IT Investment Research

Breaking News: Oracle is Database Market Leader!!!!

Beware of tout sheets.

I guess you don't need to be reminded of that but I was reminded today that they still existed when I came across a Forbes link to a website I had never heard of called trefis.com touting:

"The NetSuite win is another feather in Oracle’s cap, as the company is already a dominant player in the database software market with a market share of around 50%."

Really. I'm not sure what struck me more in this tout:

• The fact that there was no mention of the Netsuite (N)'s super-majority owner.
• Or the breathless declaration that Oracle (ORCL) was "already a dominant player in the database software market."

Already?  And it's only been a short 30 years?

I never heard of these self-proclaimed experts before but they seem to tout a lot of information technology stocks (for Willy Sutton's reason clearly) so be careful. And Forbes should have known better than repeating this crap.

-- Dennis Byron

Does Dodd-Frank Hurt Intuit?

The Barney-Frank-bank-account-fee-f**cking has reached me.

I didn't pay a lot of attention to the Dodd-Frank financial-reform-legislation debate in the summer of 2010. After all, it was the summer. I do remember that some whiney woman from Harvard now runs the program and that all the pundits said that everyone would soon notice bank fees going up dramatically. 

Since anything higher than zero would be up dramatically in my case, I have noticed.

Bank of America now wants $7 a month to synchronize my accounts with Intuit (INTU) Quicken Home and Office.  This is a "service" that has been free for at least 16 years.  In fact, a precursor of Bank of America -- the First National Bank of Boston -- gave me my first copy of Quicken for free back in 1995 to encourage online banking.  I finally bought my own copy around Y2K time when some banking regulations brought in a new interface that didn't work with my free but by then six-year-old version.

Now this is why Barney-Frank-fee-f**cking hurts Intuit.  I put "service" in quotes in the above paragraph because the synchronization of my BOA accounts with Quicken is basically a worthless service.  It's always a few days late in seeing transactions that I can very easily see instantly directly on the BOA online banking site. Or I can even balance my bank statements the old fashioned way on Quicken in minutes. I don't think I would pay $.50 per month for the synchronization "service," never mind $7. 

So, putting my old product marketing hat on, I asked myself how does this work and how could they possible have decided on a fee of $7 a month. Coincidentally I now understand how this all works thanks to a related article about identity theft May 8 in PC World: "Someone May be Getting Your Online Bank Statements." That explained why the synchronization that is basically worthless is also days late.

On the pricing side, I decided the synchronization "service" must be priced to cost because it sure as hell isn't priced to value. That means BOA must be paying Intuit $3-$4 a month for the privilege of getting days old data that is available free days earlier elsewhere. When millions of consumers figure that out, Intuit monthly service revenues with BOA are going to drop like a rock. (I am assuming BOA only pays Intuit if the consumer pays it, possibly a bad assumption given how poorly these big banks are run.)

Is the same deal in place between Intuit and others? So far every other community bank, department store, charge card, stock broker, insurance company, and corner convenience store that I deal with still offers synchronization with Quicken for free. How long before the Barney-Frank-fee-f**cking reaches those other financial institutions? How long before all Intuit synchronization service revenue goes away?

-- Dennis Byron 

Gartner Claims IBM Really Number One in Enterprise Software

Gartner put out an odd press release May 5 that said IBM

"would be the No. 1 enterprise software vendor if Gartner did not count consumer sales of Microsoft's office and operating systems."

Count it as enterprise software sales instead I guess is what Gartner means.

But, based on the chart in the Gartner press release ranking IBM, Microsoft, Oracle (ORCL), SAP, Symantec (SYMN) and 'other,' Gartner is claiming that Microsoft sold about $30 billion in Windows and Office software to consumers. Sniff! Sniff! I don't think so.

Microsoft did about $62.5 billion total revenue in its FY 2010 so let's guess it did around $65 billion for CY 2010. (All this information is available to the penny quarter by quarter. I just haven't added it up recently.) Gartner is estimating that about $55 billion of the estimated $65 billion Microsoft revenue total is software revenue (with the other $10B in revenue being for support services, Microsoft Press, advertising, game hardware, I dunno).

But in its July 2010 10-K, Microsoft divides up its divisional revenue streams for FY 2010 as follows:

• Windows and Windows Live -- $18.5 billion, 80% of which goes through the OEM channel (Microsoft doesn't give an enterprise/consumer split of this OEM number in its 10-K; I have it in my notes somewhere but lets just say it's 50/50 for argument's sake; I actually think it's more enterprise than consumer)
• Server and Tools -- $15 billion, almost all of which presumably goes to enterprises
• Online -- $2 billion, almost all of which is probably counted as consumer; I could debate that but let's keep this blog post simple
• MBD -- $18.6 billion, 80% of which is to enterprises according to Microsoft
• Entertainment Device -- $8 billion, basically none of which comes from enterprises 

Doing the math on the back of an envelope, I have Microsoft with $37.4 billion in enerprise sales (write me if I calculated wrong).  Assuming the corporate-aggregate split of 90% software to 10% services, that would compute to about $34 billion in enterprise software sales, not the $24 billion implicitly claimed by Gartner. I think Microsoft is still number one by a mile.

But -- to save all this heavy math -- we could just turn the whole Gartner press-release approach on its head and ask

"Would IBM even make the top-four enterprise-software market share chart if Gartner didn't count IBM software locked into 30-year-old mainframe sales."  

People are still paying a billion a year for CICS for chrissakes (or were a few years ago, the last time someone paid me to look into the subject).

-- Dennis Byron

Valley Lawyers Suing Apple, Adobe, Google, Intel for Changing Valley Culture

It is really just a Friday morning funny to me but IDG News Service reports that a list of Silicon Valley cultural icons are being sued for illegally trying to change the Silicon Valley culture of perverted and indiscriminate job hopping. IDG says

"A California class action lawsuit puts Apple (APPL) at the center of a conspiracy involving Google (GOOG), Adobe (ADBE), Intel (INTL) and others to keep employee wages down."

In the 20teens, with jobless claims still rising and everyone everywhere happy just to have a job, I assume that the stories about the good old days of the 1990s in Silicon Valley are just as interesting along 101 as Grey Eagles' stories about the good old days at DG of the 1970s are here on 128 and 495 (this link to a Grey Eagles story is old but the BS goes on even today -- if you're interested -- on Facebook and LinkedIn).  

Yes, there was a time in Redwood Shores or Palo Alto or out near SJO where you could walk into a bar at 7pm and leave with two or three RSO offers by 9. But -- and based only on reading the IDG article -- apparently the recruiters got sick of working late (and in bars) and accelerated the Silicon Valley job-hopping process by simply working their way through a competitor's phone directory (how 1990ish) during working hours.

That was sacriligous (sp.?) in the eyes of Jobs, Schmidt et al. It was OK with them if you wanted to change jobs three times a year but at least have the common decency not to do it on our dime... and our time. So they colluded -- along with Adobe, Intuit (INTU) and others -- not to cold call each other's employees. (Noticably missing from the list: eBay, Oracle and Sun.)

"No can do," said the U.S. Department of Justice in 2009, at least under California law. So the companies agreed to stop. 

Now the whole class of Silicon Valley bar hoppers who didn't get cold called during the period of the "illegal unfair" agreement are suing to get back the compensation they lost because the Valley's employment churn was turned down a  notch by the agreement.

Only in America.

-- Dennis Byron

Why Microsoft Rules Enterprise Software: Drag and Drop

IDC is out with a new report that explains the almost absolute dominance of Microsoft (MSFT) in the both the consumer and business information technology (IT) sector: Drag and drop. That term has nothing to do with moving a mouse or finger around a screen but refers to the aftermarket that Microsoft $60-billion-plus annual sales revenues drag with them and the drop in meaningful competitors with which Microsoft has to deal because of the drag.

It's truer of the business sector of course because -- despite PR, including even some of Microsoft's PR -- the business sector is Microsoft's sweet spot and heritage.  But it also applies to the consumer sector where Microsoft's ability to play both sides works perfectly with the way both sides -- consumer and business use of IT -- are melding as people work at home and 'facebook' at work. 

The IDC hard numbers are here. But the quick take is that Microsoft partners account for 30-to-40-something percent of the entire annual worldwide IT spend of a trillion and a half dollars: systems, software, services and telecom in IDCspeak (or at least in ancien IDCspeak). There is probably some double-counting with HP (HPQ), IBM and Oracle (ORCL) partners but there is also a lot of revenue flow among pure Microsoft partners to balance that out.

You look at these numbers and you see why IBM and HP exited the systems market (except for their decreasing proprietary cash cows) and sought status as an implicit or explicit Microsoft services partner. (Ironically, these numbers also illustrate why Oracle entered the systems business--because it didn't believe it could do what HP and IBM did.) You see why SAP tentatively choreographs its kabuki dance with Redmond. And why Intuit, unlike SAP, doesn't even pretend to chase another partner. You see why Agile, Borland, Cognos, Digital Insight, Frictionless... (I could run the table but you get the picture) are long gone. You see why Lawson (LAWS) and Epicor (EPIC) or being taken over and taken private despite Microsoft's weak ERP offering.

Despite all the lamentations of the open source zealots and Apple (APPL) bigots and the Googlers, the market has spoken. The open source zealots are anti-market (exaggeration for effect). Apple wants to keep all the money for itself.  And Google (GOOG) doesn't know what it wants to be when it grows up: an open source zealot, like Apple or like Microsoft.

(Truth in advertising: the IDC report was sponsored by Microsoft and I used to work for and still occasionally consult to IDC.)

-- Dennis Byron

Microsoft Sharepoint Gets Great Congressional Endorsement

They say great inventions are 99% perspiration and 1% inspiration.  The corollary to that is that great information technology (IT) marketing is 99% hard work and 1% "s**t luck."

I remember in the 1980s working at Data General with great PR and ad people to try to promote a new IT concept called "integrated office automation (OA)."  It was more than just word processing (WP), a concept that Wang "then owned." Because of Wang's prominence in that market, we didn't want to promote our product as just some super word processor. Integrated OA was better than that. It combined WP with this new thing called email as well as with calendaring (which no one then or now uses) and a few other bells and whistles. Shortly after launch, DG's particular OA product was interfaced with some bizarre little program called CompuCalc (whose co-author -- a former DG programmer --  then decided that these bizarre little programs called "spreadsheets" would probably run better on PCs). 

We were somewhat successful in our efforts between 1982 and 1985 in terms of sales but it was a slog.  Then in 1986 an obscure Marine Lieutenant Colonel named Oliver North got called before the U.S. Congress for doing some no-longer-remembered thing wrong and said "I know nothing." Unfortunately, everything he knew nothing about was preserved forever on the Reagan White House PROFS (the PRoffessional OFfice System from IBM) minicomputer and a battery of Congressmen mentioned PROFS about a zillion times that winter on TV. After that, all our great PR and ads meant nothing.  All we had to say was our OA product was like PROFS, only better.

Those good old days came flashing back to me this week when some poor lawyers from the U.S. Homeland Security bureaucracy got hauled before the U.S. House Oversight and Government Reform Committee because the lawyers weren't processing freedom-of-information open-government requests through the bureaucracy fast enough. The lawyers' excuse was that they couldn't get the approvals of the bosses fast enough... 

• "But" said the lawyers, "but don't worry we just put in a SharePoint system to solve the problem."
• "I know SharePoint," said the top Congressman, "I used to use it in the company I owned before I became a Congressman.  It's a great product."

Wow. I can just visualize the marketing meeting at Microsoft (MSFT) the next morning. 

• Can we use a Congressman in an ad? 
• Do we really want -- yawn -- to link to C-Span?
• Did our PAC contribute to his campaign?
• Is Homeland Security using a licensed copy?
• On and on.

Marketing people just live for the one or two mornings per career that go like that. Of course, the sales guys take the credit anyways.

 -- Dennis Byron

(Sidenote: Apparently Homeland Security didn't get the Obama administration memo that you can only do "open government" on open source.  They chose SharePoint over Drupal!!)

Oracle's "CY 2010 Results:" Which Oracle Are You Asking About?

It's time to look at the Oracle (ORCL) trailing 12 months revenue flow.  Based on Oracle's off-quarter and off-calendar fiscal reporting, the 12 months ending February 28 of any given year are the "Oracle months" that most look like a calendar year. And therefore mimic the calendar-year dynamics -- be it SAP's and IBM's December hockey stick or Microsoft's (MSFT) holiday-season sales.

These four companies make up 75% of the software market so that's all you need right.  Well yes and no.  There is nothing simple when it comes to Oracle comps.  Oracle's off-calendar and off-calendar nature is the least complicated thing to deal with. 

First, it's all those acquisitions that really screw things up.  Some investors want to see Oracle backcast (look in the Oracle 10-K proforma section but that's done only once a year), because that's most indicative of overall market dynamics.  Others want to see Oracle GAAP because that's most indicative of whether the financials are working out the way Safra said they would (they always do!).  And now an increasing number of investors want to see the big picture because -- hey -- maybe there is something to this "attack IBM" thing. 

Second, in other words it doesn't matter anymore that Oracle is number two or number three in the software market.  Oracle itself even mixes up its software revenue, counting some of its software in the two heritage "software" line items on its income statement (new, and updates/support), counting some of it in the "OnDemand" line item on its income statement (as has been true at least since the acquisition of Siebel), and now counting some software in the new (since March 2010) Hardware Systems Products line item.  The exact wording is:

"Our hardware systems products consist primarily of computer server(s) and storage product offerings and hardware-related software, including our (Sun Microsystems') Solaris operating system."

And of course there are a few of you who still want to see how what's left of BEA middleware is doing against IBM Websphere, and what's left of PeopleSoft ERP is doing against SAP R/3.

I hate to tell you this but if you're in the latter group, you're dinosaurs like me.

-- Dennis Byron

Red Hat's Goal to "Own" 50% of the Market Now Faces Oracle

Red Hat (RHAT) CEO James Whitehurst led off the March 23, 2011 conference call announcing the operating system and middleware provider's annual results with the low key:

"Red Hat's growth indicates that we are continuing to gain market share." 

Talk about understatement. I would guess so given that I doubt if any comptetitor of any size had more than Red Hat's 20% revenue growth (more to come as we begin to review the Gartner and IDC share tables that will be coming out in the next month).

But remember.  Red Hat's stated goal isn't simply the mundane gaining "market share."  It wants a 50% share (as measured by instances I think but it's been a while since I dug down on this) of both the operating system and middleware-stack markets by 2015. I didn't see any mention of how Red Hat was doing against that benchmark in the conference call. But I didn't see Red Hat backing off that goal either.  

Looking at both sides of that ambition: 

• On the operating software side..
  • Red Hat wants to end up driving over half the world's servers by 2015. That seemed very doable in 2007 when announced because all it meant was mothballing a lot of Digital UNIX, AIX, Solaris and HP-UX systems. (Email to Microsoft (MSFT): You keep your Windows share and we'll take everything else.)
  • That was both logistically and technically sensible. In the process Red Hat saw its products becoming a mainstay on the mainframe as well. Also contributing to reaching the goal: there will be a lot of justifiable double counting as stacks like Red Hat's (and so far it's the only real game in town) forms the underpinning of virtualized Windows and VMware servers.
  • However Oracle's (ORCL) acqusition of Sun changed the dyamics. A very different player enters the mix offering a more intergrated approach up and down the stack.  That doesn't mean the goal should be changed but it affects both the operating system and middleware-stack sides of the equation.
• On that middleware side, holistically, to reach its 50% goal...
  • Red Hat would have to not only displace other potentially more popular open source middleware (e.g., Apache HTTP software) but billions of dollars of "closed-source" software currently in use across the world. (NOTE: The open-source vs. closed-source characterization is not meaningful in understanding or measuring the market but I use it because the open source zealots still insist on drawing this distinction. Red Hat is not a zealot but simply uses open source terms and conditions very effectively as research/development and marketing techniques.)
  • To literally accomplish its goal, Red Hat would need to displace 50% of the $20-$30 billion worth of IBM (IBM) CICS and Oracle (formerly BEA, formerly Novell, formerly the real AT&T) TUXEDO shipped in the last 30 years, the $20-30 billion worth of MQ Series, TIBCO (TIBX), etc., shipped in the last 20 years, the $20-$30 billion worth of IBM WebSphere and Oracle WebLogic and Application Server shipped in the last 15 years, the $10-$20 billion of Oracle, SAP, IBM and so forth integration servers, development tools, ESBs, portals, and so forth. Now we're talking about a real challenge and that assumes you do not define middleware the way Oracle and IBM do, including business intelligence and collaboration software and just about everything else -- including databases -- except ERP and customer relationship management.
  • No matter how you measure 50%, Red Hat would have to displace existing installed software at an astonishingly rapid rate over the next 6 years to reach its goal because the overall software market is only growing 5-6% (and the middleware market basically tracks the overall software market).
  • In addition, competitively Red Hat needs a database product because as many times as not, that is where the decision is made and the operating system and middleware stack decisions flow from that.  Monty, where are you?

 But the good news.  I don't think Red Hat lost any ground against its ambitious goal in 2010.

-- Dennis Byron

Infor and Lawson: What a Pile of... Systems Integration Challenges

On March 10, in commenting on why it would be a good idea for some industry-centric enterprise software supplier such as Cerner (CERN) or JDA (JDAS) to take a look at Lawson (LAWS), I said:

I can't dismiss the hint... that privately held Infor might acquire Lawson but that would mean it's a fire sale...

Well get on your asbestos gloves.

But this does allow me to run my annual post that tries to remember and list all the enterprise-software companies that used to be independent but that are now a part of Infor.  Here goes:

Agilisys (out of SC&T), Aperum, Arzoon, Baan, Boniva, Brain, Daly Commerce, Comshare, Dun & Bradstreet, Elevon, e.piphany, EXE Technologies, Extensity, Formation Systems, Foundation, Future Three, Infinium (nee Software 2000), Ironside, JBA Software, Lilly Software, Marcam, MAPICS, Mercia, McCormick and Dodge (M&D), Ohio Community Library Consortium (OCLC), NxTrend, Octane, Pegasus (not Pegasystems), Provia, Softbrands, StarBuilder, SunSystems (not to be confused with the server manufacturer acquired by Oracle), Symix, System Software Associates (SSA), Varial, and Vision.

And if the Infor buy-out offer is accepted by Lawson management and Carl Ichan, add BCM, CareScience, Confer, Enwisen, Healthcare.com, Healthvision, HCI, HIE, Hublink, Integrated Media, Intentia, Mobis, Movex, MPower, Noblenet, Outlaw, Pixel, PM Sims, Riley Dike Dosher, Rouge Wave, Scase, Xcare.net and Lawson itself -- which grew pretty much organically -- to the list.

-- Dennis Byron

Forbes Says IBM's Social Commerce Concept Bigger than ERP

There's an interesting post on Forbes about IBM, Sterling Commerce, customer relationship management (CRM) software, analytics and other like subjects the week of March 14 that answers a question I posed months ago: Why Is IBM Getting Back into EDI?

Forbes answer: Because the 50-year-old electronic data interchange (EDI) concept that morphed into electronic commerce 20 years ago is now something called "social commerce." And IBM thinks the opportunity is bigger than ERP. In fact the opportunity is so big that IBM is deploying several thousand salesmen, programmers and consultants in a new "practice" to take advantage.

But that launches three new worrisome questions for investors in my opinion: What's "social commerce?" How big was/is ERP? Why do I need a "practice" to take advantage of it?  So here's my take:

What's "social commerce?"

As defined by Forbes (meaning apparently by IBM), it could

"change not just the way companies sell products and services, but also their creation and production, and servicing — in effect, a new type of enterprise software platform."

My problem is that that definition sounds like every piece of information technology I've done market research on from the GE Model 58 in 1970 to LinkedIn. From a software point of view, that would mean it's an amalgam of ERP, EDI, CRM (the concept, not the company), business analytics and every variation of the word platform I've heard from IBM's own Project San Francisco in 1994 to CRM's (the company, not the concept) force.com. But it most closely sounds like ERP.

How big was/is ERP?

At its height when it dovetailed with Y2K paranoia, ERP was doing a couple of hundred billion a year in software and services.  Those are 1998 dollars.  Those are both kinds of services: implementation/training and on-going maintenance (which isn't about fixing things as I've explained elsewhere on this blog).  I am not even counting the dollars companies spent with management consultant companies to tell them they needed ERP software and services.

Today the local stamping plant can get what Boeing paid Baan and others a gizillion dollars for in the 1990s from Intuit (INTU) Quickbooks. (Of course, the local stamping plant can't build 747s.) The modern day ERP capability even has a lot of things 1990s ERP didn't have like Internet deployability, CRM, real-time analytics, business process management, and more (which all kind of sound to me like "social commerce.") Yet, as happens, the "opportunity" has shrunk to about a hundred billion a year. In 2010 dollars.

So is "social commerce" bigger than the old ERP or the new ERP? 

Why do I need a "practice" to take advantage of it?

Apparently, IBM is talking about the opportunity that needs management consultants to tell enterprises they need the concept. Those are the guys that work in "practices." This is not about three guys pulling all nighters to turn your Facebook page into the Sears catalog. Or even your force.com platform with Unit 4's Coda into a working ERP capability.

That doesn't surprise me given that I think IBM's long term strategy is about consulting and business process outsourcing, not software and technology. According to Forbes, IBM will have more salesmen than consultants and developers combined dedicated to the "social commerce" practice. That should tell the savvy investor all they need to know.

-- Dennis Byron