Read Me First By Albert Pang

July 20th, 2010

Today marks a special occasion for APPS RUN THE WORLD. After months of preparation, the site is now live and we are excited to show you the results.

APPS RUN THE WORLD is designed to be your one source for applications research and this inaugural blog posting serves as your guide to the site, our research initiatives for 2010 and beyond, as well as why you should bookmark us and tell your friends and business associates to do the same.

APPS RUN THE WORLD is all about applications research. Our core competency is to provide you with quantitative research on different segments of the applications market.

Here you will find a list of applications research reports on 10 vertical industries from banking to utilities. Each of the reports has the following components: market trends, profiles of top 10 apps vendors in each vertical, as well as a visual display of SCORES results that detail market forecast, shares of top 10 vendors and how they stack up against each other in 2010.

If you are a numbers person, you won’t be disappointed with our data section, which offers easy access to the total addressable market of the 10 verticals and the 2009 shares of the top vendors.

Or you can go directly to the current list 100 vendor profiles and read about their SCORES, which stands for Strengths, Customers, Opportunities, Risks, Ecosystem and Shares.

That’s what our SCORES methodology is designed to do. We examine each of the 1,000 applications vendors in our database, comparing them against those six criteria. Read more about our SCORES methodology here.

A special feature in all research reports is our assessment of the recession of 2007-2009, one of the biggest events of our lifetime that appears to have escaped the attention of many IT market research firms. You can determine the depth of our research by reading our coverage of the impact of the Great Recession on the applications market.

In coming days and weeks, we are going to be adding new verticals and applications markets to the site. For example, one of our upcoming reports will detail a $900-million business transformation project that includes an on-going ERP implementation at one of the largest companies in the United States.

The stupendous price tag underscores the faith that companies have placed on these applications and their ability to deliver tangible benefits to their bottom line.

That’s why we call ourselves APPS RUN THE WORLD, providing timely, relevant and domain-specific information, insights and data so that you can capitalize on the power of the applications. Send me an email at apang@appsruntheworld.com and tell us what you think of us.

If you like our research, consider joining us as a corporate sponsor, which will give you exclusive access to our proprietary database, analyst team as well as a growing community of applications customers, vendors and key stakeholders. Thank you for your support.

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Posted in Products, Vendor, Verticals

The Politics Behind Oracle Open World By Albert Pang

September 30th, 2012

For years Oracle has deftly used a blend of political skills and its growing influence in the enterprise marketplace to position Oracle Open World as the preeminent event for IT buyers and corporate executives, not to mention a long list of partners critical for its long-term success.

In fact the politics behind the massive conference, which is expected to draw more than 45,000 attendees to San Francisco this year, is rich in symbolism, and perhaps more important than what’s being said at OOW.

Like everything else that greases the wheels in business dealing, good politics begets power and OOW is no different. In its early days OOW, which began as a user forum until 1997 when it was taken over by Oracle, was a relatively small affair attracting a few thousand DBAs and developers to see the latest in Oracle’s database technology. Oracle held a separate event for its E-Business Suite applications customers called AppsWorld that was later folded into OOW after it bought PeopleSoft in 2005.

The more acquisitions Oracle makes, the bigger OOW gets. So has the prestige that Oracle accords to not just OOW calling it the biggest software event in the world, but also many technology companies that have shared the limelight through the years.

As Oracle has become arguably the world’s most powerful hardware and software company for the enterprise, OOW has also emerged as the arbiter of power and prestige within the Oracle ecosystem. The sponsorship program of OOW has 11 levels from the lowly media to Global, a new badge of honor created this year.

Not only does a top sponsorship connote one’s standing in the enterprise IT world, it also reinforces one’s status within the ecosystem. In other words, you are not really considered a top Oracle partner until you become a top OOW sponsor. If one’s standing slips in the OOW sponsorship pecking order, it goes without saying that trouble is brewing and it may be a good time to reevaluate one’s relationship with Oracle.

Two examples come to mind. The sour relationship between Oracle and HP, once a perennial presence in OOW, has gotten to the point that the latter has not been a top sponsor since 2010. HP does have a booth with a non-boldface listing in the show guide. Apparently boldface-listing goes to the top sponsors.

The same friction erupted last year when Salesforce.com, a top OOW sponsor that had to move at the last minute the venue of the presentation of its CEO Mark Benioff away from OOW to a nearby hotel. Essentially Oracle exerts total control over what could be seen or heard by OOW attendees.

This year the top status goes to Fujitsu, which for years has been one of Oracle’s key partners and this year is given the leading role as the Global Partner sponsor. Fujitsu, which has become one of Oracle’s biggest OEM partners, now resells hundreds of millions of dollars in Oracle databases and other products to its customers in Japan and elsewhere. In addition to its consulting business(also heavy on Oracle), Fujitsu has been working closely with Oracle to incorporate its technologies into its supercomputer and high-performance computing offerings.

The following table lists the top sponsors of OOW since its major expansion in 2006.
OOW Sponsors

For the second year in a row, Deloitte is the marquee sponsor of OOW and in return for spending millions of dollars to plaster its name all over OOW and the concurrent Executive Edge, an invitation-only event for CIOs, CFOs and the likes, it has profited handsomely by building one of the biggest Oracle practices in the world with hundreds of millions of dollars in ERP implementations every year. By the way, Deloitte has been one of the first Oracle partners to invest heavily on implementations of Fusion Applications.

Another interesting development is the rise of Intel. In addition to continuing as a Diamond sponsor for the third year in a row earning it a keynote spot this year, it is also a major sponsor of a 90-city seminar series on Oracle Cloud, positioning its chip, networking gear and security products as the key enablers behind the data center of the future, which seems to be where most Oracle Exadata systems are being used these days.

Another set of new partners to this year’s top sponsorship are Arrow, Avnet and Tech Data, which are playing a pivotal role behind the growth of Oracle into new markets from resellers to emerging countries. Tech Data, for example, recently expanded its relationship with Oracle by distributing applications and hardware, in addition to database and middleware products, to customers around the world. Together the three mega-distributors could generate billions of dollars in sales for Oracle this year. Along with other resellers and distributors, they represent the building blocks of the new Oracle’s indirect sales arm responsible for more than 40% of its $38 billion in projected sales this year.

On the other hand, there are some that have failed to make the list this year. HP is not a top sponsor in 2012 or the year before. Dell was a Diamond sponsor last year, but this year it has fallen off the top sponsor list. Coincidentally Dell had a major presence at Salesforce.com’s Dreamforce last week, but that’s another story. By the way, Salesforce.com was a Grande sponsor in 2011. This year Netsuite seems to have taken its spot by becoming not just a Grande sponsor, but earning a session spot.

In summary, the politics behind OOW illustrates how one company can dictate the future of enterprise IT by simply inviting or disinviting certain partners to the biggest party in town.

Send me questions and comments about Oracle Open World @appsruntheworld on Twitter.

Posted in ERP, Oracle, Oracle Open World, Uncategorized

As New Reality Sets In, Oracle Braces For The Future By Albert Pang

September 11th, 2012

As an avid enterprise IT watcher, I am constantly amazed at the uncanny ability of Oracle to reinvent itself after relying on its bread-and-butter database software for more than 35 years.

It is a classic tale of how one company refuses to give in, despite the increasing odds that stack against its core business. When one part of the company is in trouble, it quickly plugs the hole with a quick fix while scrambling for long-term solutions. When its customers are clamoring for Cloud offerings, Oracle wastes no time to meet their needs.

Recently Oracle’s accelerated push to embrace the Cloud has taken on a new urgency. In rapid fashion, Oracle has announced plans to acquire social marketing outfit Vitrue, social intelligence aggregator Collective Intellect, social markup language developer Involver, clinical-trial operations specialist ClearTrial, network virtualization vendor Xsigo, and facilities management provider Skire. That’s on top of its acquisitions of RightNow and Taleo spending billions of dollars along the way on eight deals in less than eight months.

Despite the moves, there are signs that the company has reached its limits on how to grow its core business, while moving aggressively to turn around the Sun hardware operations that it acquired in April 2009 at the risks of alienating long-time partners like HP.

Recently a California judge ruled in favor of HP’s Itanium suit against Oracle, throwing another monkey wrench into Oracle’s quest to become a provider of complete technology stack from database to applications and from middleware to servers.

Additionally, Oracle’s performance in the fourth quarter – traditionally its best and the brightest – of fiscal 2012 paled that of its closest competitor SAP.  SAP’s 18% jump in total revenues in 2Q12 eclipsed Oracle’s 1.8% gain in 4Q12 by a long shot.

The stark contrast cut across all regions. Bogged down by its sluggish hardware business, Oracle’s software license revenues rose 14% in the Americas, dropped 5% in EMEA and gained 8% in Asia Pacific during the quarter. SAP outperformed Oracle in all three regions with increases of 32%, 22% and 25%, respectively.

In Japan Oracle’s total revenues posted a modest 6% rise, compared with the 27% spike for SAP Japan. The former is twice the size of SAP Japan.

Based on our estimates, Oracle applications and middleware business in the United States was one of the rare bright spots in 4Q12, but that was largely because of incremental revenues from its recent acquisitions, which target mostly US customers.

Decelerating Database

A more unsettling, yet unavoidable, trend is the slowdown of its core database business, which until 2006 accounted for the bulk of its license and maintenance revenues. Clearly the 2005 acquisition of PeopleSoft was the catalyst that shifted the priorities of the company, or the mindshare of its customers for that matter. Its multiple acquisitions in the middleware space pushed database further away from the spotlight.

For example, Endeca, the search technology acquired in October 2011, and Fatwire, acquired in June 2011 and now part of Oracle WebCenter for Web Experience Management, helped contributed $63 million in Middleware license revenues in 4Q12. That followed growing revenue contributions from Sun Middleware  as well as a host of others like AmberPoint, Datanomic, GoldenGate, Passlogix, and Silver Creek Systems.

The last major deal Oracle did in database was the acquisition of Sun, which brought with it MySQL, an open source database, which means anyone can download it for free. The highest list price of a commercial license of MySQL from Oracle is $20,000, compared with $47,500 for the Oracle Database Enterprise Edition. If you are one of the thousands of Oracle salespeople, which one would you sell.  Based on our research, for every dollar Oracle gets from MySQL license sales, it gets $35 to $40 from its core database licenses.

That raises the question of the future of Oracle database business, which has been the growth engine for much of its history. CEO Larry Ellison likes to point out that Oracle got its start by selling secure databases to the CIA, not selling secure applications or secure Cloud products to anyone who puts their faith on its products.

The truth is that Oracle’s database business is not secure anymore. Until FY 2009, SAP and HP were among Oracle’s 10 biggest database resellers, accounting for $147 million and $43 million in revenues, respectively, according to transcripts from the lawsuit filed by HP against Oracle for withdrawing product support for HP’s Itanium server customers.

Assuming a drop in FY10 because of the recession and a rebound in FY11, both companies could still represent at least $200 million in annual revenues for Oracle. A pittance perhaps when one compares that with an estimated $4 billion in database license revenues Oracle gets every year.

Both SAP and HP are forgoing the sale of Oracle database to their customers, the former now in favor of its own database Sybase ASE as well as a high-performance alternative called SAP HANA, and the latter is locked in a hostile hardware battle against Oracle, its erstwhile partner.

Database Commodity

The problem is that once you open the floodgate letting in non believers, you will never recover after they start using cheaper but equally compelling substitutes. It wasn’t too long when one would question the value of a generic cholesterol-reducing drug vs that of Pfizer Lipitor. Now people couldn’t care less if they wipe their nose with a store-brand tissue or Kleenex. In the new era of Big Data, what’s important is not the database one uses, but rather how you can make sense of the massive data repository in real time. Coincidentally 4Q12 was the first quarter in a long time when we saw deterioration in Oracle’s core database business, judging from the flat license revenues of its database and middleware products.

It’s possible that Oracle could revive sales of its database by bundling it with its hardware perhaps at a steep discount. After all, Oracle has done it recently by dangling 10 Exadata boxes plus five-year maintenance for free in front of Alcoa hoping that to dissuade it from adding more HP servers. Again that’s from the transcripts of the HP and Oracle trial.

Anyone who contemplates giving away Oracle’s crown jewel should have their head reexamined. For one thing doing that would suggest that Oracle’s high-end hardware strategy is losing more ground to competitors like EMC Greenplum, HP Vertica, IBM Netezza and Teradata Aster Data, after its reduced expectations of Exaline business made during its 3Q12 earnings call.

Since IBM acquired Netezza in 2010, it has grown its installed base by 40% from 370 to more than 525. In recent months IBM has sold out all of its Netezza. The real problem with Oracle’s hardware strategy, especially on the high end, is that it’s competing with enemies on all fronts and the safest place for its salespeople to call on remains its installed base of database customers, which may start shrinking.

By comparison, IBM Netezza can be sold not only to its Cognos, Infosphere customers, but also those using  Microstrategy or Informatica, while HP Vertica can be easily plugged into Microsoft SQL Server accounts. EMC Greenplum is aligning itself with SAS. With more customers than Oracle Exadata, Teradata can sell to any of its estimated 1,500 longtime data warehouse accounts. In other words, Oracle is fighting with everyone all at once just to get into the door.

To help Oracle solve its current predicament, my advice is as follows:

  1. Defend its core database business at all costs, which mean that it needs to identify a loss leader among its vast product portfolio. It could be something like Hyperion Essbase for reporting or Golden Gate for enterprise information management. Deploy that tactic judiciously to help sell its hardware, database, or applications products.
  2. If it fails to grow its hardware business as it promises to do in the current fiscal year, license the technology liberally to anyone who wants to put it into the data center of the future, expanding that into an Intel Inside-like program powered by Oracle Engineered Systems. If that still doesn’t work, sell the hardware business to the Chinese.
  3. It’s time for company cofounder Larry Ellison, who turned 68 on August 17, to articulate a succession plan. It may be painful for Ellison, who probably has many more things that he wants to accomplish in his remaining years, to give up control. However relinquishing his CEO position would be imperative for Oracle to stake its future away from its database, another crucial step for the company to reinvent itself.

Oracle is no longer a database company anymore. Since its acquisition of PeopleSoft, Oracle has been locking horns with others in the Enterprise Resource Management space. To stay buzzword-compliant, Oracle should align all its products with the Enterprise Cloud in mind. Database just happens to be one of the resources that the enterprise needs to better manage in the Cloud.

The new reality is that it needs to position itself as the technology vendor most capable of harnessing the Enterprise Cloud backed by its long history of developing its basic building block.

Tell me what you think of the future of Oracle @appsruntheworld onTwitter.

Posted in ERP, Oracle, SAP

SAP Chases Constant Cloud Customers By Albert Pang

February 22nd, 2012

The completion of SAP’s acquisition of SuccessFactors raises as many questions about the future of SAP as there are about its past.

One of the key questions is when and how many of SAP’s 183,000 customers would migrate to the Cloud, something that SuccessFactors and its peers have embraced with gusto and benefited handsomely from it as a result.

The obvious answer is that with 14% of SuccessFactors customers, representing nearly 500 organizations, already using SAP applications, it’s just a matter of time that many more SAP customers will choose SuccessFactors as their onramp to Cloud deployment either as a matter of necessity or convenience.

For anyone interested in using SuccessFactors to improve their eRecruiting, performance management, succession planning and even Cloud-based Core HR business processes, SAP will position SuccessFactors as the front and center of its Cloud strategy.

SuccessFactors and its Cloud technologies will take precedence over SAP’s evolving Cloud offerings resulting in the shelving of products such as Career OnDemand, according to SAP.

SuccessFactors will also become the designated Cloud model for SAP to sell and deliver HCM products including Core HR and talent management applications. By May 2012 SAP is expected to come up with specific plans to integrate its entire Cloud portfolio with its existing on-premise products.

Lars Dalgaard, CEO of SuccessFactors, is expected to join the powerful SAP Executive Board as its sixth member(the others are its two co-CEOs, CFO, COO and CTO) capable of shaping the future of the company. I would not be surprised that Lars’ real title is the Chief Cloud Officer of SAP.

All these mean that SAP’s $3.4-billion deal to buy SuccessFactors has transformed the company with its Cloud strategy taking the center stage and evolving from context to core.

Will Customers Buy It?
SAP’s emphasis on the Cloud comes at a time when enterprise applications customers are also transforming themselves in a trajectory similar to moving from Casual Cloud to Constant Cloud.

As Rentokil Initial, a $4-billion business services company, and a growing list of other organizations are favoring Cloud-based applications over on-premise software, the implications for vendors like SAP are significant. Since 2007 Rentokil Initial, which employs 66,000 around the world, has drastically reduced its investment in on-premise applications specifically those from Oracle following increased adoptions of Cloud systems from Salesforce.com to Workday.

Similarly hundreds of SAP customers like ConAgra Foods, Hilti, and Kimberly Clark have been using SuccessFactors for years suggesting that their spend with SAP would have increased had the vendor provided an equally compelling Cloud-based option.

As a result, SAP’s positioning SuccessFactors as the front and center of its Cloud strategy is no longer a matter of convenience, but rather a necessity for the vendor to win in the future.

That brings us to the issue of using SAP’s track record to determine whether the SuccessFactors deal and the current Cloud push would be a ringing success. One is tempted to equate SAP’s current Cloud obsession with its foray into eCommerce(remember SAP Markets?) during the Dot Com boom in 2000. Every software vendor was doing it then, as they are now.

After the Dot Com bust, SAP quickly reverted to its core business of selling big ERP systems. Its subsequent acquisitions including Frictionless Commerce for its on-demand sourcing applications, Triversity in retail, Crossgate in B2B integration and more recently the deal to invest in SAF AG for forecasting and replenishment have been made to augment its sales pipeline. Their impact has been modest at best.

Business Objects and Sybase were bought to help SAP shore up a specific product category. The former has made a stronger impact than expected and one could argue that SAP’s recovery from the deep recession would have been held back longer without the help of the business intelligence products from BusinessObjects. On the other hand, it’s too soon to gauge the ready acceptance of Sybase database among SAP’s installed base despite growing signs that Sybase is being fully integrated into SAP’s sales operations.

In short, most of SAP’s past deals have been more opportunistic than cataclysmic. The question is whether the inclusion of SuccessFactors will become the catalyst to shake SAP at its core. Today SAP is much more diversified with its fledgling in-memory agenda as well as the ambition to become the fastest-growing database company, not to mention its all-important business analytics strategy.

Even with a stated goal of building a €2 billion Cloud business by 2015, compared with €201 million from the combined SuccessFactors and SAP’s Cloud subscription and support revenues in 2011, the target amounts to about 14% of SAP’s applications license and maintenance revenues if they continue to grow at 10% annually through the projected period.

Still the steeper the ramp of its Cloud revenues, the more likely its license and maintenance revenues would be eroded. In the coming months, any unexpected shortfall on either could wreck havoc to its stock price as much as to its ability to target Constant Cloud customers, while easing its dependence on on-premise business.

Perception, duly noted in the Dot Com era, now matters more than reality. The mere act of SAP’s throwing its weight squarely behind the Cloud and thusly reconfiguring its business model is akin to what Amazon.com was aiming to achieve by turning the world of retailing upside down.

The latter has done it with conviction and clarity and I am eagerly awaiting the former to do the same.

Send comments and questions about this blog and how we can help meet your enterprise applications research needs to info@appsruntheworld.com.

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Posted in ERP, HCM, Oracle, SAP

Salesforce.com Steers Social Enterprise Movement Amid Cloudy Outlook By Albert Pang

September 1st, 2011

With growing signs of leading one of the most important segments of the enterprise applications market, Salesforce.com embodies the disruptive power of Cloud-based delivery of sales, marketing and customer service software.

At the same time, Salesforce.com is increasingly using its scalable platform to reach beyond its core competency of selling customer relationship management(CRM) applications by unleashing a floodgate of applications developed by its ISV partners to help customers build the next-generation Social Enterprise, a movement that is designed to engage more users, allow for easy and real-time collaboration across different roles, and ultimately yield tangible results to their bottom line.

Social Enterprise Soars Into Space
This week the power of Salesforce.com is evident at the Dreamforce event where it is pushing into new Social Enterprise frontiers in a series of announcements including an equity investment in ERP vendor Infor in order to help drive back-office data to the new era of real-time collaboration among salespeople, customers as well as those involved in non-sales functions like finance, production and supply chain management.

Similarly Salesforce.com has invested in startup Kenandy, a Cloud-based ERP vendor founded by Sandra Kurtzig, a guru in manufacturing applications who is expected to be instrumental in helping Salesforce.com reach not just regular salespeople, but also production supervisors and quality managers of asset-intensive companies from Siemens to Toyota.

In addition to the investments, Salesforce.com introduced a new portfolio of Social Media-infused tools and services including Chatter Now for instant messaging, Chatter Service for self-service knowledge gathering and Data.com for enhanced crowd-sourcing with Dun & Bradstreet’s proprietary business data. All these new offerings will start leveraging HTML5 to bedazzle users with an attractive frontend ideal for mobile device viewing.

During the week-long Dreamforce, the common catch-all phrase from Salesforce.com executives is that Social Enterprise has become the “rocket ship’’ that will propel the business of anyone associated with the vendor’s platform and applications strategies to stratospheric levels. However the sunny outlook is clouded by a host of issues that Salesforce.com needs to address in order to fulfill its vision of taking its stakeholders along for the rocket ship journey.

There lies the paradox of one of the most successful software companies that has transformed the CRM applications market for more than a decade. Yet it has failed to make a profit consistently, while its recurring revenues from its existing customers appear to have stalled.

Salesforce.com Dethrones Siebel
During that period, Salesforce.com dethroned the former champion of CRM software Siebel by reinventing the market segment with the innovative use of the on-demand delivery model, or for that matter redefining how customers should be served in the new era.

For its part, Siebel scored a series of home runs with its integrated sales force, marketing and customer service automation applications until it was weakened by tumbling sales following the Dot Com bust. Finally Oracle acquired Siebel in a $5.8-billion deal in 2005.

Unmistakably Salesforce.com is in a stronger position than Siebel at any point in its history. When Siebel was acquired by Oracle, it only had fewer than 5,000 customers. Today Salesforce.com has more than 100,400 customers. And there are thousands more from its recent acquisitions of Heroku and Radian6 that have shored up its capabilities in Web development in multiple programming languages and social media applications.

As the following table shows, Salesforce.com was the No. 1 CRM applications vendor worldwide in 2010, edging past Oracle and SAP and others still reeling from the last recession. Salesforce.com, which led the $15.8-billion market with nearly 10% share last year, never skipped a beat even in the depth of the recession by picking up more customers and recurring revenues than its competitors.

In a survey of more than 1,000 IT managers, executives and CIOs conducted by APPS RUN THE WORLD this summer, Salesforce.com was found to be the primary Sales Force Automation systems at more than 12% of the surveyed companies – consisting of mostly enterprises with more than $500 million in revenues. In many cases these companies have positioned their Salesforce.com system as the primary CRM engine displacing Siebel that has laid dormant after years of under-utilization or failed implementations. For example, Salesforce.com stands side by side with Siebel at a 6000-person media company acting as a customer-facing engine that sits between its ad servers and the back-end Oracle ERP to support its online advertising business.

Additionally Salesfore.com is on a $2.2-billion annual revenue run rate after posting a 38% jump in sales to $546 million in its latest quarter. During that period, Salesforce.com signed more than 60 deals with each yielding at least $1 million in subscription revenues over the length of the contract. It also signed three $10-million+ deals, plus another $10-million+ transaction following the end of the quarter.

Salesforce.com Faces Considerable Challenges
However, such success stories mask a host of problems with Salesforce.com. By one measure, Salesforce.com gets less subscription revenue per customer than some of Social CRM applications vendors as if they were beating Salesforce.com at its own game because the pervasive nature of their Cloud-based services has translated into bigger subscription sales.

As the following chart shows, Salesforce.com received $1,631 in average monthly subscription revenue per customer in its latest quarter. By comparison, Eloqua, which sells Cloud-based marketing automation applications and is also an ISV partner of Salesforce.com, saw its monthly subscription revenues from its more than 1,000 customers reaching $4,966 in the second quarter of 2011, according to its S1 filing in advance of its initial public offering.

Social business applications vendor Jive, which is also planning its own IPO, did even better with monthly subscription revenues averaging $7,874 from its 635 customers during the same period, according to its S1 filing.

Despite a steep rise in its early years, Salesforce.com’s monthly subscription revenue per customer has been stuck at $1,400 level over the past few years.

What that suggests is that Salesforce.com’s continuous growth in subscriber base has not translated into bigger wallet share among its customers. The lingering recession could have played a role behind some companies reducing their Salesforce.com expenditures as part of their overall cost-cutting moves. In addition new services like Chatter have been bundled into its CRM sales without incurring additional revenues. Another reason is that the new wave of social CRM apps vendors are beginning to undermine Salesforce.com’s mind share and market positioning because the newcomers are considered easier and more affordable to use on a large scale.

Jive, for one, is said to have more than 15 million users running its products. Cloud-based vendors from Cornerstone OnDemand to SuccessFactors are touting six million and 15 million subscribers , respectively. Salesforce.com, which has not publicly revealed the number of users in recent years, is estimated to have fewer than three million users.

Salesforce.com will face stiffer challenges than ever in getting its products into the hands of potential users. In the same survey that we conducted this summer, one of the biggest electronics makers has decided to adopt Eloqua as its primary marketing automation system, despite the fact that it also uses Salesforce.com, Microsoft Dynamics CRM and Siebel to automate its sales function in different parts of the organization.

Aiming to boost utilization of its software throughout an organization, Salesforce.com this week introduced a new social enterprise license agreement that allows every employee within its customers to have unrestricted use of its products.

It is not clear whether such a program would help address another big problem, which has to do with the inability of Salesforce.com to make a decent profit even though its products have been on the market for more than 10 years.

The cumulative earnings(net income after tax) for Salesforce.com since its founding in 1999 amounted to $173.4 million, or 2.7% of its aggregated subscription revenues of $6.4 billion. In the first half of its fiscal 2012, it lost $3.7 million following a series of acquisitions. By comparison Oracle posted $3.2 billion in earnings, or 30% of $10.7 billion in total revenues in its last quarter of fiscal 2011. SAP posted $851 million in profit after tax, or 23% of its product sales of $3.7 billion in the second quarter of 2011.

One of the reasons behind Salesforce.com’s spotty earnings track record has to do with its heavy sales and marketing spending, which represented half of its revenues in its latest quarter. Oracle spends 20% of its revenues on sales and marketing. Intuit, which sells both packaged and on-demand ERP and business management applications and is twice the size of Salesforce.com, spends only 29% on sales and marketing in its latest fiscal year.

There are signs that Salesforce.com is making an effort to address its high sales and marketing expense ratio by working closely with its ISV, reseller and systems integration partners. At this week’s event, Salesforce.com announced a $50 million fund to help its consulting partners expand their capacity, thereby lowering the costs for the vendor to sell and service its customers.

However these new programs will take time before they can have a positive impact on its financial results.

Salesforce.com To Shift Strategies
In the meantime, there are near-term measures that it can do to remedy the situation, while positioning itself to become one of the biggest beneficiaries of the Social Enterprise movement.

For one thing, sales force automation has become a losing proposition when much of the selling is done over online commerce and end-to-end order management. The rise of social media points to the fact that its future is tied not to salespeople using Salesforce.com to better connect with their customers, but rather harnessing the collaborative power of all employees(sales, marketing, R&D and support), partners and even customers themselves working with tools like Chatter Now to address specific customer requirements.

That’s why Oracle has spent $1 billion on its recent acquisition of ATG as well as additional resources to promote the Distributed Order Orchestration strategy that is at the heart of its Fusion Applications.

While Oracle may have lost many Sales Force Automation deals to Salesforce.com in the past, the real value of the Siebel assets lies in hard-to-replicate expertise in such verticals as pharmaceuticals, financial services and communications. Again Salesforce.com is acknowledging that its future will be based on how relevant its solutions will be in the eyes of these vertical industry users and it’s working closely with its channel to address that.

The last thing, or perhaps the most important move, is for Salesforce.com to turn Chatter into a full-blown open social network, broadly expanding its reach to tens of millions of users. Currently Chatter, which is being run as a private social network for businesses, has been adopted by 100,000 organizations. However it is not clear how defensible is the positioning of Chatter when formidable players from FaceBook to Google allow segments of their hundreds of millions users to create business-class private social networks.

If it fails to thwart such threats, Salesforce.com may need to consider the unthinkable by buying a complementary social network like LinkedIn. At a market cap of more than $8 billion, it would be an expensive purchase.

Still the window of opportunity is narrowing and Salesforce.com may need every rocket ship component that it can find in order to sustain its leadership in the CRM applications market and become the biggest Cloud service provider behind the making of the new Social Enterprise.

Let us help you better understand the positioning and market shares of CRM and Social Enterprise vendors like Salesforce.com by emailing us at info@appsruntheworld.com.

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Posted in Oracle, Salesforce.com, SAP

An Unconventional Approach From SAP To Score Industry Wins By Albert Pang

July 19th, 2011

The conventional wisdom is that SAP has been particularly successful selling into heavy industries. After all, it got its start in the 1970s developing accounting and production management applications for the likes of Dow Chemical, John Deere and other stalwarts in oil and gas and industrial equipment.

Things have changed considerably through the years. At a show of its ability and unique value proposition in serving services industries – along with its formidable presence in chemicals, manufacturing and other asset-intensive verticals – SAP is taking the conventional wisdom to task.

By aligning its newly developed and acquired technologies with the needs of different industries, SAP is seeking to change public perceptions while reaffirming its commitment to creating highly-differentiated solutions for their specific functions.

At a recent full-day analyst briefing, SAP detailed its latest industry strategy and future roadmap covering dozens of upcoming products including real-time risk reporting for banks, electronic medical record systems accessible from mobile devices for health practitioners, and demand planning and warehouse analytics for retailers. The event underscored SAP’s unwavering support for industry-specific solutions that harness new and existing technologies to deliver results in a fairly unconventional manner.

Challenging the widely-held assumptions that its implementations are long and costly, SAP is instituting rapid deployment options that result in fixed price and fixed scope projects due for completion in a matter of weeks. Since September 2010 SAP has built 40 of these Rapid Deployment Solutions with signing of more than 200 contracts including many that are based on industry-specific requirements such as manufacturing integration and intelligence for batch manufacturing.

And if customers prefer not to implement these systems in-house, SAP is positioning its on-demand offerings – namely SAP Business ByDesign – to meet the Cloud-based requirements of its target audience across different industries. For example, 45% of Business ByDesign customers and prospects can be found in the professional services vertical with the ease of on-demand delivery as one of their biggest reasons selecting and evaluating the new software from SAP.

HANA, Mobile, Analytics Permeate Industry Solutions
SAP’s industry focus has been bolstered by the additions of its new assets. SAP HANA, which takes advantage of tumbling hardware costs and the latest compression technology that facilitates in-memory computing, aims at boosting price performance of its applications while rendering the use of local databases obsolete.

Similarly SAP is making good use of advanced mobile technologies that it acquired from Sybase to shore up its offerings in such areas as mobile banking, EMR and couponing redemption at check-out stands.

In addition SAP is wrapping business analytics – led by major new releases such as SAP BusinessObjects Business Intelligence 4.0 and Enterprise Information Management 4.0 – around industry-specific solutions. For example, SAP applications for the telecommunications industry are designed to offer relevant data and strategic insights to users by role with ready access to network performance, cost and profitability analysis, and customer sentiment and monitoring dashboard.

None of these new products, or SAP’s renewed industry efforts, matter if its field operations and partners fail to draw collective strengths from each other in order to achieve win-win outcome for both. And SAP is quick to acknowledge the steep learning curve involved for its salespeople, or its fledging on-demand ecosystem for that matter. Once again SAP is relying on an unconventional approach to make its industry strategy a resounding success.

To that end, SAP has appointed two executives to assume joint responsibility of its industry solution portfolio, which now amounts to nearly half of its revenues.

By pairing up product guru Kerstin Geiger, a 14-year company veteran steeped in manufacturing processes and solution development, with customer advocate Jeff Harvey, who has held a number of sales and customer care management positions since joining SAP in 2002, the vendor is replicating its dual-CEO structure at the go-to-market level in order to strike the right balance between product innovation and widespread customer acceptance.

As its executives reiterate SAP’s industry value that bridges enterprise applications and vertical solutions to drive user benefits, the gating factor is whether the unconventional approach is capable of not just confounding the skeptics, but also exceeding general expectations by winning customers even in certain services industries where SAP traditionally has not been considered a serious contender.

To look up SAP’s track record of securing and winning market shares in different industries, register and access our library of Vertical Market Reports on www.appsrun.com or send inquiries to info@appsruntheworld.com for custom data cuts on SAP and its closest competitors.

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Posted in SAP, Verticals

Business Analytics For the Masses By Albert Pang

June 27th, 2011

There has been a lot of talk about the merits of business analytics, which is a cut above what business intelligence can do, but we will get to that in a minute. What matters is that we are at the tipping point of a new way of gathering intelligent data, aggregating and cleansing loads of them, and finally making sense of the obvious and not-so-obvious insights for planning and forecasting purposes through role-based reporting.

For more than a decade, much of the growth of the business Intelligence software market has been about helping large organizations manage massive amounts of data, querying them with data-mining tools and generating sophisticated dashboards that show visually stunning results ranging from complex key performance indicators to simple-to-understand metrics.

The Big Data phenomenon is just that. After years of collecting petabytes of data, many large enterprises now have access to anything they want to know about their customers. Apple is said to be beefing up its storage capacity to the tune of 12 petabytes in order to manage the video download of its customers.

Simultaneously these multinationals are unleashing a torrent of data that none of their customers can decipher intelligently. Recently a CIO spoke of the feed for its business data subscribers now reaching 700,000 updates per second, an output that is beyond human capacity to absorb, let alone doing anything with it.

SMBs Embrace Business Intelligence
Meanwhile, small and midsized companies have become the next battleground for business intelligence software vendors vying to bring enterprise-class analytics and reporting tools to the masses, an outcome that could have multiplying effects to the applications market.

As shown in the following graphic, SAP, which has already held nearly a quarter of the $7-billion BI market worldwide, is making that force multiplier more evident.

Worldwide Market Shares of Top 5 BI Vendors, 2009-2010

Earlier this month SAP introduced SAP Crystal Server 2011 and the 4.0 release of SAP BusinessObjects Edge Business Intelligence. The products, which can be purchased as a bundle or separately, offer improved data search, drill-down and dashboard viewing capabilities. Additionally SAP BusinessObjects Edge 4.0 extends support to mobile users, while its Event Insight function allows SMEs to monitor business scenarios in real time and respond to market changes accordingly. Its text data analysis feature even allows customers to analyze what’s being said about their products and services on social media sites such as Facebook and Twitter.

Such enhancements are instrumental in helping small and midsized companies make smarter decisions in response to shifting market conditions including whether and when they should adjust their inventory levels, channel promotions or marketing expenses based on real-time data. By leveraging SAP’s on-demand delivery model, these users can either implement these BI solutions without the help of their IT departments or proceed with these projects in a compressed timeframe by taking advantage of SAP rapid deployment options.

In addition to selling the products directly, SAP has been working with a growing army of OEM and reseller partners to make BI as ubiquitous as possible. For example, Syspro, which has secured a base of 14,500 mid-market customers in such verticals as consumer and packaged goods, life sciences and manufacturing, is incorporating many of the latest dashboard capabilities from SAP Crystal Server to boost the usability of its ERP applications by making it easier for business users from CFOs to purchasing managers generate tailored reports for their day-to-day responsibilities.

For Syspro, the combined ERP and BI software for functions like inventory management, executive dashboard and what-if scenario visualization has galvanized support for its products, while delivering tangible value for users that now have easy access to real-time information. For example, Honest Tea, a beverage maker, cited its ability to halve its inventory levels because of the availability of such useful information by running the Syspro system.

Pentaho, Tableau, Qliktech Join The Fray
SAP is not the only BI vendor eying the SME market with great interest. Pentaho, which has made its name in the open-source BI marketplace, introduced Pentaho BI 4 Enterprise Edition in June. One of the key targets is non-technical business users who can use the new product to create highly formatted, interactive reports with zero training or involvement from the IT department.

While Pentaho has been used by big organizations like Sheetz and Swissport, it has also attracted hundreds of small and mid-sized commercial customers, not to mention the viral effects on those who have been using its BI products for free at a rate of one download every 30 seconds.

Tableau is another fast-growing BI vendor that has made its name by lowering the barriers of entry with Tableau Public, a free service that anyone can use to create and publish interactive data visualizations to the Web. Since its launch in February 2010, more than 10 million Web pages with Tableau Public data visualizations have been served.

Elsewhere, Qliktech has seen its customer count soaring to more than 18,000 from 13,000 in 2009, after making small and midsized companies a major plank of its BI strategy. Quadax, one of Qliktech’s customers that sells its own software into life sciences vertical, was able to implement the mobile BI product from Qliktech in six weeks and now 110 Quadax users use their iPad to access analysis for managing payer reimbursement metrics and trends from clinical laboratories, vastly improving the quality of data they receive for better support of their clients.

Qliktech also OEMs its BI products to vendors such as Deltek, which specializes in business applications for small and midsized customers including 1.8 million users representing more than 14,500 firms in architecture, engineering and construction as well as government contracting space.

Business Analytics Becomes The Holy Grail
When one tabulates the potential of these vendors and the new and recurring revenues they generate from customers and reseller and OEM partners, the market for business intelligence software is expected to grow from $7.3 billion last year to $10.4 billion by 2015.

But the Holy Grail may well be the business analytics market, which includes not just Business Intelligence, but also features such as enterprise information management for data aggregation and cleansing and enterprise performance management for planning and forecasting.

Moreover SME customers are turning to business analytics to complete tasks like applying analytics to Web front-end in order to deliver role-based reporting. In order for that to happen, more intelligent data will need to be layering on top of the analytics one gets from monitoring eCommerce sites or other customer-facing channels like retail stores. The analytics could become more useful if one can ascertain the impact on inventory, service and staffing levels, all of which will require bringing in additional software features like supply chain, customer relationship, and HR management, boosting the total addressable market for business analytics to new heights.

Instead of a $10-billion market opportunity, the worldwide business analytics software opportunity could reach $30 billion by 2015, according to our latest estimates. Based on the direction that these vendors are headed and the keen interest among small and midsized companies, a user community that has barely begun leveraging business analytics as a competitive edge, the payoff for vendors and other key stakeholders is real and unmistakable.

The question is whether any one has the right formula of delivering smart and high-impact business analytics solutions and tying them together in a neat and attractive package for any business to realize and achieve the predictable and desirable outcome.

Don’t forget to check back for our continuous coverage of the business analytics market. Write to us at info@appsruntheworld.com for any questions about our market sizing reports.

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Posted in SAP

Deltek Profits From Project-Focused Markets By Albert Pang

June 2nd, 2011

With a knack of automating professional services organizations and government contractors, Deltek has what it takes to steer these customers and ultimately reshape the way they manage the lifeblood of their operations – complex and long-term projects.

In fact, Deltek, which has been selling into project-focused organizations for nearly 30 years, is experiencing an upturn in its core market, enlarging its global presence, and realizing the benefits of its recent acquisitions.

After a long recession that has dealt a blow to its customers in professional services and government contractor verticals, Deltek is seeing shoots of green in areas that could hold the key to its future.

With its unrelenting focus on project-focused customers, Deltek’s perseverance has begun to pay off as it parlays its domain expertise into new market opportunities and expanded product offerings.

Kickstarting Insight
At Deltek Insight, its annual customer conference held recently in Nashville, Deltek announced its plans to take aim at fast-growing markets from on-demand applications delivery to real-time analytics, while shoring up the project management and market-research capabilities of its long-time government contractor customers.

The key announcements included Deltek First, the vendor’s on-demand applications for small and mid-sized government contractors. Leveraging its industry-specific knowledge and the framework from its GCS accounting solution, Deltek First offers robust project accounting and reporting, time and expense collection, and fixed assets capabilities, along with viagra development and market intelligence add-ons.

Under a partnership with BI vendor QlikTech, Deltek has introduced Deltek Costpoint Analytics, a dashboard and analytics solution for professional services organizations to better track project performance, manage budgets and optimize profitability with the use of advanced business intelligence.

The vendor also introduced Deltek PM Compass, which allows program managers and project leaders in the government contractor space to have an aggregated view into complex programs. It augments their capabilities with automated workflows, alerts and notifications, as well as built-in data-mining and other tools to help them manage programs from one central location.

These announcements kickstarted a new growth period for Deltek following its recent acquisitions, product enhancements, and more importantly the expansion of its industry content and international operations.

Compelling Synergy
In March 2011 Deltek acquired Washington Management Group including its FedSources, complementing its INPUT business, which enables companies to identify and develop new business opportunities with public sector organizations. Combining its GovWin software with market intelligence and business development tools from FedSources and INPUT allows Deltek customers to have a better shot at winning government contracts.

Last year Deltek also acquired Maconomy, which has established a major foothold in Europe and other regions with its full suite of applications designed for automating financial and project management functions at professional services organizations especially those involved in marketing communications, public relations, as well as accounting, consulting, and legal services.

In the first quarter of 2011, half of its biggest deals came from international sales as a result of the Maconomy acquisition. Hill and Knowlton, Leo Burnett and Ogilvy Public Relations are among Maconomy’s long-time clients.

Deltek’s flagship product Vision, which offers localized versions in Dutch, French, and Spanish, has enjoyed global acceptance with recent wins including Valstar Simonis, a Dutch engineering company with 85 employees. Tauw, a large engineering firm in the Benelux region, has standardized on a full suite of Deltek’s CRM, ERP and project management applications.

With an installed base of more than 14,500 customers and 1.8 million users, Deltek caters to architecture, engineering and construction firms as well as a slew of government contractors and professional services organizations that rely on the vendor to manage their back-office and increasingly customer-facing operations.

Moving upmarket
Though many of its customers are considered small and midsized companies, Deltek has also succeeded in selling into big firms including SAIC, one of its major accounts that has 40,000 users running its applications.

In fact the acquisition of Maconomy, which already offers multicurrency and local statutory support, has enabled Deltek to pursue bigger deals. Two of its major deals in the first quarter of 2011 came from organizations with more than 5,000 employees.

Regardless of their size, what these companies have in common is that because of the nature of their projects, whose duration can stretch from weeks to years, their business processes for costing, compliance and project management have grown in complexity.

Budget cuts from government agencies, coupled with increased competition, are also forcing Deltek users to look for better business development, customer relationship management and analytical tools to help them identify, pursue and capture new market opportunities.

As a result, the new products and services ranging from on-demand applications delivery to off-the-shelf analytics and Maconomy’s offerings for big professional services organizations underscore the integrated approach by Deltek.

By addressing the needs of professional services organizations holistically, Deltek is taking the high road similar to the transformation under way among its customers, which have had their share of mergers and acquisitions in order to achieve the economy of scale needed to replicate successful projects across sectors and geographies.

Deltek is replicating such best practices as well. For example, integration between Deltek Vision and Maconomy People Planner for resource management is under way. The same applies to consolidating the databases between content repositories from INPUT and FedSources.

Sustaining Momentum
Deltek’s recovery is still a work in progress and any sustainable organic growth will depend on the health of its mainstay – millions of small and midsized professional services organizations that subsist on a mix of government and commercial projects.

With an eye toward integrating its acquisitions as well as delivering new and expanded offerings for everything from project management to business intelligence, Deltek is on the path of showing solid growth with increased revenues and expanded installations.

After peaking at $289 million in company revenues in 2008, Deltek’s sales slumped because of the recession. Now incremental contributions from its recent acquisitions will push Deltek’s business to new heights topping $360 million in 2011. The move toward on-demand delivery and global expansion will entail Deltek’s reaffirming its commitment toward project-focused organizations, while ensuring that it has the right solutions to exploit untapped opportunities in new regions.

Feel free to email me at apang@appsruntheworld.com and tell me what you think of the future of enterprise applications in the professional services vertical.

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Posted in ERP

SAP Targets One Billion and One Users By Albert Pang

May 26th, 2011

If SAP has its way, its software will reach one billion and one users by 2015. The first billion is SAP’s stated goal, the superfluous but no less important singular user is my addition. Whether it succeeds or not, SAP’s future is at stake.

Before the goal can be reached, SAP, whose software has already been in use by 109,000 customers and hundreds of millions of people, has laid out a series of measures to prepare for and capitalize on the onslaught of new and existing users.

That was evident at the recent SAPPHIRE NOW held at the Orlando Conventional Center, which was configured as a trade show, dedicated theaters, group discussions around conference tables, and new media experiences on a global scale all rolled into one.

One of the narratives of the theme-infused SAPPHIRE NOW was the rise of mobile applications. Sybase, following its acquisition by SAP for $5.8 billion, was spotlighted as the key enabler with the rollout of Unwired Platform 2.0 and the primary mobile applications developer.

Other recurring themes included combining Rapid Deployment solutions with in-memory computing to boost reporting capabilities; leveraging AWS and Azure Cloud Computing platforms under expanded alliances with Amazon and Microsoft, respectively; as well as sustaining customer interest with both on-premise and on-demand offerings including the latest business analytics applications for line of business executives and the revamped Business ByDesign for midmarket businesses.

A Touch of Mobility
Dozens of mobile applications from Sybase, which has become one of the biggest SMS messaging backbones responsible for processing 1.5 billion text messages per day, will start hitting the market in the coming months capable of automating such tasks as workflow approvals for HR processes like employee profile lookup, vacation request and scheduling and time capture. Other mobile apps Sybase plans to release are designed for customer relationship management, travel and expense management and industry-specific functions. A healthcare mobile application on iPad, for example, allows doctors to access records from patient history to medical images.

The quasi-electronic health record application from Sybase, which does not have full-blown scheduling and specialty features like oncology treatment plan, comes amid the EHR push by the US government to help providers defray the costs of incorporating such systems into meaningful use of their daily practices through billions of dollars of subsidized programs that aim to boost quality of care as well as eliminate medical errors and bloated expenses associated with manual systems.

Altogether it represents SAP’s first major foray into developing hundreds, if not thousands with the help of other ISVs, mobile applications that could unite businesses and their customers all revving to tap into the wonders of mobility with easy access to mountains of information at their fingertips.

With sales of smart phones approaching 100 million every quarter(Apple alone shipped nearly 19 million iPhones in the first three months of this year), such mobile applications will become the impetus behind SAP’s ambitious goal of reaching one billion users.

A Momentous Event
Unlike previous SAPPHIRE events where much of the action either took place on the show floor or behind the doors of private meeting rooms, the conference has taken on an added dimension by infusing new media including social networking and live webcasting into everything about the show. Blogs, tweets and Facebook posts about the event reached untold millions of people around the world as they happened.

The command center of the new media strategy sat next to Studio 3 where the Sybase announcement was made. With an air of a NASA control room, hundreds of video servers, laptops and LCD monitors were stacked from floor to ceiling transmitting TV production-quality images to a global audience. The Orlando show was connected simultaneously to four regional events in Europe.

Suffice it to say that the vendor’s positioning SAPPHIRE NOW 2011 to break last year’s record of reaching more than 50,000 people onsite and online was to surpass Oracle Open World, the competing event that drew 41,000 attendees in 2010.

There are legions of customers and buyers who would attend both events and compare their strategies before making their final decisions. Thus the bragging right of who holds a bigger event is symbolically important in an age where the actual number may carry less significance than its underlying implications.

Given the outsized presence of both in the enterprise(what’s at stake is at least 30% shares of the $34-billion worldwide ERP market between them and the future leadership), any purchase decision underscores how enterprises view the future of computing in general.

Oracle, in trumpeting its Exadata database machine, favors high-volume data-processing(we’re talking about petabytes of data here) in a box approach, while SAP gravitates toward in-memory computing, which foresakes reading of data from disks or flash storage and instead keeps the processing tasks, including calculation and planning and data management within the main memory, thus rendering a dedicated database like Oracle obsolete.

Both claim to deliver superior performance. SAP cited an example of pairing its in-memory computing engine with SAP Business ByDesign to handle what used to be considered batch processing of dunning analysis of outstanding account receivable items. Using the in-memory system, the task takes 13 seconds, compared with 77 minutes previously.

Power of A Single User
Which brings us back to the superfluous user, who could be the CFO or CEO needing to pick up a real-time sales report before a board meeting. In fact there are no shortages of executives who would prefer accessing a report on the fly on their mobile devices, rather than asking someone else to generate it for them, let alone waiting 77 minutes for that to happen.

Hence in an age where there is an unlimited amount of information anyone can access, what a useful piece of technology is supposed to do is to help furnish a timely report that is relevant, accurate and in the right context.

Indeed the future of SAP, or any technology vendor for that matter, may ride on that individual who feels empowered by the promise of the technology to help fulfill his/her version.

After all, SAP’s target of reaching 1000000001 users is as symmetrical and symbolically important as factoring in that single user who could make the whole difference in the world.

Feel free to email me at apang@appsruntheworld.com to tell me what you think of SAP, future of computing, or for that matter power of the individual in the digital age.

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Posted in ERP, Oracle, SAP

Are Activant, Epicor Overpriced, Lawson Undervalued in ERP Buyout Frenzy? By Albert Pang

April 11th, 2011

The ongoing M&A transactions involving Activant, Epicor, Lawson, and a phalanx of others waiting in the wings are expected to enter a new phase of intense negotiations all in the hopes of securing the best possible deals for their shareholders.

Two of this year’s biggest software deals – the merger between Activant and Epicor bankrolled by UK private equity firm Apax Partners and Infor’s offer to buy Lawson – present striking contrast over the valuation of these ERP applications vendors.

The final outcome could serve as a harbinger for the software sector as the fight over market share intensifies triggering an avalanche of deals for the remainder of 2011.

A closer look at the balance sheets of the ERP vendors being acquired suggested that Apax, or the investors who entrust their money with the private equity firm, could end up paying a lot more than those on the Infor side, which coincidentally is also owned by a private equity firm called Golden Gate Capital.

Between The Lines
It is a telling example of how the two investor groups have placed such different premiums on their targets using common metrics: sales, earnings and long term debt.

As the accompanying chart shows, Apax is paying $976 million, or $12.50 a share, for Epicor, which has not been profitable since 2008. Epicor had about $103 million in cash as of December 31, 2010. Subtracting that, Apax’s offer goes down to $873 million. On the other hand, Epicor’s long-term debt reached $230 million as of the end of last year.

Anatomy of ERP Deals

Despite its recent losses, Epicor 9, its latest flagship ERP release, has been gaining momentum since making its debut in late 2008 with more than 300 live customers and another 600 going live by June of this year. Robust demand for Epicor 9 propelled the vendor’s license sales by 17% to $82 million last year.

Activant is a different story. Apax is paying $890 million plus $69 million cash on hand, totaling $959 million, according to its 8K filing with the SEC. Activant does not have the equivalent of Epicor 9, a go-to-release that its 10,000+ customers could migrate to in droves. Instead Activant offers multiple ERP brands such as Catalyst, Eagle and Prophet 21 that it culled from a series of acquisitions. Despite the purchases, its revenues have barely budged since 2007. For its latest quarter ended Dec. 31, Activant’s systems revenues including license sales rose 5% to $29 million, while services revenues including maintenance were unchanged at $61 million.

What’s astonishing about Apax’s nearly $1 billion offer to buy Activant is the vendor’s sizable debt load, which amounted to $495 million as of the end of 2010. To be fair, Activant has been paring its debt – down from its peak of $633 million in 2007, by selling off assets such as its productivity tools division last year.

It will be interesting to see how the merged company under the Epicor name will fare – specifically whether it can turn a profit – after getting about $2 billion in cash from Apax, whose investors are now saddled with a total debt load of at least $725 million. In 2010 Activant’s annual interest payment topped $31 million, or 8.3% of its revenues, and Epicor’s was $20 million, or 4.5% of its revenues.

By comparison, Constellation Software paid $3.8 million in interest, or 0.06% of its revenues last year after embarking on a series of acquisitions to become a major ERP vendor bigger than Epicor or Activant. Even Oracle’s $754 million in interest payment amounted to only 2.8% of its revenues last year.

Infor’s Offer Is A Steal
If the merger between Activant and Epicor sounds overpriced and it may take years before Apax can get its desired return, Infor’s $1.8-billion offer, or $11.25 a share, to buy Lawson is a steal.

After subtracting Lawson’s $302 million cash on hand, Infor’s offer goes down to $1.5 billion. Lawson’s long-term debt was $230 million and its annual interest was $12 million, or 1.6% of its revenues.

The real gem of Lawson is in its consistent performance, thanks to rising license and maintenance revenues since 2005. In its latest quarter ended Feb. 28, Lawson’s license sales grew 6% to reach $33.7 million, while maintenance revenues rose 9% to $97.4 million. Earnings per share jumped to 13 cents from 1 cent in year-earlier period.

During the quarter Lawson secured 313 deals including six worth more than $1 million and its average selling price spiked 22% to $114,000. The vendor also experienced across-the-board increase in its regions including Lawson EMEA where it advanced 6% in sales as it began to emerge from its doldrums.

What Infor is aiming to purchase is a reliable performer with relatively low debt and considerable traction with its core operations namely healthcare and Human Capital Management, as well as continuous improvement to its M3 product line sold primarily in Europe. By most measures, Lawson, even at its Friday close of $12.37 or 10% premium over the Infor bid, appears to be undervalued and the Infor offer less generous than what Apax is paying for Activant and Epicor.

That brings us back to Constellation Software, which is scouting for a buyer or merger partner after naming BofA Merrill Lynch and BMO Capital Markets as its advisors on the same day Apax announced its purchases.

With a market cap of $1.47 billion, little debt and an eye-popping recurring revenue stream at $337 million in 2010 maintenance sales after jumping 34% from a year ago, Constellation Software could fetch a higher price than Infor’s bid for Lawson, or even the combined purchase of Activant and Epicor.

Then again beauty is in the eye of the beholder and some insanely high or ridiculously low offer could be made and even accepted by Constellation Software, throwing the whole valuation exercise out of whack. Think HP’s bidding war against Dell over 3PAR.

In an increasingly heated buyout environment(16% rise in global M&A activity in first quarter of 2011 by one account), ERP applications vendors, or any software vendor with solid performance, are advised not to jump at the first chance of accepting any seemingly generous offer. Instead they should frame their strong fundamentals to their advantage by harnessing the latest market research resources to buttress their negotiating position.

Feel free to email me at apang@appsruntheworld.com with questions on the latest ERP buyout frenzy and how you can leverage our market research data to help unlock your value.

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Posted in ERP, Infor, Lawson, Oracle, Uncategorized

The Next Great Top 10 ERP Vendor Lineup By Albert Pang

April 4th, 2011

A series of synchronized moves have rattled the Enterprise Resource Planning(ERP) applications market, challenging the key players in high-growth verticals, while raising the specter of a number of enticing scenarios that could upend the global software marketplace.

Follow The Money
On April 4, Apax Partners, an UK private equity firm, scooped in and paid about $2 billion for two ERP vendors Epicor and Activant to create a powerful bloc in the midmarket as well as strategic verticals such as auto-parts distribution, retail and manufacturing.

The same day Constellation Software, a $630M Toronto-based ERP vendor with more than 20,000 customers in government, construction and transportation verticals, announced that it has hired BofA Merrill Lynch and BMO Capital Markets to act as its advisors for evaluation of strategic alternatives. Whether and how Constellation Software is going to pair up with another ERP vendor, or any buyer for that matter, is unclear. But the handwriting is on the wall that Constellation will assume a different corporate identity.

The above developments followed last month’s unsolicited move by Infor to acquire Lawson for $11.25 a share, or $1.8 billion, a sum that now seems to be woefully inadequate given the trend that Lawson’s share prices have consistently risen above 10% of the Infor bid in recent days.

Meanwhile, TOTVS, one of the fastest-growing ERP vendors in recent years, last Friday paid $6.4 million for the remaining 30% stake of financial software developer TOTALBANCO CONSULTORIA E SISTEMAS S.A., it did not own. The purchase strengthened the hold of TOTVS in the white-hot Latin America enterprise applications market. In 2010 TOTVS added 2,840 customers to reach a total of 25,000 customers throughout the Latin America region.

The Next Great Lineup Of Top 10 ERP Power Players
As the accompanying chart illustrates, all the preemptive moves and interlocking steps will upend the $33.6-billion worldwide ERP market. If the deals go through, the new lineup will look something like this: SAP and Oracle will continue to hold double-digit shares at 19% and 11%, respectively. Both will pursue additional acquisitions in order to sustain their lead. Oracle, for example, acquired ATG for $1 billion in January to shore up its eCommerce capabilities.

Next Great Powerbrokers

The New Top 10 ERP Applications Vendors, Worldwide Software Revenues, $M


On the other hand, the next tier of major ERP vendors Sage, Infor(assuming that it will complete the Lawson deal) and Microsoft own 4.4%, 3.9% and 3.7% shares, respectively. Each of the players will do anything possible to rise above the rest in order to claim the all-important No. 3 spot. Given their industry-specific expertise, they have every intention to close in on the No. 1 ERP leader by marshaling their global resources and ecosystems in any close vendor evaluation process and positioning themselves as the clear alternative to the incumbent.

Then there are Epicor/Activant, UNIT4, TOTVS, Constellation Software, and Intuit finishing the lineup of the top 10 with each securing between 1% and 2% share of the market. With a combination of organic growth and well-timed acquisitions, these five formidable players will continue to excel in their strategic areas(UNIT4 in professional services, for example) while ensuring their supremacy in major theaters and markets(Epicor in Italy, UNIT4 in Benelux, TOTVS in Brazil, Constellation Software in German public transportation market, and Intuit in US accountancy).

Now both Infor and Epicor/Activant have raced ahead in their ranking, throwing into disarray the old list, which includes the following 10 vendors in the descending order:
SAP, Oracle, Sage, Microsoft, Infor, Unit4, Lawson, TOTVS, Constellation Software, and Intuit.

All these mean that the newest top 10 vendors will set their sights on one another or on those that trail behind them. The list includes CDC in Asia Pacific, Cegid in France, Deltek in Washington DC for government contractors, Netsuite in Cloud-based ERP, QAD in automotive, and Visma in the Nordic countries. All these vendors will have extra reasons to be concerned about the rash of mergers and acquisitions among the major vendors.

No doubt ERP, which has been eclipsed by social media and Cloud computing in terms of the buzz level over the past year, will once again be on the minds of a growing list of investors, customers and other key stakeholders all waiting to jump into action, while pondering how they will be able to capitalize on any changes that come their way.

Don’t hesitate to contact me at apang@appsruntheworld.com if you have any questions about ERP market data and how our advisory service can help your business make sense of this string of extraordinary events and prepare for the future.

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Posted in ERP, Infor, Intuit, Lawson, Oracle, SAP

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