitled Delivering Predictable Revenue Streams.  ServiceSource is in the Service Performance Management business which aims to increase their clients’ service revenues by increasing the number of customers on maintenance and increasing the dollars spent on maintenance.

In economic downturns, such as we are now experiencing, customers defer new product purchases.  Although this is not a positive for software sales, it does increase the value that can be placed on enhanced maintenance and support services.  Software companies must continue to invest for the next generation of products, but enhanced maintenance today can drive revenue and provide the reliability that customers need.

Smerklo cites a Gartner study that the potential market for maintenance and support is over $180 billion annually and that only $150 billion is spent on maintenance every year.  It is easy to see that there is another $30 billion in potential maintenance and support not being tapped.  He increases our lexicon from the more familiar term “market share” to a new term he labels “service share”.  This is the total maintenance revenues available from the installed base.  And he lays out for us a complete 4 part service management strategy as follows:

1.     Technology Platform:  The vendor’s CRM must measure transaction data on the maintenance side down to the granular level.

2.     Business intelligence:  The analytical capabilities of the vendor must be able to show what the customers are buying and why some are saying no.

3.     Customer contact:  Must have the ability to help the customer extract the most out of their solutions.  This will enhance the relationship and could pay dividends down the road on renewals and purchases of new product.

4.     Benchmark against the competition:  Need to know your specific service metrics in comparison to the industry overall.

The Service Performance Management alternatives are as follows:

1.     Do Nothing:  All focus on product revenue and market share can come back to bite you especially on renewals.

2.     Build your own service management platform:  This could be costly.

3.     Partner with a Service Management Performance provider:  They have the expertise and the capabilities to manage on a global basis.

 

 

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Global stock markets are falling.  The price of a barrel of oil broke the $70/barrel mark on its way to $60 and maybe $50.  The $700 billion bailout (or rescue) package of Wall Street hasn’t seemed to take hold.  The Fed has opened up its discount window to all sorts of entities.  And yet amid all the financial tumult, Gartner sees IT spending for the coming year as slowing, but not stopping.

Richard Adhikari reports for Internet.News.com from the Gartner Symposium/ITxpo in Orlando, Florida in his article entitled Gartner: IT Spending Will Grow, Just Slowly.  He quotes Gartner’s global head of research, Peter Sondergaard:

"In a worst-case scenario, our research indicates an IT spending increase of 2.3 percent in 2009, down from our earlier projection of 5.8 percent"

What makes Sondergaard so sure the growth, albeit slowed, will continue into 2009?  He cites three factors:

·         There is usually a 2 quarter lag in decreases in IT spending vis-à-vis the economy.

·         The shift to a multi-year approach to IT projects makes a cut implausible.

·         Top management’s realization that IT can help transform their business.

Sondergaard sees developing countries worst hit, with Europe posting negative growth, and the US and Japan as flat for 2009.

It seems that the need for IT will be a stabilizing factor in these turbulent times.  AFCOM is an association which is related to the datacenter industry.  Their study supports Gartner’s conclusion that IT spending will hold and might even increase in 2009.  Why?  Well, if the data center goes down, the whole business might go as well.  Read the whole story Datacenter Dollars Seen as Steady Spend.  The salient points in the datacenter industry to keep in mind for 2009 are these:

·         The downturn in the economy will spur a major growth in greening efforts because they have a payoff in savings.

·         The impact of datacenter budget cuts will reduce overall efficiency of operations in the entire company. When budgets are cut, new technologies don't come into play. Firms need to expand or adopt new technologies and won't be able to.

·         The downturn may spur increases in purchases when companies realize increases in their datacenter's effectiveness affects their company's survival.

·         A company's ability to survive in this economy is more than ever before dependent on the datacenter's performance.

 

 

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I recommend an Economist Intelligence Report entitled IT Excellence: Achieving Optimised Business Outcomes.  This whitepaper begins with the premise that “IT departments are increasingly being called upon to define and pursue excellence”.  The consensus seems to be that IT’s role has evolved to one of a business partner that must align itself with the company’s overall business objectives.  The editorial board of the Economist Intelligence Report put together this report based on in-depth interviews conducted with Dow Corning CIO, Abbe Mulders, and Applied Materials CIO, Ron Kifer.  It is interesting to see how both individuals recognize the pervasive nature of IT in their organizations and their commitment to realizing the most from their departments.  Each has an interesting approach.  I’ll briefly summarize below:

 

Dow Corning:

 

Mulders has embraced the Six Sigma (defined) statistical approach with its continuous improvement toward defined goals.  Business units within the company collaborate and produce a future strategic plan which includes IT as a full partner.  The senior executives of the functional business units along with senior IT executives hold quarterly meetings to review and adjust priorities.  This collaborative approach allows the participants a view into the infrastructure, allowing for more effective decision-making, investment and execution of their 5 year strategic business plan.  The Six Sigma approach requires some kind of return.  Mulders’ teams focus not only on the progress but also on the quality of those returns and reports an 80% achievment of targets 12 months after an implementation.

 

Applied Materials:

 

Applied Materials is a leader in nanomanufacturing technology and produces semiconductor chips, flat panels, solar arrays, and energy-efficient glass.  Ron Kifer’s approach to IT excellence starts with the premise that IT not only enables business strategies, but must take a leadership role in such business processes.  Kifer maintains that in order to compete in the global market each business functional area must be able to support all others.  This is what he calls “cross-functional support”.  He believes the pursuit of IT excellence optimizes the other business functions.  He looks at core competencies to get the most effective results.  He believes he has accomplished this through the outsourcing of major components of his IT infrastructure.  In order to make the most out of this approach Kifer explained that vendor management became a priority for the company and they needed to “reorganise and develop skills in negotiation and management of vendor relations”.

 

 

This whitepaper report also includes a Q&A with each CIO.  It’s interesting reading.

 

 

 

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Yes, the rumors are true.  I have left the world of “cool” and entered the world of “White Papers”.  It really isn’t that bad.  In fact in my research I have found a very interesting White Paper by Cindy Jutras, Vice President and Service Director, Manufacturing Research, for the Aberdeen Group, Inc.  Jutras’ paper is entitled Best Practices in Extending ERP: A Buyer’s Guide to ERP versus Best Of Breed Decisions.  Admittedly her report was published in November 2006, but it is a factual view of where the ERP industry was at that point in time and a prescient summary of where it was about to go.  It is a must read for those involved in the ERP industry and I highly recommend it to my readers.

 

The gist of the report is the emerging approach of today’s Enterprise’s desire to derive more for their dollar from their ERP implementation and deciding whether to stay with the core functionality of the ERP solution or augment this functionality with “pure play” or “Best of Breed” software vendors.  This decision is becoming more complicated due to the acquisitions of these smaller Best of Breed vendors by the larger ERP giants.  This 2006 report foresaw the consolidation in the market and what affects it would have on the companies caught in the middle.  See also What’s Next for ERP in 2008; and, The 7 Trends for ERP in 2008; and, What Customers Want from their Software Vendors; and also, SAP’s Business Objects Partnership with Oco.

 

Jutras identifies the three “Key Business Value Findings” for the enterprise deciding whether to go solely ERP or Best of Breed.  These three factors are:

 

• Functionality
• Integration
• Ease of upgrading to new releases

 

Her report includes very descriptive and easy to understand tables and figures such as:

 

• Levels of integration
• ERP module adoption rates
• Adoption rates of ERP extensions

 

At the top of each of her four chapters is a “Key Takeaway” section in bullet points.  This is extremely helpful to the reader.  It helps direct your attention to the salient points and provides a fast and easy way to return to a chapter and refresh one’s recollection.

 

For all those involved in the industry this is a report you should keep handy.  It definitely helps bring the whole recent picture into clear view.

 

 

 

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It is important to note that Oracle does not have the familiar 12/31 year end, but rather a 5/31 fiscal year end.  Ahead of their conference “Oracle OpenWorld 2008” held in San Francisco this year, Oracle released a wave of glowing financial successes for its first quarter for 2009.

·         Net Income increased 28% to $1.1 Billion

·         Revenues increased 18% to $5.3 Billion

The second quarter is more in question.

·         Non-GAAP revenues could fluctuate anywhere between a 12-15% increase or drop as low as only a 9% increase due to currency fluctuations

·         Non-GAAP EPS should be around 26¢ due to earnings split between higher and lower tax jurisdictions.

The forecast for new software license revenues are also susceptible to the fluctuating currency markets with estimates at 5% - 15% without fluctuations and 2% to 12% if fluctuations are taken into account.  Kenneth Chin, and analyst for Gartner, focused on this broad range and stated:

"Foreign currency had a plus seven percent impact on earnings this quarter, and they see a minus three percent impact for the next quarter, which can be fairly significant.  There's nothing to say that, if the dollar moves more quickly and becomes stronger, that the negative impact wouldn't hit five percent or more."

Fifty percent (50%) of Oracle’s business is license revenue and maintenance fees.  The fastest growing part of their business is middleware.  Larry Ellison, Oracle CEO, is confident that they have or soon will replace IBM in this market space.  For a more complete commentary on the second quarter’s outlook and beyond see Richard Adhikari’s article Oracle Sees Tougher Days Ahead. 

With a broader portfolio of software products to bring to the market the emphasis this week at the San Francisco conference will be on the $8.5 billion purchase of BEA.  The BEA middleware products “are key to Oracle's service oriented architecture (“SOA”) strategy.”

Oracle’s next major release will be 11g, expected by the end of the 2009 fiscal year.  BEA will be an integral part of its latest Web and SOA platforms release. 

Also of note is Oracle’s Green Program and its virtualization initiative.  To read the details on the tremendous increase in savings on these two programs and the Integration of the BEA software products into Oracle’s latest offerings see Oracle's Big Show will be BEA's Coming Out Party.

  

 

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Richard Adhikari reports in InternetNews.com that SAP plans to move aggressively forward with its SaaS offering, Business ByDesign, and is targeting the SMB customer in his article SAP to Innovate Heavily in SMB On-Demand Suite - updated - Business intelligence to pervade enterprise software giant's forthcoming products.  It appears from some of the comments quoted from the SAP executive suite that the word “aggressive” is only the tip of the iceberg:

Henning Kagermann, co-CEO stated:

“When you come to challenging times, you have to take risks. Business ByDesign is not just about product, we also want to focus on profitability, and in the volume business you have to do a lot of innovation to make the business profitable”

Jim Snabe, head of SAP's business solutions and technology, stated further:

“You can look at it from two angles. One is how to convert money into ideas; the other is how to convert ideas into money”

In addition to the predicted new innovation of this SaaS offering which includes CRM, SAP will integrate its Business Intelligence (“BI”) technology into the business suite as a direct result of its purchase of Business Objects last year.  This will bring the analytics portion into the new offering.  Customers will be able to analyze their historical projections as well as future projections.

So when should we expect this new business suite to be rolled out.  SAP says to look for it by next year.  Just exactly when next year isn’t quite clear.

In related SAP news:  In a move to emphasize its focus on profitability and a bid to match the pricing of Oracle, its chief competitor, SAP customers are none-too-happy with the recent price increase for its enhanced maintenance “Enterprise Support”.  For the full story see SAP CEO Defends Price Hikes as Customers Gripe - In its drive to become more profitable, has the enterprise software vendor stirred up a hornet's nest?  Kagermann defended his company’s actions by stating:

"We're offering a new service which is much larger than before, has a certain value and a certain price. The cost for us is higher, and so we believe it's a fair price."

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Kathleen Goolsby, a writer for Sandhill.com, has posted a very interesting piece of her interview with C.K. Prahalad entitled C.K. Prahalad on the New Age of Innovation.  Prahalad is a noted author and current Distinguished Professor at the University of Michigan specializing in corporate strategy.  Prahalad’s new book, The New Age of Innovation, is prescient and lays out his vision of a new business model and how IT and the influence of consumers will shape the enterprise’s approach to competitiveness in the future.  Her article is not the typical interview peppered with questions that break up the flow of thought.  She deftly asks the right leading questions and allows the author to expound on his thoughts and ideas.

The interview begins with Prahalad laying out his vision for the future of competitiveness in the coming decade.  He has identified 4 trends that are converging in a way that will change the way we think about value creation. These 4 trends are:

• Connectivity: This is the foundation of the coming shift in the paradigm, be it through PC’s or cell phones.
• The Cost of digitization is declining and so deployment across borders becomes more attainable.
• The convergence of technologies: “Is your cell phone a telephone, a computer, a camera, a watch or all of the above?”
• The emergence of social networks.

Next Prahalad explains that there has been a shift in the balance of power between the company and the consumer.  It is the consumer who has as much, and in some cases, more power than the enterprise.  The enterprise of the future will not need to own the resources, but rather have access to a myriad of resources from around the globe.  Each consumer is unique and each consumer decides his or her content (i.e. “co-creation of a personalized experience”).

“Co-creation means two joint problem-solvers: the company and me. And it is about experience, not about products. So we have a co-created, virtualized experience real value instead of a product-centric real value.”

He explains that this is not a supply chain sequenced approach.  There is no pre-positioning of activities.  The enterprise must have access to many vendors in numerous locations in order to fulfill the unique customer request.

Goolsby asks the author to give concrete examples of how this new business model is working today.  I must admit that Prahalad details some excellent examples.  However, when I read the article I noticed one thing that was conspicuously missing.  His business examples all dealt with services.  His first example describes how a health insurance company is now able to insure people in high-risk categories with chronic conditions that require expensive medication on a continual basis.  His second example dealt with how a fleet management company of helicopters, jets, and other modes of transportation, with numerous customers requiring various services was able to cut its costs.  But what about manufacturing?  Won’t there still be a need for supply chain management with a predetermined sequence or positioning of activities and vendors.  I’m sure that the non-service industries will also be able to benefit from the 4 trends identified above, but I am not exactly sure how they fit into his new business model.

Prahalad goes on to say that enterprises must rethink their approach and realize that IT becomes a strategic asset.  Every company will be able to differentiate itself because now they will be dealing with personalized consumer experiences and not a commoditized product.

Finally, Prahalad puts forth the premise that enterprises will have to become consumer-centric global businesses and our IT systems must move to become citizen-centric public services.  I will tell you this; he had me until I came to this last part about consumer-centric and citizen-centric.  I began to think about “One World Order” and thoughts of all of us wearing that same gray Mao suit.  When he got to the point of stating his vision of “a platform as an ecosystem of large and small companies working together to common shared standards”, he lost me.  For me I began to view his discussion not in terms of IT and innovation, but rather as a quasi-political statement.  Maybe it is the coming election and my mind jumped from business to politics, but it just didn’t sit right with me.
 

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I have reported on several new technologies as they have entered the market, such as SaaS and SOA, and also the newest devices powered by the latest applications.  Jim Hemmer, an experienced CEO in the hi-tech and communications industries, brings this altogether in his cutting-edge Op-Ed for SandHill.com entitled The Mobile Bang Theory.  I highly recommend this article to my readers and it is a must read for the IT managers trying to get a handle on the security and control issues that mobile computing presents.  Hemmer begins his article by announcing the new shift in the archetype and identifying its 3 components:

“a mobile renaissance is afoot as a result of more powerful devices, faster wireless networks and broader use and acceptance of Web services and SOA”

Hemmer’s insight begins by recognizing the catalyst for enterprise mobility.  He labels this the “outside-in demand” phenomenon.  Consumer’s personal use of mobile services on mobile devices has forced enterprises to rethink their approach.  With this new approach come the challenges of providing access to the data and applications so the employee/user can optimize their efficiency.

For the enterprise the competitive advantage comes from the ability of the mobile user being able to enter data once into a mobile device which results in not one response but puts in motion a multitude of real-time business processes.  Hemmer identifies the trends in mobile computing and how the applications perform.  He then provides some real-life examples of how this approach works and the higher returns the innovative enterprises have experienced.

Hemmer’s advice to the IT managers is to develop a mobile strategy that supports multiple devices and multiple solutions.  The old siloed approach does not fit into this model. Its inflexibility is too costly.  He puts it succinctly by stating:

“The real game-changer is to mobilize diverse business processes, applications and data from a variety of internal and external sources — from one unified, cohesive platform.”

 

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Richard Adhikari reports on a recent summit of SaaS executives in his article Are Changes Coming in the SaaS World?  The direction the industry should take was discussed but with little consensus.  It seems that those assembled see the huge potential in acceptance of SaaS by the large global enterprises, but no one can quite figure out how to break through the barriers.  Adhikari has done an excellent job of presenting the plethora of diverging views on why or why not the SaaS vendors should target the large enterprise market and how to go about doing it.  I am not privy to their marketing research nor have I suffered the trials and tribulations that some of the participants relate.  It just seems to me that sometimes it might be best to let the sleeping giants sleep.  Will these large enterprises come on board sooner or later?  Adhikari cites Maynard Webb, CEO of virtual call center company LiveOps who states:

It's a vicious circle: SaaS vendors can't sell to the enterprise because they haven't solved many of the concerns IT has with on demand software, so they don't try.  Most SaaS vendors target the SMB market, while the rest aim "at niches in the enterprise such as human resources"

What becomes apparent when reading Adhikari’s article is that there isn’t just one reason for the reticence of large enterprises to accept the SaaS model.

In my research in this area I have come across varied opinions and insight into just what exactly SaaS is and who should take advantage of it.  In my February 10, 2008 posting to this Blog SaaS is the Future software developers were scrambling to meet the demands of their market.  At that point their market was the SMB enterprise.

A further explanation as to the non-universal acceptance of SaaS can be gleaned from an insightful comment by Sybase CEO John Chen:

“ … 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.”  For the full story and an interesting perspective see my May 1, 2008 posting What Customers Want from their Software Vendors.

Of course there also is the other side of the coin.  The SaaS software developers themselves have their own internal hurdles to surmount.  In my June 1, 2008 posting Growing Pains of OnDemand I highlight one of the problems of managing a subscription business:

“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.”

Perhaps it is best summed up in Adhikari’s article by Lisa Lambert, managing director of the software & solutions group at Intel Capital:

Intel's Lambert thinks the notion of selling to the enterprise is a red herring.  "I don't think it's a question of enterprises not being ready to buy SaaS, it's that it makes more sense for small businesses to buy SaaS.  The value proposition of SaaS really appeals to small businesses, which were excluded from being able to buy legitimate software infrastructure that's enterprise ready because they couldn't afford it, it was too expensive and complex, and had long implementation cycles."

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Business Objects, an SAP Company, continues its strategy of partnering with innovative companies offering Business Intelligence (“BI”) in a SaaS approach with the blessing of its parent, SAP. Its latest association is with Oco. Although both companies are players in the SMB space and both offer BI in the SaaS mode, Oco is a much smaller company. Oco’s competitive advantage comes from its development of templates for various vertical niche markets such as analytical tools and reports in the retail, industrial manufacturing, and consumer packaged goods industries. This collaboration suits both companies. SAP furthers its desire to make its products work with other vendors’ products and Oco gains an entrée to the larger SMB customer that was not previously available to them.

The BI marketplace has become extremely competitive. The main distinguishing factor for vendors in this market is to provide the products that give the enterprise the ability to make decisions faster. Business Objects’ SaaS offering, Business OnDemand, provides a fast and accurate solution. Now with the added advantage of Oco’s data discovery and mapping tool, the solutions for the SMB will come faster and at a lower cost. These partners recognize that the much larger enterprises who want their intelligence customized might not be so receptive to the Oco data model. Richard Adhikari explains in his article Business Objects Teams Up With Oco the customer first accepts Oco’s data model and this data model then finds all the data in the enterprise and produces the BI in a low cost manner.

Adhikari cites Business Objects Vice President Mani Gill, who explains the enhanced OnDemand offering this way:

Oco will let us deliver hosted multi-source data warehouses in multiple industries and functional areas.

We use our enterprise information management tools to pull data from customers, host it ourselves and provide business intelligence on top.

For a fuller explanation see Adhikari’s article. He points out that the combination of these two vendors additionally benefits both by allowing Oco to become a reseller of Business Objects products and permitting Business Objects yet another opportunity to differentiate itself and gain a foothold in this market space.

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First I would like to define what we mean by Unified Communications (“UC”).  Unified Communications encompasses email, instant messaging, texting, phones, and other networking and mobility applications.  In short Unified Communications “ … lets users access people and resources, no matter the location or communication channel, spurring productivity and boosting business processes at an economical cost.”  For an in-depth discussion on this topic see UC Will Prove Challenging to Buyers And Sellers by Judy Mottl.

Initially SMB’s have found it a daunting task to try and pull all these various applications together into one cohesive platform.  The lack of funds and the lack of familiarity with these tools have hindered their move to UC.  The familiarity issue is evaporating as more people are using these communication tools in their non-work life and begin to demand these tools in the workplace.  For further discussion on the capabilities and uses of the newest wireless devices and the coming of the Mobile Web see the following posts in this blog:

• Blackberry Bold RIMs Next 3G High Speed Wireless Handset

• 4G and The Mobile Web: WiMAX v LTE

SaaS may be the way that SMB’s can overcome the budgetary constraints as well as the integration problems that have acted as a barrier for these enterprises.  SaaS provides a faster deployment and the right provider can pull all the telephony tools and applications together into one unified and interconnected unit.  Judy Mottl has written an excellent article that details in the ins and outs for those SMB’s considering this next step into UC.  In her article SaaS Best Path for SMB Unified Communications: Service strategy lets small companies enjoy technology benefits without the headaches she interviews Simon Edwards, UC project director, British Telecom (“BT”), who cautions not to get locked into one particular platform:

"SMBs have to make sure they stick to an agnostic platform," said Edwards, adding that the best approach is an open standards platform that allows emerging technologies from different tool makers

Mottl concludes her article with a quote from Mat Taylor, a senior software architect with BT:

"The ability to get things done faster, get workers more engaged in business scenario, provide better customer service, are all big productivity wins that benefit the bottom line"

For more on the coming of age of handheld devices for the UC revolution see the following posts in this blog:

• Future of Wireless Devices

• SAP Sapphire 2008

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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:

• 
  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?
  
• 
  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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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.
• 
  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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Before we discuss the enforceability (or lack thereof) of such agreements, it is probably best that we at least define our terms so we all know exactly what type of agreement we will be examining. Wikipedia has the following definition:

A clickwrap agreement (also known as a "clickthrough" agreement or clickwrap license) is a common type of agreement (often used in connection with software licenses). Such forms of agreement are mostly found on the Internet, as part of the installation process of many software packages, or in other circumstances where agreement is sought using electronic media. The name "clickwrap" came from the use of "shrink wrap contracts" in boxed software purchases, which "contain a notice that by tearing open the shrinkwrap, the user assents to the software terms enclosed within".

Click-wrap is the electronic equivalent of the shrink-wrap method which allows users to read the terms of the agreement before accepting them.

The content and form of clickwrap agreements vary widely. Most clickwrap agreements require the end user to manifest his or her assent by clicking an "ok" or "agree" button on a dialog box or pop-up window. A user indicates rejection by clicking cancel or closing the window. Upon rejection, the user can no longer use or purchase the product or service. Classically, such a take-it-or-leave-it contract was described as a "contract of adhesion, which is a contract that lacks bargaining power, forcing one party to be favored over the other". The terms of service or license do not always appear on the same webpage or window, but they are always accessible before acceptance.

As a contract negotiator by inclination, I have a natural aversion to such forms of agreements. Simply put, one cannot negotiate such agreements. I’m grateful that Wikipedia acknowledges that such forms of agreements in the past were called ‘contracts of adhesion’. Please note that in the past these types of agreements lacked the bargaining element; however these forms of agreements are evolving. The law has a term that may be applied to a vast number of these clickwrap agreements, Caveat Emptor, Buyer Beware.

Jason Haislmaier in his blog ThinkingOpen addresses the necessary elements for the ever-present “click-to-accept” contracts that many of us often face in his article How Do I Build an Enforceable Online Agreement? — Not (Always) the Way SalesForce.com or Google Would. I strongly recommend Haislmaier’s article. In it he discusses the American Bar Association’s Committee on Cyberspace Law and its year-long study regarding such agreements. Haislmaier discusses in depth the committee’s “bottom line” steps required in order to have an enforceable online agreement and adds some anecdotal evidence when online vendors might fall short of these steps. The four “bottom line” steps as espoused by the ABA’s Committee on Cyberspace Law are as follows:

1. The user must have adequate notice that the proposed terms exist;

2. The user must have a meaningful opportunity to review the terms;

3. The user must have adequate notice that taking a specified, optional action manifests assent to the terms; and

4. The user must, in fact, take that action.

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Now this is the kind of story that not only makes good business sense it also discusses the application of new technology to something most of us find exciting and can understand, “high-stakes” Baseball contracts. The Major League Baseball Players Association (“MLBPA”) has decided to assist player agents get faster and deeper access to statistics and comparative analysis for their contract negotiations with Owners and General Managers. The MLBPA will be using IBM's Cognos BI software to analyze, compare and project player stats, and chart individual players' progress over the course of this year’s baseball season.

Doyle Pryor, assistant general counsel of the MLBPA, released a statement reported by InternetNews.com in its article Baseball Gets a New Data Cleanup Hitter stating, “Our analysis of player performance is as complex and dynamic as the work of high-powered business analysts in Fortune 500 companies, and we need to use the same robust, flexible interface to achieve reliable results."   Joseph Pusztai, IBM Cognos' director of product marketing added, "Once the agents become comfortable with this, they'll be able to leverage the information for their clients in the best way. The ultimate goal is to come up with statistics that shows a player's success. For example, the common stats will show you home runs, but now they'll be able to see how many were hit in the late innings, when it tends to matter more."

 

Phil Taylor, senior writer for Sports Illustrated, commented that, "The stats help both the players and owners make their case during contract negotiations. If a player hits .285 for the year, but he can show that he hit .350 from the 7th inning on in tie games, that'll help his case." Such availability to these kinds of stats can be a double edge sword and be used by the Owners and General Managers to show weak hitting in the later innings as well.

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In my research for this Blog I came across an article that caught my eye. Jeffrey Gordon in his blog licensinghandbook.com posted an article entitled Becoming a better negotiator. Since part of my stated goal for this Blog is to discuss some of the nuances in the contract negotiation process, I felt Gordon’s article was a nice fit. His main advice to become a better negotiator is simply to go out and negotiate. Eventually one develops a style. Don’t be afraid of failure and learn from your mistakes. If I may be allowed to add a bit of fine tuning, I would also encourage one to learn from their colleagues and to ask as many questions of them as you need to become comfortable with the concepts and the eventual outcome of the negotiation. It is never wise, especially in a contract negotiation setting, to ‘fake it’. Ask as many questions as necessary of your opposing counsel during the process.  Your opposing counsel should understand that your goal in the negotiation is to protect your client and limit their risk. If they don’t understand your purpose and take a more adversarial approach to your questioning, do not be intimidated. Such a posture could actually be a negotiation strategy on their part. 

I chose to discuss Jeff Gordon’s article because he includes the results of a study by the US Olympic Committee entitled Reflections on Success. The Top 10 Success Factors for Olympic Athletes from this study are listed below. I found the results of this study particularly interesting, since the number one success factor is something which I wholeheartedly agree. Persistence is the key to success. If any of you have read my case studies which I have included in this Blog, you will see that persistence in the negotiation process is what I strongly urge for my readers. Although I could never be considered an Olympic Athlete by any stretch of the imagination, I do take some comfort in the US Olympic Committee’s validation on this one point.

 

Top 10 Success Factors

1. Dedication and Persistence: 58.1%

2. Support of Family and Friends: 52.0%

3. Excellent coaches: 49.4%

4. Love of sport: 27.1%

5. Excellent training programs and facilities: 22.3%

6. Natural talent: 21.9%

7. Competitiveness: 15%

8. Focus: 13%

9. Work ethic: 11.6%

10. Financial support: 11.5%

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IDC is a global provider of market intelligence and advisory services to the High-Tech marketplace and assists CIO’s and others to make informed decisions on technology purchases and business strategy. You can learn more about IDC by visiting their homepage. IDC held their annual Direction’s conference this week in San Jose, California and their main topic for discussion was the affect the economic slowdown, real or perceived, will have on this year’s IT budgets.


The conference compared this year’s downturn to the last major downturn faced by the industry in 2001 – 2002 and found significant differences. Where the last major economic mess was mainly a business-led crisis due to the over valuation of many dot.com start-ups exacerbated by the terrorist attacks of 9-11, this new economic down turned is basically due to overzealous consumers saddling themselves with mortgages they couldn't afford and affects one sector, the financial services industry.


The collapse of the housing market spread over several geographical areas should not have a direct impact on global enterprises decisions to proceed with their planned purchases of IT. With this in mind, the growth in IT spending for the US and Western Europe will probably be reigned in to 4% growth, half of the 8% growth in IT budgets for 2007, while the BRIC countries should continue in their IT spending unabated with a 10% to 20% growth rate over last year.


Andy Patrizio reports from the conference in his article Which IT Sectors Will Weather a Financial Storm? He includes in his article the following observation:


The hardware most likely to be affected by a reduction in spending, not surprisingly, is PCs, followed by mobile devices -- smart phones in particular. Storage is least likely to be cut, followed by networking hardware.


Software reductions are also anticipated, but at a much slower rate than hardware. Office and operating systems are most likely to get the chop (bad news for Microsoft), while security and compliance software is least likely to be cut.

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SAP took the opportunity at CeBIT 2008, the world leading technology fair, to announce its latest partnership which builds upon SAP’s Business All-in-One solution. SAP has teamed with Intel and will be offering a landmark product on Intel Xeon-based systems via original equipment manufacturers (OEM) and hardware system providers based on SUSE Linux Enterprise from Novell and the database SAP MaxDB. Hardware offerings pre-installed with SAP software is landmark to say the least. The intended benefit for the SME market is a reduction in the Total Cost of Ownership of their IT systems. SAP stated in its announcement:

“The offering targets midsize companies in the manufacturing, service and trade industries and directly addresses the demands in these market segments for quick and easy implementation, and tailored yet scalable solutions at predictable costs."

Ray Boggs, VP of small and medium business research IDC, noted that having the alignment of hardware and software will give customers what they have been looking to do, “reconcile the somewhat contradictory goals of a solution designed to meet their individual needs but in an almost pre-configured fashion to minimize time and cost." SAP plans to continue with this strategy of partnering with hardware vendors to directly address the needs for TCO for its SME customers. For a more comprehensive description of this announcement see SAP and Intel Collaborate to Offer Pre-Installed Business Solutions for Midsize Companies Optimized for Quad Core Intel(R) Xeon(R) Processors.

Of course on the surface this hardware with pre-installed SAP software approach seems to be a winner. Even below the surface it is hard to find fault with this methodology. But I am a simple man. When I see the words “Xeon Processor”, “SUSE Linux”, and “database” in the same sentence my eyes begin to glaze over. I might have a talent for spotting an ambiguous phrase or two in a software license or consulting agreement and perhaps the ability to offer a revision to it to bring the language to a more equitable point of view. However, I wonder if it is reasonable to ponder this new approach from SAP from a slightly different perspective. I almost get the feeling as the Portuguese explorers must have had during their successive voyages down the coast of Africa in search of the riches that lay ahead in the Far East. These aren’t entirely unchartered waters, but one cannot be quite sure what lies ahead. Others, such as Microsoft, have gone down this course before. I have to wonder what obstacles may present themselves in the future. The usual suspects are ubiquitous, (confidentiality, ownership, infringement, anti-trust). I am sure that the right people at SAP and Intel have considered these issues and more and are fully prepared. The cost of doing business is a fascinating journey.

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Byron Deeter, Partner with Bessemer Venture Partners, a founding CEO of one SaaS business and a board member of three other pure-play SaaS companies, has firsthand experience with the on-demand model and is well-qualified to state that CEO’s of pure-play SaaS companies need to change their paradigm.  When one lacks a role-model and cannot find a neatly put together list of best practices, the skillful CEO pulls together his own rule book. Deeter and his team studied both hybrid and pure-play SaaS companies and developed their own list of best practices for the on-demand model. Veteran software CEO’s might want to heed his advice and shift their paradigm. I strongly urge my readers to read Deeter’s article Bessemer’s Top 10 Laws for Being “SaaS-y”. I’ll try to summarize below his ten “laws” for running a successful SaaS business.

1.     Cash is King (i.e. Contracted Monthly Recurring Revenue or “CMRR”): The old model that would value a longer deal with slightly less CMRR over a short term deal with a larger CMRR is out. The new model recognizes the likelihood that renewals will make up the difference. The need for working capital in the SaaS model emphasizes the importance of “customer churn” on this first rule. “The top performing SaaS companies typically achieve annual renewals on a customer count basis above 90% (much of which is often due to bankruptcies, acquisitions, and other events beyond the company’s control), and over 100% renewals on a dollar value basis due to up-sells into this installed base.”

2.     Sales Learning Curve – don’t ramp up your efforts too quickly: Refine your sales model and as it grows think in terms of CMRR.

3.     Once the Sales Learning Curve peaks begin to hire more renewal orientated account managers. These new account managers should be compensated on customer service, renewals, and upsells.

4.     Sell Directly – Channel relationships are unattractive. Without systems integration work nor the need to require huge hardware purchases or vast amounts of software licenses, the old Channel partnership model is not appealing. A new generation of partners and resellers will develop.

5.     Don’t rush to go global - Hold on Europe and save Asia for later. More barriers exist such as service level expectations, data access, and security. Don’t weigh down your company with the costs. Develop a strategy where Europe and Asia will come online as you become a public company.

6.     One datacenter: Studies show one datacenter is sufficient. No need to take on the costs and organizational complexity, at least until your company is public. Invest in backup and disaster recovery.

7.     Design a SaaS product that is single instance and multi-tenant. Multi-instance and single tenant does not apply to this model.

8.     Online marketing is a core competence – Your sales prospects are online. Leverage search engine optimization.

9.     Cash flow is critical due to low monthly subscriptions and so financial management is key. Weigh investments carefully and structure them in a way to allow future CMRR to produce measureable amounts.

10. Have enough investment capital to last at least 4 years. It takes a while to get to breakeven. The SaaS model takes a lot of R&D and sales expense on the front end.

I particularly like Deeter’s eleventh rule. Oh, did I say there were only ten? Here is number 11:

 You can ignore one of the above 10 rules. But only one. Deeter recognizes that there are no absolutes and welcomes a refinement when needed. However, his studies show successful SaaS companies stayed very close to the above best practices.

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EU Competition Commissioner Neelie Kroes remarked, “Talk is cheap. Flouting the rules is expensive”, after the EU announced the largest fine against a single company in EU history. This latest action brings the total fines levied against Microsoft in its lengthy antitrust dispute with the EU to $2.5 billion. The record breaking fine stems from Microsoft’s defiance of the 2004 sanctions placed upon it by the EU for charging “unreasonable prices” to software developers trying to develop compatible products for the Windows operating system.

The fine comes less than a week after Microsoft said it would share more information about its products and technology in an effort to make it work better with rivals’ software and meet the demands of antitrust regulators in Europe. See post in this Blog on February 21, 2008, Microsoft Opens Up its Operating System for Developers

The heart of the EU’s allegation is that Microsoft’s refusal to reveal crucial interoperability information for desktop PC software amounted to predatory pricing practices and was a scheme to force its way into a new market and damage rivals.

Read the complete MSNBC report EU fines Microsoft a record $1.3 billion - Regulators: Software giant has defied 2004 antitrust ruling for the details surrounding the history of the antitrust matter. Msnbc.com is a joint venture of Microsoft and NBC Universal.

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So you want to know the hot areas in ERP. If so I highly recommend to my readers Forrester Research’s R. “Ray” Wang’s Op-Ed piece 7 Trends in Enterprise Software Adoption for 2008. In it Wang discusses the latest survey that finds the trend for IT Decision Makers is for upgrades, collaboration, and knowledge management. Wang’s article is comprehensive and includes detailed bar graphs that enable the reader to clearly follow his text and assists in understanding the salient points.

I’ll list out these 7 trends with a brief explanation/summary, but check out his article for the full impact of the findings:

1.     Software spending budgets for 2008 nearly identical to 2007:  There actually is a slight up-tick of 9% planned for 2008. Although enterprises will be spending on licenses, operations, and development, there still is quite a lot to be spent on maintenance.

2.     There is a need for Long Term App Strategies: Companies are laboring under the disjointed approach of the past (i.e. a little upgrade here, a little BPO there, with a little project integration thrown in for good measure). As we move to a Service Oriented Architecture (“SOA”) enterprises will take advantage of this and begin to implement long term strategies. Integration of applications is the number one priority.

3.     A move toward packaged applications: Due to a possible economic slowdown, enterprises are focusing on operational efficiency and compliance as their main business drivers. Interest in BI is closely followed by CRM. There also will be major upgrades of ERP suites.

4.     Web 2.0’s time has come: Enterprises are slowly recognizing how these tools improve collaboration and productivity, but are still reticent about security.

5.     A majority adopt SOA: This supports the enterprise’s integration projects.

6.     SaaS adoption grows by 50% in 2008: Pricing, ease of deployment, and minimal IT involvement are the key drivers for adoption.

7.     Software investment in collaboration and content management: Enterprises allow access to new stakeholders such as suppliers, partners, and customers.

Wang concludes his article with a list of three recommendations and urges enterprises to develop a long term app strategy:

·         Don’t delay: No need to buy all the new technology today. Plan ahead with an eye on use of existing technology and investment in future apps.

·         Take an inventory of existing apps:Organize these apps by business process.

·         Ongoing review of your apps strategy: Gauge progress and adjust accordingly.

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And this just in -- if you can believe it, the Redmond, Washington giant announced that it is taking a significant step in how it conducts business. See the AP story below: Microsoft to Share Some Trade Secrets

REDMOND, Wash. (AP) -- Microsoft has announced that it will share some of its trade secrets to improve the ability of its products to work with other software. In a statement released before a news conference in Redmond, Wash., the software giant says it is increasing openness in its computer operating technology to increase opportunities for open source software developers and to support industry standards. CEO Steve Ballmer calls it a significant change in how Microsoft does business. The company also says the changes will help it resolve a dispute with European regulators. © 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy.

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SaaS is no longer solely for the start-up software firm. Enterprise software developers have heard the call from their customers and seen the competition latch on to SaaS and are now offering mainstream applications. Software developers, big and small, face many demands and constraints placed upon them by the market. Their customers seek rigorous specifications.  The application development process comes with a whole new group of constraints, and the competition is fierce and ever present.

Gary McAuliffe, in his article Excelling in the Evolution of Sass, points to the Managed Service Provider (“MSP”) as the “great equalizer”. 

Managed Service Providers engineer infrastructure for reliability, resiliency, and security, in some cases offering 100% network uptimes. 

McAuliffe lays out a detailed analysis of the value MSP’s bring to the table. He describes how using an MSP can get your product to the global market faster. The other advantage is what McAuliffe labels “optimal user experience” (i.e. customer satisfaction). This customer satisfaction could potentially reap rewards downstream as opportunities for selling licenses present themselves.

The benefits are not solely for the external market. McAuliffe adroitly states:

Internally, partnering with a Managed Service Provider can provide software companies with a plethora of benefits. The capital expenditures to provide and maintain everything the business requires to launch and sustain itself from the application, developers, system administrators, to any commercial software required to run the application, along with a full infrastructure pose daunting barriers to overcome. A MSP will deliver those harsh capital expenditures over a more tolerable operational cost structure allowing software companies to reinvest their upfront capital into software where it is more beneficial in the overall well being of the firm.

If this has sparked your curiosity, then perhaps you might also be interested in Jeff Kaplan’s article Top Ten Reasons Why On-Demand Services Will Soar in 2008. I’ll whet your appetite and list out the ten reasons. You’ll have to read his whole article to get the benefit of his wisdom and predictions.

The Top Ten Reasons are as follows:

1.     Services are Recession Proof

2.     Everyone’s Going Virtual

3.     Amazon, IBM and Google Bet on Utility Computing

4.     Nick Carr Returns

5.     SaaS Solves SOX

6.     Managed Services 3.0, Unified Communications Services and Service Automation (Hint: The key for Kaplan is the “3.0” in the title)

7.     Carriers and Channel Companies Find Success With New Services

8.     Failure Doesn’t Matter

9.     IT Discovers Services are the Solution

10. Wall Street Buys Into Services

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The maker of Blackberry has teamed up with software developer LiquidTalk and will be providing the capability for audio-visual content right to their multimedia-enabled devices. My post in this Blog of December 26, 2007 entitled Future of Wireless Devices discussed the coming next generation (“4G”) of handheld devices.  It seems the future is upon us.  This latest development for your smart-phone utilizes a web-based portal and will allow ‘Road Warriors’ (i.e. frequent business travelers) and other users the ability to access tutorials and podcasts.  Chicago Tribune's, Wailin Wong, reports further that:

Employees can catch up on recorded training sessions while stranded at an airport, or technicians can view step-by-step video guides while they're making service calls. LiquidTalk users can also take content with them to use in presentations. The company's first client used LiquidTalk software to put video testimonials on iPods that could be played during sales pitches.

Read the full article LiquidTalk makes solid gains and follow LiquidTalk’s Founder, Dave Peak, through the birth of his idea while mired in rush hour traffic, through his trials and tribulations, and eventual success.

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If my previous post on 12/22/07 Open Source Violation Could Get You Sued did not spark your curiosity, well then maybe this one will make you sit up and take notice. McAffee, the company use to warning their customers about potential problems in their customer’s own software, now has issued a cautionary note to its investors about possible risks (that means litigation) as a result of Open Source software in its own products. Jason Haislmeir deftly explains this issue in his article McAffee Issues Risk Factor Over Open Source Licenses.  

 

It appears that the risk stems from the 2^nd version of the General Public License (“GPL”) as yet untested by the courts. Since the GPL imposes an obligation on its users of Open Source to make such software available at no additional charge and also make available software that relates or interacts with the Open Source software, it is easy to see that McAffee’s concern is genuine.   Haislmeir goes on to describe how others such as Tivo and Microsoft have encountered GPL license issues and have issued similar warnings to their investors.         

 

Until these issues on use of Open Source software and what obligations attach to the users of related products containing such Open Source software are settled, it would be a very prudent approach for companies to ramp up their compliance programs. At the very least this could help identify a possible violation and allow the company an opportunity to formulate a response or make any necessary adjustments to avoid the aforementioned risks.

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Soon users of Lotus Notes will have the same access to SAP’s business applications as Microsoft Outlook and Exchange users have today. The jointly developed cross-platform application, announced at IBM’s Lotusphere in Orlando, is in answer to customer’s demands. With over 135 million users of Lotus Notes and a majority of its top customers using SAP, what seemed inevitable will finally come to fruition. Both companies will offer this application in the 4^th quarter. 

SAP's CTO, Vishal Sikka, stated in a press release:

Lotus has been an innovator in collaboration for 20 years. This agreement is a great example of how SAP enables our customers to empower their users by providing easy access to SAP business processes and data through productivity tools and user interfaces of their choice.

The new application is entitled “Atlantic”. Larry Barrett reports in his article IBM Teams Up With SAP on ‘Atlantic’:

While Atlantic will first provide support for SAP workflows, reporting and analytics, the two companies plan to include other tools in future releases to extend and adapt these collaboration capabilities and leverage additional offline features found in the Notes and Domino product lines.

In August, IBM began shipping Lotus Notes and Domino 8, the company's latest refresh of its flagship communications suite. Along with a snazzier user interface, Lotus Notes and Domino 8 included custom applications and Web 2.0 features such as mash-ups in the hopes of providing a more interactive user experience.

The integration of SAP’s business suite coupled with the new function-packed Lotus Notes 8, which allows independent software vendors the ability to develop new applications from their Notes dashboard, will further IBM’s quest to overtake Microsoft’s competitive advantage in unified communications and collaboration.

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SAP unveiled nine new software packages that allow the monitoring and response to business information from any format or application. Three of the nine new offerings are targeted to the SMB market space. This all stems from SAP’s purchase of Business Objects (see post 12/21/07 in this Blog SAP Merges with Business Objects). SAP’s CEO, Henning Kagermann, stated:

Our key competitive differentiator is that we're building a portfolio on the most open platform. We are the only one that can offer business performance optimization in a closed loop.  At the end of the day, you have to take immediate action. Our business suite and business intelligence close the loop. You have faster and better insights and you can transform it immediately into actions.

Is this rollout all in response to the current activity now taking place in the industry? As I alluded to in my post of 1/9/08 What’s Next for ERP in 2008, Larry Ellison has not and will not sit on the sidelines as these mergers and new products are rolled out to the customer base. Just this week Reuter’s reports that Oracle has finally succeeded in its bid for BEA.

Kagermann addressed the issue of growth and competition in the industry stating:

You never in life should exclude an opportunity in business. The question is where is your priority.  Growing through organic growth is No. 1 for SAP.  If there's a unique opportunity to expand our opportunities, we will do it.  These are things you can't plan ahead and sometimes you have the opportunity and must take advantage of it.

SAP plans to integrate functionality from Business Objects into its Saas offering, Business ByDesign. SAP’s 2007 operating margins were down by .8% due mainly to its approximate half a billion dollar investment in getting Business ByDesign to market.

To read the full article click here

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As customers demand more from Web 2.0 applications and software vendors scramble to meet these demands, we should expect to see more mergers.  The assembling of such technologies as “instant messaging, Web conferencing, email, desk phone, mobile phone, blogs, and RSS feeds” has proven to be an overwhelming task.  A way to provide such technologies without losing some of the functionality which makes these technologies so appealing is to merge or purchase smaller niche companies that have the new emerging technologies already in hand.  Larry Barrett in his article in InternetNews.com reports on the most likely scenarios to come in 2008.  The companies to watch will be those with established expertise in data management, business intelligence and analytics and security.  The candidates include Informatica and i2 Technologies.  Regarding this anticipated consolidation, Barrett cites HP’s CEO Mark Hurd:

“I think you'll see continued industry consolidation and see more and more vertical integration.  It could accelerate in the next year or two if the right alignment of players were to occur ... I think potential M&A opportunities will rise to the top.”

And what about the big players in the ERP arena?  Is a purchase of SAP a possibility?  SAP’s co-founder and chief of its supervisory board left the door open a bit when he responded to such an occurrence by the likes of IBM, Microsoft, or Google stating, “If shareholders think that a combination, and not independence, is better, then it will happen.”  Barrett points out some of the key factors involved in any proposed merger with the world’s largest business applications vendor: 

• SAP’s market cap is $63 billion.  Microsoft would be an expected suitor.  It has the money.  The antitrust issues would require Herculean efforts and thus make such a combination unlikely.

• Google could afford it, but the corporate cultures are so divergent that this is a limiting factor.

• IBM seems to be the one.

Barrett cites Peter Goldmacher, an analyst with Cowen & Co.

“As big as SAP is, they're becoming a niche vendor and I think Oracle is hurting them and hurting IBM.  Both of these guys need each other.  And there's not a better fit. You'd have the No. 1 applications company and No. 2 database company competing against Oracle, which is No. 2 in applications and No. 1 in database.”

Does anyone really think that Oracle’s Larry Ellison will just sit idle and watch this all happen?  To read an interesting article and get a sneak peek at what other types of companies have caught the eye of Venture Capitalists as well as the large enterprise software companies check out Larry Barrett’s article in InternetNews.com.

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There’s no such thing as a free lunch.  Read Sean Michael Kerner’s article about a possible infringement of Busybox’s GPL license. In it he details how four companies (Monsoon Multimedia, High Gain Antennas, Xterasys, and Verizon) have been sued and two of the four have already settled.  Kerner points out that some companies might not even know they are in violation, or worse yet, not take such compliance issues seriously.  The next logical step is to develop tools that can identify these license violations.  Kerner’s article identifies three such vendors, OpenLogic, Black Duck, and Palamida. With the apparent enforcement actions of these types of alleged copyright violations, there should be a boon to law firms' Open Source practice.

As Jason Haislmaier, an attorney with Holme Roberts and Owen LLP representing High-Gain Antennas, states:

"While there are a number of companies that have implemented very robust open source compliance programs, many more have not.  This means not only that these companies are at increased risk of an open source violation, but that the recipients of any of their products containing open source are also at increased risk, many times unknowingly. This is the case in more than one of the BusyBox cases.  If the BusyBox lawsuits have demonstrated one thing it is that remaining ignorant of existing open source software usage and potential open source software license violations can be expensive."

I remember receiving a call in my office from a client a while ago asking me to look at a GNU license that he was given and to let him know if it was OK to sign it.  After a cursory first read through, I was skeptical.  Why would anyone give me free software?  And if I modify it, I have to make those modifications available to others?  What happens to my competitive advantage?  The businessman in me quickly transformed from a skeptic to a cynic.  After regaining my composure and doing a little research, I came to understand the motive.  The idea is to encourage development and evolution of the code and not the profit that could be garnered.  For a good annotated definition of Open Source see the Open Source Initiative web site.  To learn more about the GNU General Public License (GPL) and the Free Software Foundation (FSF) visit the GNU website.

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SAP acquired business intelligence (“BI”) software developer, Business Objects, for $6.7 billion.  This is the latest of acquisitions in the BI space.  First there was Oracle’s purchase of Hyperion for $3.3 billion.  This was countered by Business Objects own $300 million purchase of Cartesis S.A.  Business Objects’ software provides the means for companies to analyze their competitors decisions as well as their own.

SAP’s CEO, Henning Kagermann, emphasized during a press conference that the value added to its customers will come through its real-time BI which will strengthen the decision process.

Ovum Research's David Bradshaw and Helena Schwenk commented:

"Another factor is the business growth that SAP can get from the combination. Large suppliers are attracting an ever-larger share of customer spend, as customers try to reduce the number of suppliers to bring some order to their IT buying. In some accounts, the purchase might turn SAP from being an 'also ran' into a strategic supplier."

In addition, they noted, the acquisition "will bring both data extraction capabilities and market-leading front-end query and reporting tools, complementing parts of the NetWeaver BI stack," referring to SAP's cornerstone platform that it recently opened up to developers.

To read the full details of the merger read Larry Barrett's article in Internetnews.com.

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