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

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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