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

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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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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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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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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