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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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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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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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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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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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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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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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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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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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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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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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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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.”

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