IT Investment Research

Enterprise Software in 2012: Plus C'est Le Meme Chose

I took 2011 off from researching the enterprise-software market. (Actually I had a big project in the winter that took all my time and then I took the spring and summer off and then I had a hard time getting back into the swing of things because fall golf was great here on Cape Cod this year. But why bore you with all that detail?).  

Thankfully, a quick year-end Google tells me I didn't miss anything by taking 2011 off from enterprise-software market research. It looks like:

• 2012 will be the year of cloud computing (just like 2010 was going to be!). Now, this time, we will surely see the end the half-century reign of on-premise software providers such as Oracle (ORCL) and SAP!
• End users like Montclair State University are still spending four or more times the license fee of enterprise software such as from Oracle to install the software "turnkey" (just like in 2010 and for a half century before that).  And the end users keep failing. A Hershey kiss anyone? (Speaking of which, where is Leo Whatshisname these days?)
• IBM has a "new" enterprise software acquisition strategy for 2012. Unless Steve Mills buys back Mapics, this sounds like the same old same old to me.(But, really, where is Leo Whatshisname these days?)
• openoffice.org -- the weird word with the dot in the middle, not the actual product -- can't find a home and the Open Source Initiative still can't settle on a license it likes.
• HP (HPQ) can't decide if it wants to be in the enterprise software market. But it will waste a lot of money to find out if there's a market there. In 2011 it was $10 billion on a hodgepodge of decades-old search/BPM technology HP wasted. [But Adobe (ADBE) is bailing out.  That makes sense.]
• Microsoft (MSFT) is going all out for its Dynamics ERP line in 2012 according to  product analysts.  Just like in 2008.  And in 2004. It must be a leap-year thing because investment analysts are actually thinking that Microsoft might be shopping around its failed ERP line but can't find a buyer.  Maybe Doug Burgum will buy it back?  (More likely he's making another fortune in the North Dakota oil fields after shopping SuccessFactors to SAP.)
• In 2012, enterprise software should be like social networking software.  In 2010, that was the mantra of salesforce.com (CRM).  In 2012, all you have to do is add the word "suck" to this tired message and the press repeats the same old BS.
• Suckers sunk a half billion dollars on this idea for a company that grossed less than $50 million in the first nine months of 2011 and lost just about the same amount, giving new meaning to the "we'll make it up in volume" business model.  The usual suspects cashed out as the pension funds, who have to invest prudently, came in. 

That last bullet sounds more like 2000 than 2010 but for enterprise software in 2012, the saying is still true:

"The more things change, the more they stay the same."

The only year-after-year repeating enterprise software headline that I didn't see: 

 "2012 will be the Year of the Linux Desktop."

The headline that gave me the biggest laugh:

"NetSuite (N) is Pushing into Enteprise Software."

-- 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 

ERP Enterprise Software Harder to Kill than Osama bin Laden

Two little quote-toids (that's a factoid quoting someone) crossed my desk May 4 that make me think ERP is going to be around for a long time.  The boss at Panorama is saying:

"Even after 15 years in the ERP consulting industry, I am still amazed by how many companies have trouble with their business processes or suffer from organizational change management issues, but blame the (ERP) software instead."

And, according to Larry Dignan, the CEO of NetSuite (N) said on April 28:

“CIOs are loathe to throw out legacy ERP..."

Perhaps -- like Osama bin Laden -- the reason ERP is so hard to kill is that ERP is out there hiding in the enterprise in plain sight. 

From an investment perspective this is good news for incumbent ERP players -- primarily Infor, Oracle (ORCL) and SAP -- and bad news for the likes of NetSuite, which according to the Dignan ZNet article just can't seem to get any real traction behind its ASP-to-OSB-to-ERP-to-CRM-to-Cloud tactical changes over the last 15 years. (NOTE: OSB has nothing to do with Osama but refers to NetSuite's period as Oracle Small Business ERP product early in the last decade.)

Not that I'd recommend a play on Oracle or SAP based on their ERP lines but these quotetoids indicate that Oracle's and SAP's ERP cash cows are protected as the two companies (numbers three and four in the software market respectively depending on how you rank IBM vis a vis Oracle) continue their respective diversifications. The investment play for the two is a matter of which way you think SAP is going to grow (if you so think) and how well you think the Oracle entry into the systems business will work out (if at all).

As for Infor, you can't invest in them anyways.  But with the addition of Lawson last month and who knows who next, Infor doesn't have a cash cow.  It has a whole dairy.

-- Dennis Byron

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

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

Investors Should Look at Lawson Software Rumors through Industry Prism

According to the Pioneer Press according to Reuters, Lawson (LAWS) is back in play by its own choice.  Previous rumors flew in June 2010 when legendary corporate raider Carl Ichan took a large position in Lawson.

The big four in the enterprise software market -- IBM, Microsoft (MSFT), Oracle (ORCL) and SAP  -- get listed as the likely prospects in these reports. But the underlying Reuters story provides a hint of why any possible Lawson merger/acquisition might go in another direction.  It notes the fact that Lawson's strengths are in healthcare and retail. 

This industry-centric factoid points out the hidden secret of ERP -- and enterprise software in general. This factoid should be the most relevant to enterprise software investors. Although most applications and even middleware are talked about in terms of generic, horizontal functions such as general ledger, inventory management, sales order processing, or application server, the hidden fact is that all of these functions and more (MRP, BOMP, DDA, EMR, POS -- I could string these out all day) are very different industry by industry, 4-digit NAIC code to 4-digit NAIC code.  All of the leading software providers other than IBM and Microsoft know this and tune their applications and middleware to those major industry-specific needs.

Therefore SAP with its strengths in process manufacturing would not be a good candidate for taking over Lawson. There would be little synergy in sales forces and even developer mindsets. Neither would Oracle be a good candidate for the opposite reason; through its acquisitions of PeopleSoft and Retek in the past, it is already strong in healthcare and retail. Why would Oracle add more disparate applications it would later have to integrate? (Yeah, I know.  Oracle acquisitions aren't always logical.) 

[Viewing a likely white knight for Lawson through the industry-centric prism breaks down when thinking about IBM and Microsoft however.  The application strengths of these two companies are horizontal and generic: collaboration via Notes/Domino and Office/Sharepoint respectively.  Either company could pull it off but I doubt either wants to. 

• [IBM just does not want to get back into the ERP market despite the fact that it invented it.  Lawson is an important IBM partner so IBM might acquire Lawson in self defense but that would be the only reason I could think of for IBM acquiring Lawson. 
• [And the fact that Lawson is such a big IBM partner is also why Microsoft would probably not want to get involved.  Not to mention the fact that it really should get out of the ERP business and give up on the Great Plains/Solomon/Navision experiment. But Microsoft might want to double down which is the only reason I could think of for Microsoft to acquire Lawson. 

[I can't dismiss the hint in the report that privately held Infor might acquire Lawson but that would mean it's a fire sale and there is also no investment play there.]

So keeping the industry-tinted glasses on, a better white knight for Lawson (assuming it is on the block) might be one of the healthcare ERP players such as Cerner (CERN), McKesson (MCK), or Siemens (SIEM) or one of the retail ERP players such as JDA Software (JDAS) or Micros Systems (MICR).  But ask yourselves whether these suppliers have the deep pockets -- or the egos -- to play the game of driving up the Lawson share price the way market action March 8 and March 9 indicates?

-- Dennis Byron

SAP In-Memory Enterprise Software: The Death of Middleware

There's been a lot of analysis lately about the death of the PC and the death of the enterprise.  So introducing the possibility of the death of middleware makes for a good segue into SAP's March 9, 2011 announcement of a new road map of in-memory applications.

This is the stuff Hasso Plattner's been working on at his Institute since his retirement instead of playing golf.  This is the stuff Hasso was going to hand to Shai Agassi on a platter before Shai went off to build electric-car charging stations and thereby become the twenty seventh most influential person in the world. (Oh Shai, what might have been.)

But I digress. There is some meaning to my "death of middleware" headline even though I don't believe it. Middleware basically exists because computers used to have 8KB of memory, kids. (Right, that's KB, not MB.) So, early programmers had to figure out how to get just the data and instructions that were needed into memory just when they were needed.  At first these instructions were on punched paper tape, then cards, then magnetic tape 3/4" wide, then... well you get the picture.  Eventually someone figured out that the paper, cards, tape, etc. didn't even have to be in the same room... or on the same continent. Along the way, someone cutely called the software that coordinated all this to and fro "middleware," the stuff in the middle between the hardware and application. (Email me if you want to argue that it means in the middle between the user interface and the database.  You can probably even find where I wrote that somewhere.)

But what if the size of memory was not a restriction?  Programmers would have written the applications in an entirely different way. Big ERP systems would work like Intuit (INTU) Quicken. Welcome to the new SAP R/3 or whatever SAP is calling it these days. SAP says the roadmap consists of:  

• New analytics that analyze massive amounts of data in real-time (the whole idea of data marts instead of data warehouses was a result of the same memory limitation described above viz a viz transactional apps).
• New transactional applications and rewrites of SAP's existing solutions that also take advantage of real timeness.

In theory, this will reduce redundant layers and let SAP in-memory-technology customers do operations, planning and analytics at the same time. SAP claims that it 

"... eliminates the need for data caches, aggregations or (even) batch processing. Eventually, in-memory computing technology will help customers reduce their database usage and reliance on disks (or paper tapes or punched cards or magnetic tapes so heavy it took two operators to mount them), leading to a (sic) fewer layers and a simpler architecture." (parenthetical phrases added by Byron)

There are a lot of implications in this for virtualization, mobility and even -- I hate to promote the term -- cloud computing.

As per the press release linked to above, SAP announced some instantiations of this approach as well. Interestingly the list mirrors the first analytical/optimization applications announced by SAP in 1998 or so. There is some logic to this because such things as planning and optimization of business processes are exactly the sorts of things that you want the actual line managers and professionals working on in real time... with no IT people or business analysts in between. There's no real demand for running receivables against the ledger this way (although you will be able to).

So not only is middleware really not dead (I just wanted to suck you in), neither is ERP.

-- Dennis Byron

ERP Software Player Unit 4 Announces Strong 2010

I am just starting to look at the ERP market-share results of the major-league enterprise software suppliers such as Infor, Intuit (INTU), Microsoft (MSFT), Oracle (ORCL), Sage and SAP for 2010.  Probably because I am thinking in terms of the opening of baseball spring training in Florida and Arizona, I was interested to see one of the ERP-Triple-A league leaders, Unit 4 (UNIT4) Agresso, announce impressive results. 

Of course my baseball thinking breaks down given that Unit 4 is primarily a European Union player. But it plays the ERP game with companies such as JDA, Lawson (LAWS), McKesson's hospital information systems, Micros Systems (MICR), Misys, Siemens Medical and the like at the level below the major leaguers and is starting to make noise that it would like to get "called up to the bigs."

I shouldn't call it Unit4 Agresso anymore because it officially changed its name to just Unit 4 during 2010. But I find it confusing that it went through that trouble for branding reasons but keeps the good old Coda brand name hanging around to represent onsite financials while fully ramping up the financialforce.com accounting software as a service (SaaS) site with salesforce.com (CRM). I mean we're not talking Progress (PRGS)-level brand confusion here but it runs the risk. Especially when it took the trouble to tell me in its press release that it would have been more profitable if not for financialforce.com.

Unit4 marketing guys credit its Vita architecture, which I have described previously as stealth business process management (BPM), to be among the reasons for the good year. The Vita technology is a result of Unit 4's 2000 acquisition of Agresso. Unit 4 believes the technology is well suited to the mid-size company that it claims to be serving in the ERP-Triple A league (of course the problem is that Microsoft, Oracle and SAP have "B" squads playing in that league as well).

During 2010 Unit 4 acquired Apprio via financialforce.com and Teta, for some increased presence in Eastern Europe. I don't think either contributed a large amount on a backcast basis so Unit 4's reported 11% growth in euros is probably really impressively up in the high single digits on an apples to apples basis.

Play ball!

-- Dennis Byron

(no financial interest in companies mentioned) 

What's HTML5 Have To Do with Enterprise Software Investing?

As I said last week, there is not a lot new happening in enterprise software in 2011.  So from an investment research point of view, it's time to look out a year or more (a good way to think of all investment research, no?) and see if there are any investment implications in the "next hot thing?" One of the next hot things is HTML5.  Techcrunch had a good discussion February 9 on how HTML5 affects consumer apps and the strategies of Apple (APPL), Facebook, and Google (GOOG). Or not in the case of Apple. 

But what is HTML5? And how does it affect enterprise software companies? 

Simplistically HTML5's just the next iteration of the Hypertext Markup Language that launched the worldwide web almost 20 years ago (skip to section 1.4 of the linked web page).  Usually rev. 5's of anything are pretty ho-hum.  But when development of a standard takes a hiatus for a decade and then re-emerges, that means there probably is some market demand. As W3C, the lead standards group responsible for HTML, says:

"The main area that has not been adequately addressed by HTML is a vague subject referred to as Web Applications. This specification attempts to rectify this, while at the same time updating the HTML specifications to address issues raised in the past few years."

So the Techcrunch article, as thorough as it is on the consumer side of the software market, might make it sound that this is all about releasing a better version of iFart. But enterprise application suppliers such as IBM, Oracle (ORCL) and SAP have long struggled in getting key parts of their collaboration, ERP and similar applications running on the web in a non-jury-rigged fashion.  And these three (numbers 2-4 in the software market) have long had similar issues with middleware's fit on the web. For example:

• IBM has the emerging standard covered with its Boilerplate project.
• Oracle, as with the way Google is described in the Techcrunch article, is playing both sides of the fence -- HTML5 and its own Java (which is the reason it bought Sun, remember)
• So far, SAP seems to be depending on its developers network but that might not be a bad play given that its R&D efforts need to be tied up in the core for the next few years.

Can an HTML5 development tool supplier come out of nowhere and provide a great investment opportunity the way Powersoft did in the 1980s and Borland did in the 1990s for other programming tools? It's highly unlikely because of the way the development tool market has declined since those good old days. Now all the leaders mentioned above and others give away the tools to sell the platform or the app. Instead watch for an IT services oriented company -- a latter-day CSC -- to make a big HTML5 play.  Just Google or Bing "HTML5" every other week or so to see what's brewing.

Of course there is that one other small company that crosses both consumer and enterprise like no other, the software market leader, Microsoft (MSFT). It's been all over HTML5 almost since the beginning of HTML's new beginning and Microsoft might have the most corporate representatives on the standards working committee (I didn't count them but they appeared to have more than Apple and Google). Microsoft has been trying to better webify Dynamics since way back in Great Plains days with project like Marco Polo and some other "explorer" (get it?). According to betanews, Microsoft is also putting a big marketing push behind the standard.

-- Dennis Byron

(No financial interest in companies mentioned)