Archive for August, 2010

Lessons of the World Cup and Mahindra Satyam By Albert Pang

Monday, August 30th, 2010

This may well be the last piece on the World Cup in South Africa before calling the summer of 2010 a wrap, but the end of one of the greatest sporting events ever held on the African continent marks a new set of opportunities that will endure for years because of the infinite human capacity for perseverance and beating the odds.

Like many companies from Budweiser to Yingli, Mahindra Satyam was among the sponsors that helped make the World Cup 2010 possible and that in itself was a major accomplishment for the Indian systems integrator, whose fate was hanging in the balance amid an accounting scandal in early 2009.

While the accounting scandal has begun to recede with the arrest of the former chairman of Satyam for a litany of charges including inflating its assets, Tech Mahindra, a subsidiary of the $7-billion industrial company Mahindra & Mahindra that acquired Satyam in April 2009, spent much of last year stabilizing the company by overhauling its management as well as the positioning of the now-rebranded Mahindra Satyam.

With billions of people watching the month-long tournament either live or with rich media, Mahindra Satyam worked largely behind the scenes managing more than $1 billion assets, three million tickets, 250,000 accreditations, 130,000 volunteers, 1,000 vehicles, 64 matches and 10 stadiums in South Africa.

It was flawless execution running a gamut of event management applications, a reliable and scalable extranet for event organizer FIFA, as well as an assortment of integration services and complementary technologies with 100% uptime besting the performance of tech powerhouses such as IBM in the same role at high-profile events like the Olympics.

For a company that was on the brink of a downward spiral, the rebirth of Mahindra Satyam has been remarkable. One magazine headline in January 2009 even referred to Satyam’s former chairman Ramalingam Raju as India’s Madoff. For the record, Bernard Madoff’s company was a Ponzi scheme, but Satyam was doing legitimate IT integration business for hundreds of customers.

Let’s also be clear about my involvement. I was a paid speaker at a Satyam customer event in 2008. Through the years I have had the pleasure of working with a number of Satyam executives, many of whom remain loyal to the company because of their unyielding integrity and faith in its latest reincarnation. In late May 2010 I was invited by Mahindra Satyam to participate in its analyst event in Hyderabad, India, and saw first-hand the new company in action.

Since its rebirth, the IT service provider has kept many of its customers such as BASF IT Service and GlaxoSmithKline, both of which recently extended or renewed their contract with Mahindra Satyam. It has won 54 new logos and its customer count now exceeds 360. Shortly before the scandal broke, the customer count was 690. It was difficult to determine whether the decline was attributed to the scandal, the recession, or a combination of the two.

Despite the setback, many global companies have continued to express their support by relying on Mahindra Satyam to run their mission-critical applications and a long list of key functions from managing supply chain strategies and programs to operating data centers on behalf of some of the biggest telcos in the world.

Two data points suggest that Mahindra Satyam has not skipped a beat over the past year with its SLA adherence reaching 99.72% and its zero defect delivery staying at 99.77%, which is noteworthy for their consistent showing.

A director of engineering at a world-class technology company outlined the amount of testing work that Mahindra Satyam is involved in, with the latter assigning its more than 100 engineers to test tens of millions of codes regularly before new Cloud services are introduced by the former to the public.

The CIO of a major transportation company in North America said the reason to stick with Mahindra Satyam is because of its large pool of SAP experts, something that his company was not able to locate easily in terms of meeting its quality, reliability and industry-specific knowledge requirements. In recent quarters, Mahindra Satyam has won more than 22 new customers helping them manage their SAP and Oracle applications.

It’s fair to suggest that the rebirth of Mahindra Satyam is a work in progress given that every measure of its financial health is still being evaluated and cross-checked by its current auditors Deloitte and Grant Thornton. Upcoming releases of its financial results will help shore up customer confidence.

Still, there will be more changes pending. There have been talks about Tech Mahindra, which now owns 42.7% of Mahindra Satyam, will combine Mahindra Satyam into its fold creating a streamlined operation. Just last week, Sanjay Kaira, a veteran of Tech Mahindra who became its CEO last year, announced his decision to leave the company. He will be replaced by Vineet Nayyar, the current vice chairman.

During my meetings with Mahindra Satyam executives, they have reiterated their desire to restore growth now that the past is behind them. But what’s even more striking to me is that Mahindra Satyam is a microcosm of India teeming with young, bright and talented individuals who are giving everything that they have in order to bring positive change to their families and their country.

Which brings us back to South Africa where we have witnessed many young players working tirelessly and skillfully to win one game after another. Against all odds, these teams including Uruguay, Ghana and even Germany that were once considered underdogs rose to the challenge and delivered world-class performance, just like Mahindra Satyam.

By the way, Mahindra Satyam will be the IT service provider for the 2014 World Cup in Brazil. I can hardly wait for that to happen, watching Mahindra Satyam work quietly and methodically, but with absolute control of the game.

Tell me what you think of the World Cup, Mahindra Satyam and follow me on Twitter @appsruntheworld.

Posted in BASF, BPO, GlaxoSmithKline, IBM, Mahindra & Mahindra, Mahindra Satyam, Oracle, SAP, Tech Mahindra, Vendor, Verticals

Six Degrees of Separation from SAP Sybase By Albert Pang

Monday, August 23rd, 2010

In John Guare’s 1990 play Six Degrees of Separation, the gulf among individuals is physical and real, but they are invariably connected. Six Degrees of Separation could also serve as a metaphor for SAP’s current strategy to assemble the necessary technologies in order to connect the unwired generation.

Following the acquisitions of BusinessObjects and now Sybase, SAP has achieved what it takes to become an end-to-end solution vendor for enterprises that need to stay connected with their employees, customers and business partners. The issue is how SAP can harness its newfound power to benefit its customers and partners alike when their involvement is going to be more important than ever for the vendor to ensure its strategy resonates with the public at large.

Whereas SAP was primarily geared toward IT professionals, its current focus is a lot broader now that its stated goal is to reach one billion users by 2015.

The question is whether it can touch so many users when their needs are very different and they could be scarcely touched by SAP’s usual sphere of influence, which remains at the office, on the shop floor or inside the datacenters.

The challenge facing SAP is to remove the traditional barriers that used to separate its typical customers and other technology users by giving them easy access to apps, tools and databases that collectively amount to something that is truly innovative and yet practical for all the key stakeholders involved.

First, three topics were particularly noteworthy about last week’s SAP Sybase event, which became the focal point for the press and analyst community to analyze the ramifications of the acquisition of Sybase, which closed last month, and its future plans.

1. The acquisition will have near-term impact on banking, retail and communications verticals where the combination of the two makes for a perfect marriage. Already Sybase’s mobile database products have been widely adopted among banks, retailers and communications service providers in fast-growing economies such as China and Korea. SAP, which has been beefing up its core banking, retail and billing product portfolios through internal development and acquisitions of SAF and Highdeal last year, is expected to leverage Sybase’s strengths in these verticals to gain share through considerable cross-selling and upselling over the next few quarters.

2. While the support of Sybase database for different SAP applications including its flagship ERP Business Suite is at least a year or two away, SAP Business By Design could be the first to offer such support since the ondemand application suite should have an easier time supporting different databases than onpremise SAP products. The question is whether SAP plans to make Sybase the standard database platform for Business By Design, while giving its customers something that could become a clear alternative to competing databases.

3. Following the acquisitions of BusinessObjects and Sybase, SAP now can offer the full stack of database, middleware, BI and applications products for its customers, filling a missing void that has prevented the vendor from being considered the equivalent of its closest competitors IBM, Microsoft and Oracle. The completeness of its solutions will be particularly important for SAP to expand into strategic verticals such as banking that are increasingly gravitating toward a single-stack approach in order to reduce their software maintenance and operating costs.

On the other hand, there are three issues that have not been fully addressed by the Sybase acquisition.

1. While Sybase is going to be treated as a wholly-owned subsidiary with a fair amount of autonomy, some of its applications such as Financial Fusion Banking Suite for consumer and corporate banking will have to be positioned fairly distinctly apart from SAP’s own core banking applications. What’s not clear is which will become the go-to-market product first before greenfield banking customers, which could become a contentious issue given SAP’s desire to expand its core banking offerings in different regions especially in emerging economies where Financial Fusion has already been well received.

2. Both vendors have developed vibrant ecosystems and it will be a tough task pruning the long list of partners on both sides in order to sustain meaningful returns for all parties involved. One of the reasons ISVs such as Manhattan Associates, Micros, MicroStrategy, QAD and others chose to partner with Sybase was to hedge their bets against Oracle. However many of these partners now find themselves rethinking their alliance with Sybase for fears of benefiting SAP, which competes with them in different markets from supply chain management to ERP. Until the uncertainty is removed, any future benefit to Sybase’s ISV partners is questionable.

3. Even though it will be a while before SAP can start displacing Oracle database with Sybase among its ERP customers, the long-standing argument from Oracle that its database business is inextricably linked to sales of SAP applications. If SAP apps sales drop, so would demand for Oracle database licenses, the argument goes. Such an argument could sound hollow once SAP starts showing replacement sales of Sybase among Oracle database customers. The burden of proof will be on both Oracle and SAP to show that the linkage is permanent or not.

Regardless of the ironclad linkage, SAP’s new unwired platform strategy underscores the theory of Six Degrees of Separation where everyone is connected is becoming a reality and its combined customers of more than 100,000 will be the first and foremost beneficiaries of this $5.8 billion acquisition even though tangible benefits will be gradual and incremental at best.

Still, a clear product roadmap, coupled with smart and careful execution, will be among the crucial steps that SAP needs to take in order to ensure that it is creating something that is truly innovative and profound by connecting a new generation of unwired users.

Let me know what you think of SAP’s acquisition of Sybase and follow me on Twitter @appsruntheworld.

Posted in Mergers, Products, SAP, Vendor, Verticals

M&A Deals Reignite Apps Market By Albert Pang

Monday, August 16th, 2010

As much of the world is still struggling to recover from the Great Recession, one segment of the technology industry has already achieved an impressive rebound.

After a lull in merger and acquisition activities, the apps market is bracing for a big jump in the number of deals in 2010. Already there are signs that M&As among apps vendors have kept pace with the all-time high of 2007 when the industry saw more than 250 deals worth $60 billion.

So far this year there have been at least 104 deals announced or completed in the enterprise apps market worth more than $23 billion in announced value, including IBM’s proposal to buy Unica for $480 million announced last week.

The top deals included SAP buying Sybase for $5.8 billion for its database and industry-specific applications for financial services and communications industries, Aon buying Hewitt for its HR outsourcing and HR benefits administration applications for $4.9 billion, and IBM buying Sterling Commerce for its multi-enterprise collaboration applications and EDI technologies for $1.4 billion.

The number and size of the deals stood in sharp contrast with the lackluster M&A environment in 2008 and 2009 when the recession bore full force preventing or nixing many of the planned combinations from being completed. JDA, for example, had to withdraw from its bid to purchase i2 in 2008 because of unfavorable market conditions. It finally completed the deal in 2010.

Twenty one deals with each more than $100 million in announced value have appeared this year. Fifty eight deals, or 56% of the transactions, targeted industry-specific apps with financial services, healthcare and real estate being the most sought after verticals.

Constellation Software, one of the most acquisitive apps vendors over the past five years, once again dominated the list with eight purchases since the beginning of the year. That was followed by CDC with six.

The M&A engine has been revving up much sooner than the overall economy because of increased credit availability coupled with the huge proceeds from recent debt offerings, all of which will fuel further deal making.

Another sign is the return of the private equity firms, which took a hiatus during the heights of the recession. This year HgCapital, the big European PE firm, acquired StepStone Software for its HCM applications and TeamSystems for its ERP apps for a total of $844 million. Immediately following its purchase by HgCapital, StepStone bought Mr. Ted, another HCM apps vendor, for an undisclosed sum in August 2010.

Our estimate is that Mr. Ted posted nearly $40 million in software revenues in 2009, which could result in HgCapital via StepStone paying anywhere between 2x and 3x of its recurring revenues. As a result HgCapital is putting more than $1 billion on the table to snap up choice apps assets this year following its investments in SHL Group and Visma among others in its tech portfolio. It also bought Accountview and IRIS few years earlier.

The same applies to the investor group consisting of Bershire Partners, Advent International and Bain buying Skillsoft for its eLearning apps for $1.1 billion and Texas Pacific Group paying $1.4 billion for Vertafore for its insurance apps. The TPG deal was also noteworthy because the seller was Hellman & Friedman, which still owns Kronos.

As private equity firms and hedge firms are getting back into the software space, there will be plenty of horse trading over the next few months. Acquisitive vendors such as Oracle, which announced a $3.25 billion debt offering in July 2010, are expected to go full throttle on making deals. Oracle is completing its $685 million purchase of Phaseforward for its apps for the life sciences vertical this month.

Here are other key trends worth watching for the remainder of 2010:

The volume of deals will approach the levels set in 2007 when the market saw an unprecedented amount of M&As because of globalization, industry-wide consolidation and an all-out invasion of private equity firms into the software space.

Analytics apps for energy management and sustainability, along with industry-specific apps for healthcare, financial services and construction and real estate will be sought after in 2010 and 2011.

The velocity of M&As will be turbocharged by the capital infusion big vendors such as IBM, Oracle and SAP have received following their debt offerings in early 2010.

There will be considerable musical chairs shuffling between vertical apps vendors and private equity firms as they seek to balance their portfolios in order to retain or expand control over certain markets. Near-term market share gains will be the determining factor.

One good example is Pearson, which in July acquired Sistema Educacional Brasileiro for $497 million, to become the leading education applications vendor in Latin America. That came two months after its sale of its 61% stake in Interactive Data to PE firms Silver Lake and Warburg Pincus, allowing Pearson to use part of the $3.5 billion cash proceeds to buy SEB.

Not only did the vendor reduce its exposure to the financial services vertical, which is still struggling after the credit crisis, the deal to buy SEB allowed Pearson, which also operates a significant school system division, to pose a serious threat against SunGard, currently the No. 1 apps vendor in the education vertical.

Pearson’s move also underscores the desire of apps vendors to shift their emphasis from slow-growth verticals to higher ones. The education vertical is projected to clock in at 7.3% CAGR through 2014, compared with 4.7% for banking and financial services based on our latest estimates.

It’s killing two birds with one stone and I dare say that we have barely seen the beginning of the dog fight among these vendors and investors. All of them are setting their sights on the multi-billion-dollar opportunity by retaining and exerting their control over specific apps segments and verticals through relentless pursuit of the next acquisition target.

Send me an email at apang@appsruntheworld.com for the full list of 104 deals that we have uncovered for the first eight months of 2010 and follow me on Twitter @appsruntheworld as well.

Posted in Uncategorized

We Are Unique By Albert Pang

Monday, August 9th, 2010

The last time I ran a website was 14 years ago during the halcyon days of the Internet. It was fun and exhilarating. But it was also a big unknown. We often wondered whether people would check us out first and come back afterward. They did and the number of pages viewed ran into the millions.

Two years later the site folded. Like many Web properties at the time, it failed because there were simply too many of us chasing the same eyeballs. Despite our fervent beliefs that we were doing something special, our site was covering the Internet marketplace based on the same news cycle, buzzwords and editorial strategies. In other words, there was no product differentiation.

Fast forward to 2010, we have all grown smarter and wiser. The Internet has evolved to become a wonderful delivery vehicle for streaming media, real-time content delivery, and a staggering amount of perspectives and opinions.

However when it comes to finding well-sourced market research information and vendor share data, there are few places to turn to. APPS RUN THE WORLD plans to change that. As our name implies, we are focusing 100% of our resources on applications market research.

It’s an exciting place to be in given all the talks about mobile applications(more than 225,000 iPhone apps by one measure), vertical opportunities(big spending on healthcare IT technologies with the ongoing reform effort, for instance), as well as the impact of globalization(trustworthy market data has become the new vehicle for selling technology products globally).

Having learned from previous mistakes, we are going to make sure that APPS RUN THE WORLD will become your one source for apps research. There are a number of things that make us unique:

1. We offer a wealth of applications market research data including the latest vendor shares on 21 well-defined vertical industries that form the backbone of the apps marketplace for customers, vendors and key stakeholders from systems integrators to institutional investors. No one else comes close to delivering apps market data at that granular level.

2. We have a unique methodology that determines the winners and losers. We call it SCORES, which stands for Strengths, Customers, Opportunities, Risks, Ecosystem and Shares. We dissect our database of more than 1,000 apps vendors and rate them above average, average, and below average. That’s our approach to determining their near-term performance in the apps market, not next year or five years from now. That’s apps research with the support of predictive analytics. You can look that up in our research reports.

3. We take a holistic view of the different apps markets that we cover. We have gone through one of the worst recessions that the global economy. It’s incumbent upon us – technology insiders – to expound upon its implications. You can only find that kind of in-depth analysis in our research.

4. Last, but not least, we are making our research reports available free to our registered members. Why free? Because that’s your preferred way of accessing Web-based content providers and we consider ourselves one of them. Also what better way to showcase our research than making it available free to our registered members who will be the most qualified judges of our quality and performance?

If you like what we do, you can become a corporate sponsor to help us fulfill our mission, which is to deliver the highest quality research on the applications market.

Email me at apang@appsruntheworld.com on how we’re doing and thank you for your support. Follow me on Twitter @appsruntheworld as well.

Posted in Uncategorized