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 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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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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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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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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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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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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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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