IT Investment Research

"Flip" Filipowski re-invents himself and the wheel... again

You have to admire a guy that not only re-invents himself every couple of years but also re-invents the wheel. While getting someone else to partially fund him. The news is that SilkRoad technology (the lower case "t" is apparently not a typo) announced today that

"...it has closed on a $54 million equity round of capital led by new investor Foundation Capital, and including existing investors Azure Capital Partners, SilkRoad Equity and several individuals."

I say partially fund him because via Silkroad Equity (why not a lower case "e"?), Filipowski has some of his own skin in the game.

The nut of it is that Filipowski is now banging the drum for software as a service [SaaS], the way he banged it for dot.com 10 years ago and RAD 20 years ago. Interestingly he is hyping SaaS in the same week that Oracle (ORCL) CEO Larry Ellison, another guy with his own skin in the SaaS game along with 469 signfiicantly minority "partners" in NetSuite (N) [other shareholders as of February 29, 2008], suggested SaaS would be a slow payback investment.

To Larry, that means a long patient climb for an ERP SaaS offering to a become a billion-dollar business, a process already 10 years in the making. To Filipowski, 10 years is a dozen startups, restarts, renames, mergers, acqusitions, bankruptcies, and so forth.

As for the functionality that (I am sorry what is the name of this year's Filipowski company again?) is offering, it's called talent management software. I doubt if that is a billion-dollar market opportunity, at least on a pureplay basis and as I define the words talent and management. But the company offers more mundane things like benefits administration (called "life events") and hiring (sorry, "onboarding"). According to Filipowski it is:

"one of the greatest opportunities for value creation that I have ever personally observed in the software industry."

Adding such mundane functions does increase the opportunity. That's why a guy named Dave Duffield,, who actually knows something about human resources [HR] automation, is all over the opportunity already.

SAP 20-F documents a company milestone: more customers than employees

The 2007 SAP (SAP) 20-F was posted up on the SEC website April 3 and is full of all the great statistical and IR-spin nuggets an analyst loves. And SAP never fails to deliver.

My nominee for SAP highlight of the year in 2008 is as follows. Sometime in 2007, for the first time this decade at least, and I suspect in SAP company history, SAP ended the year with more customers than employees. The document says:

"As of December 31, 2007, we had 46,100 customers in over 120 countries and employ more than 43,800 individuals..."

At the end of 2006, SAP had 38,000 customers and over 40,000 employees. Hopefully the milestone is a sign that the small/medium enterprise (SME) strategy is beginning to kick in. But with headcount up 12% in 2007, there's a way to go before they really have the SME religion.

For perspective, I point out that back in 2005, with "only" 32,000 customers, SAP crossed the 100,000 installation mark. I don't see a comparable statistic in the document this year but presumably that number is north of 120,000 these days. The customer count includes ERP, NetWeaver and Business ByDesign users and I am assuming it doesn't double count. I'll dig deeper in an upcoming IT Investment Research report.

SAP has a goal of of hitting the 100,000 customer mark sometime in (presumably late) 2010. Do they have one of those big plywood thermometers set up on the side lawn in Walldorf so that you can see it from the Autobahn?

-- Dennis Byron

Microsoft financial analyst presentation highlights business applications' poor cousin status

The March 13 Microsoft (MSFT) presentation and Q&A session for financial analysts, conducted by the Busness Solutions general manager and by the Business Division CFO at Microsoft Convergence, hid the very slow payback Microsoft is realizing from its 2000 and 2002 investments in Great Plains and Navision respectively. Others are picking up my cry from a few years ago that Microsoft unload the entire operation; perhaps Great Plains founder Doug Burgum would come out of retirement and buy it back.

Kirill Tatarinov, Corporate Vice President, Microsoft Business Solutions, says his group is playing in what IDC measures as a $70 billion market. He's referring to the entire packaged applications market. Certainly, at that level, which includes collaboration applications such as Office and so forth, Microsoft is doing great, probably with about 20% of the market.

But Tatarinov went on to say how happy Microsoft was about having a billion-dollar year in "Business Solutions" in the Microsoft fiscal year that ended in June 2007. That's Dynamics CRM plus the former Damagard, Great Plains, Navision, Solomon ERP products (which they now admit they will never try to "fuse" together, in "green" or any other color). That's only about 3% of the market SAP (SAP) and Oracle's (ORCL) applications group talks about when they talk about ERP and CRM.

Microsoft might counter that it effectively competes only in the midmarket. But it didn't. And that's good because certainly it has not made this now going-on-a-decade-long effort simply to compete for such a small slice of the applications market. Especially with SAP coming down market after that same slice.

On the good news side, I estimate Microsoft did about $1.2B in calendar year 2007, 22% growth. And it does have the advantage in that it is already in the midmarket and has great channel partners, something that SAP needs badly. In fact, Doug can stay in retirement. Why doesn't SAP just buy this part of the Microsoft business?

But overall it was a pretty weak status update full of a lot of trivia about how Microsoft is trying to tie its Dynamics users into eBay and online Paypal services. And the usual nod to Software Plus Service.

-- Dennis Byron