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Category: ERP
November 17th, 2009
FusionOps launches business intelligence, process automation modules
FusionOps, an on-demand enterprise performance management company, will launch a new business intelligence module that may compete with the very ERP vendors it partners with.
If successful, FusionOps could be on to something big, but it has some tricky waters to navigate. FusionOps’ business intelligence tool—called Insight—promises to plug into a company’s enterprise planning system and deliver a return on investment in 12 weeks. FusionOps will first connect to SAP and later Oracle.
“Our initial focus is on SAP. then Oracle,” explained Ram Mohan, CEO and president of FusionOps. “We wanted to be very ERP centric with the ability to derive metrics and get data from ERP systems. We understand SAP data models and are a software partner.”
FusionOps’ business intelligence tools, which will be self-serve, will ride shotgun with a process automation service called Streamline. According to Mohan, the business intelligence module can be integrated and running in hours. FusionOps secret sauce is that it takes read-only access to SAP data documents, uploads them to a data center (hosted by RackSpace) and then provides a dashboard with metrics, reports and key performance indicators.
The company has priced Insight at $100 per user with enterprise data hosting of $3,000 a month per company. There’s minimum of 10 users.
The company also launched an on-demand service dubbed Streamline, which automates procurement and supplier management processes. FusionOps is pitching ROI in 8 to 12 weeks. Streamline is based on functionality needed and subscriptions start at $5,000 a month.
Here’s the pitch:
It’s hard to argue with the return potential with a SaaS-based business intelligence tool, but Mohan acknowledges some potential conflicts. After all, SAP bought Business Objects for business intelligence and Oracle owns Hyperion. Are these two giants really going to let FusionOps poach customers in the long run?
“I see the conflict with BusinessObjects,” said Mohan. “BusinessObjects is a tool that derives a lot of metrics, but it’s cumbersome. Customers can use BusinessObjects, but if they want to see metrics out of the box they can use our service.”
Mohan’s bet: FusionOps’ pitch of metrics in a day will trump a 6 to 9 month implementation. “Our biggest competition is ERP vendors,” said Mohan.
October 28th, 2009
SAP: Enterprise software market 'difficult'; Emerging markets weak
SAP’s third quarter was a mixed bag. Earnings were a touch better than expectations, but revenue and the outlook disappointed investors. Meanwhile, SAP said the software market showed “signs of stabilization,” but remained difficult.
The third quarter breaks down like this:
- Revenue for the quarter ending Sept. 30 was 2.51 billion Euro down 9 percent from a year ago. Estimate: 2.57 billion Euro.
- Software and software related services revenue were 1.94 billion Euro, down 3 percent.
- Software revenue was 525 million Euro, down 31 percent from a year ago.
- Net income was 435 million Euro, up 12 percent from a year ago. Earnings of 0.37 Euro a share were two cents better than Thomson Reuters expectations.
- Add it up and you have a quarter that was roughly in line with estimates, but the outlook disappointed. Non-GAAP software and software related revenue will fall 6 percent to 8 percent for 2009.
But what caught my eye was the commentary. SAP CFO Werner Brandt noted in a statement:
October 22nd, 2009
RightNow Technologies CIO talks datacenters, ERP and Windows 7
While attending Gartner Symposium/ITxpo 2009, I spoke with Laef Olson, CIO of RightNow Technologies, about the company’s IT plans for 2010. Olson discussed RightNow’s plans to consolidate and rework its datacenters, an upcoming ERP implementation, and the company’s migration to Windows 7.
October 20th, 2009
Art of the software deal can get messy
Software buyers and vendors are increasingly butting heads amid a budget squeeze and increasingly aggressive sales tactics, according to Gartner.
In a series of presentations at the Gartner IT Symposium in Orlando, analysts walked buyers through a few negotiating tactics with the likes of SAP, Microsoft, Oracle, Cisco and a bevy of others. Taken as a whole the presentations provide a good overview of what IT buyers are facing these days.
At a high level, Gartner notes the following:
September 17th, 2009
A complicated relationship: Oracle's database business gets SAP'd
Oracle and SAP make for an odd couple. The two companies are bitter rivals in the enterprise applications. Oracle CEO Larry Ellison delivers a SAP dig every chance he gets. But a more complicated relationship was revealed on Oracle’s fiscal first quarter conference call: Oracle needs SAP—especially for its database business.
The enterprise software giant delivered a so-so quarter with revenue that was lighter than expected (statement), but the real kicker came from a remark by Safra Catz, co-president of Oracle. She said on a conference call:
July 31st, 2009
Where's the tipping point for on-demand ERP?
NetSuite delivered a solid quarter, indicated it was gaining traction with its OneWorld ERP suite and took a few jabs at SAP’s Business By Design. The larger question: Where’s the tipping point for on-demand ERP?
That question was raised by JMP Securities analyst Patrick Walravens. The tipping point question is worth asking. The ramp for enterprise resource planning applications delivered as a service has been slower than categories that are easier to implement—such as CRM. However, you can project out to a point where on demand ERP will gain more momentum.
Walravens in a research note indicates that the tipping point for NetSuite may be two to three years away. He said:
July 9th, 2009
SAP: Is the worst over?
Analysts have been tripping over themselves trying to call the trough of demand for SAP applications.
SAP (detailed quote) has been upgraded twice in two days. Bank of America-Merrill Lynch upgraded SAP to buy from neutral on Thursday given “the low expectation level.” Simply put, business isn’t getting worse for SAP and that means the second half of 2009 should look better due to easier comparisons.
The latest upgrade echoes comments from Jeffries on Wednesday.
Also see: What should SAP do with its $5bn war chest?
What really happened with SAP Business ByDesign?
Jeffries analyst Ross MacMillan, who also upgraded SAP to a buy from a neutral, wrote in a research note:
June 9th, 2009
Forrester survey: Enterprises taking aim at legacy apps
Large enterprises plan on replacing their old applications this year, holding their software budgets steady and aiming to improve integration to save money, according to a report from Forrester Research.
In a survey of 2,200 IT executives in North America, Forrester found the following:
- A lot of time is being spent on updating legacy applications. In a report, Forrester writes:
Updating and modernizing key legacy apps (64%), consolidating or rationalizing enterprise apps (61%), and increasing deployment and use of collaboration technologies (54%) are the top three initiatives for the current planning cycle when it comes to importance, with more than one-quarter (26%) of firms saying that updating and modernizing key legacy apps is very important.
June 2nd, 2009
Can ERP vendors save the world?
Enterprise resource planning software vendors have the tools—if used correctly—to make a huge impact on sustainability efforts and possibly even save us from global warming. Talk about total cost of ownership.
OK, now stop laughing. Vinnie Mirchandani at Deal Architect has a modest proposal for ERP vendors:
Here’s a plea to ERP vendors. Focus on the plants, the refineries, the supply chains in your customers. You have plenty of MRP, plant maintenance, health and safety, transportation management licenses out there. Work more actively with your technology partners which provide control systems, sensors, scrubbers.
Get out of your white collar comfort zone. The big opportunities are far away from headquarters. Even the data center is a very small percent of the carbon footprint. Focus on your customer utilities, planes, factories, buses. Get to the root causes. And don’t just report. Help reverse.
Mirchandani, who lives in ERP land since he blogs about the vendor and negotiates contracts, is looking for something beyond the process mumbo jumbo, maintenance go round and rough (ok partially made up) ROI calculations that these software types dish out daily.
The idea isn’t as crazy as it sounds. ERP vendors have years of experience inside various industries. They know your processes. They theoretically have the skill sets to work in sustainability as an operations tool. And there’s a payoff for ERP giants like SAP and Oracle: If saving the world is a deliverable perhaps customers won’t notice the maintenance fee hikes as much. The big question: Will ERP vendors follow through?
May 12th, 2009
Cutting software maintenance costs 101
Maintenance and support costs are increasingly gobbling up more of your IT budget despite the occasional bone thrown to you from your friendly neighborhood software vendor. The larger question is what can be done about this maintenance inflation.
Luckily Forrester Research has a few answers.
In a report timed shortly after SAP and Oracle made a few maintenance concessions, Forrester Research provides a few pointers.
The situation as we know it via Forrester analyst Duncan Jones:
It’s one of the unwritten rules of software that maintenance costs only go up — never down. But we used to say that about house prices too. Today, software vendors are coming under increasing pressure from customers to cut maintenance bills, but the vendors are robustly defending their lifeblood with age-old, inflexible policies. However, enterprises’ imperatives to reduce cost and the contrasting flexibility of new commercial models such as software-as-a-service (SaaS) are making the perpetual licensors realize that they may have to change their ways if they are to be in place to win new business when budgets return.
However, these negotiations won’t be a cakewalk for customers. In fact, you’ll have to scrap for every dollar saved. Why? It’s about the profits. Maintenance revenue generates the profits. As Rimini Street CEO Seth Ravin noted, the business models behind printers and enterprise software are the same. Get folks in the door and then charge them on an annuity basis. Ink vs. maintenance revenue all looks the same after a while.
Also see: Rimini Street chief: Where’s the maintenance cost ‘peace dividend’?
You’d have to be an idiot not to protect these margins:
And to protect that revenue enterprise software vendors have to resort to a few trendy techniques:
Charging you for shelfware, the stuff you bought for a discount but haven’t deployed. Duncan reports:
The traditional policy that buyers find hardest to accept is the policy that customers pay maintenance based on all licensed products, even if they aren’t using some modules and haven’t deployed to full capacity. We only found one company that would admit to allowing customers to take a maintenance holiday on shelfware and then reinstate licenses at a later date when it needed them again. Most would allow customers to reduce cost by scrapping shelfware — irrevocably waiving rights to excess products or capacity, but customers are loath to dump assets that they may need again later. Some won’t even allow customers to do that.
Bundling support with upgrade rights.
And keeping potential competition at bay. Other companies, say Accenture supporting SAP, could support enterprise software but they fear the backlash from valued partners.
The good news? Duncan reports that software vendors will cave “if the market forces them to.”
Along those lines enterprises should:
Cancel nonessential maintenance contracts. The purpose of this move is to send a message to your application vendors. These cancellations will be easier if a company isn’t committed to a product for the future, don’t need an upgrade and can support an application in house. That last point is notable since Forrester even questions third party support.
Third-party support, if it is available for the product concerned, will almost certainly be cheaper than the vendor’s offering. Many IT departments will be able to self-support mature versions or noncore products — the risk that serious bugs will have a significant impact on the business may be too low to justify the annual insurance premium. The vendor manager should collect data on support incidents so he knows how many there have been, how quickly they were fixed, and what the business impact was in the meantime.
Go for the maintenance cut not the license discount. Enterprises should take shelfware off support, move to lower service levels and negotiate global deals to get economies of scale.
Use the “strategic vendor” line to get cuts. Forrester writes:
The software companies we spoke with admitted that they would consider requests for maintenance cuts in exceptional circumstances. They know that technology investment budgets will return and that giving ground now might be essential to be in a good position to win their fair share when they do. For instance, the head of IT sourcing at one Fortune 100 company told all of its technology vendors, “either you are a strategic vendor, or you’re not. This is table stakes to continue in the game.”
The catch: You need to lay out your strategy and how it lines up with the vendors. No vendor will give you cuts without proof that they’re strategic. Toss in an agreement to be a reference customer and you may convince your vendor to accept fee cuts now in return for keeping you.
May 1st, 2009
Oracle about to step up its SaaS efforts?
Update: Oracle is reportedly getting more aggressive about software as a service with plans to expand its on-demand lineup.
The Wall Street Journal and Reuters report that Oracle has been briefing analysts about its SaaS strategy. And apparently these plans go beyond simply buying NetSuite, which is majority owned by Ellison, or gobbling up Salesforce.com.
The Journal’s Ben Worthen writes:
The software giant is working on seven new online products, including offerings to help business run sales campaigns, keep track of employees and job applicants, according to people briefed on the plans and a company document reviewed by The Wall Street Journal. Oracle is developing online software to handle marketing and product management as well as a product targeted at the insurance industry, the document shows.
Update: There are a few questions about the Journal report. Sources indicate that Oracle isn’t planning any big strategy shift and it’s even questionable whether there are 7 new SaaS products planned.
Also see Dennis Howlett: Oracle’s cloudy announcements
To date, Oracle’s on-demand software efforts have mostly revolved around Siebel. But in recent quarters Oracle appears to have become more serious about SaaS and has continually added features to Siebel CRM On Demand (below). Indeed, the Salesforce.com mentions on Oracle conference calls have skyrocketed. Oracle execs now pan Salesforce.com as much as they do SAP these days.
The move runs counter to Ellison’s previous contention that there’s no money in SaaS. That’s largely true relative to Oracle’s overall business but the database giant is clearly dabbling in SaaS.
Also see: Enterprise vendors: in pursuit of reality
However, the SaaS deployments are getting larger by the day. Once SaaS players are starting to land big deployments Oracle has to start paying attention. For instance, SuccessFactors landed a 300,000 user deployment at a large retailer that is most likely Wal-Mart, according to two sources familiar with the matter. If SaaS is good enough for a massive retailer it’s probably good enough for Oracle too.
Why does Oracle need to make its SaaS move now?
For starters, there’s a big move by CFOs to cut IT costs and that means turning capital expenditures (large ERP implementations) into operating expenses (SaaS). Meanwhile, customers are pushing back on maintenance hikes (see SAP’s retreat). Then there’s good old fashioned competition—Workday, which landed a big wad of VC funding, Salesforce.com, NetSuite and a bevy of others are all threats to Oracle, which has to be getting bored buying struggling companies like Sun and BEA. And the final kicker for Oracle: SAP is still dawdling with its BusinessByDesign SaaS effort and to date is basically still a pilot. Oracle could leapfrog SAP as engineers overthink BusinessByDesign features.
More reading:
April 29th, 2009
SAP software revenue skids in first quarter; Maintenance terms tweaked
SAP’s first quarter software revenue—an indicator of maintenance and services health skidded 33 percent due to a “difficult operating environment” and a tough year ago comparison. Meanwhile, SAP altered its maintenance pricing plans to allay customer concerns.
SAP on Wednesday reported first quarter net income of €204 million, down from €242 million a year ago. Revenue was €2.39 billion, down from €2.46 billion a year ago. SAP managed to hold software and software-related service revenue flat at €1.74 billion in the first quarter compared to a year ago. The enterprise software company’s first quarter results a year ago were pumped up by the acquisition of Business Objects.
The results were worse than expected. A Dow Jones Newswire poll forecast SAP profits of €261 million on revenue of €2.55 billion. By region, SAP saw U.S. revenue fall 13 percent with Japan declining 16 percent. Europe, Middle East and Africa declined 3 percent.
Also see: SAP software revenues plummet, announces new deal on maintenance
Here’s a look at the key SAP charts:
April 6th, 2009
Q&A: Kronos CEO Aron Ain on ERP, Saas and the joys of being privately held
Kronos, a human capital management software company, revolves around good timing. For starters, it tracks employee work time, scheduling and other work processes to improve productivity. It also managed to go public back in 1992, make a bunch of acquisitions and then go private in 2007 just before the economy tanked.
Kronos CEO Aron Ain
Simply put, Kronos cooks up systems that run the processes for hiring, paying people and managing absenteeism. Kronos is also about labor analytics. And Kronos isn’t small: It had revenue of $715 million in fiscal 2008 with earnings before interest, tax and amortization of $138 million, up 20 percent from a year ago.
The company, which started out making automated time clocks, has recently been busy launching updates to its Workforce Acquisition and Workforce Management applications. Kronos is also one of those recession resistant companies because customers turn to it to cut costs.
Here are the key points from my conversation with Aron Ain, CEO of Kronos:
April 2nd, 2009
NetSuite aims to connect to Salesforce.com's cloud
NetSuite on Thursday announced a set of connectors from third party developers that will hook up its enterprise planning software suite with Salesforce.com’s CRM apps.
The idea: Allow Salesforce.com customers to integrate NetSuite applications into their arsenal of software as a service applications. The effort is dubbed SuiteCloud Connect for Salesforce.com.
NetSuite CEO Zach Nelson in an interview likened the SuiteCloud Connect effort as a way to link Salesforce.com’s “CRM cloud” with NetSuite’s “business application cloud.” NetSuite and Salesforce.com have hundreds of joint customers and Nelson expects that number to increase going forward. Nelson said:
“We have functionality that’s complimentary to Salesforce.com. What Saleforce.com has done for sales users is what we’ve we done for automating processes. This will be a win for joint customers both can use this to open up the market more.”
The move is notable given the hubbub last week over IBM’s Open Cloud Manifesto, which didn’t garner sign-offs from major cloud players such as Amazon, Salesforce, Google and Microsoft. Meanwhile, other cloud companies including NetSuite and SuccessFactors didn’t sign on either.
Why the holdouts? These companies argue that customers will demand that clouds connect anyway and ultimately pick the standards.
For NetSuite, the connection to Salesforce.com just makes sense. For starters, Salesforce is much larger in terms of annual revenue and has a larger installed base. If NetSuite can tap into an already SaaS-savvy audience it can add more customers.
Also see: Salesforce.com: Pondering the next 10 years
In a nutshell, SuiteCloud Connect is a group of integration applications that meld Salesforce.com’s salesforce automation and customer relationship management software with NetSuite’s ERP suite. NetSuite is hoping that the connection allows for best-of-breed SaaS deployments. Vendors such as Boomi, Celigo, Pervasive Software and Cast Iron Systems are the developers and integrators tying NetSuite and Salesforce together. These go-between vendors worked closely with NetSuite and Salesforce.com to align the data models. Nelson noted that NetSuite didn’t build the connectors directly.
For the customer, NetSuite says its back office ERP and e-commerce apps such as order management, fulfillment and accounting will be seen within Salesforce.com’s CRM software. Account information is also synchronized. This synchronization will be carried out with a series of SaaS integration experts.
Here’s how NetSuite sees these connections happening:
A few thoughts on this development:
- For starters, NetSuite’s move highlights the maturity of the SaaS market. Nelson noted that SaaS has come a long way in the last decade and has now reached the point where it can give serious competition to the incumbent on-premise software players.
- On the other hand, SaaS can become complicated and you still may find systems integrators and consultants mixed up in your deployments.
- Look for multiple connections like this as customers cobble together SaaS suites. On this point, Nelson made a few notable comments. He expects a little swing to a best-of-breed approach, but ultimately the suite approach will win out again.
- “The best of breed approach depends on the size of customers. If you have three SaaS providers that’s three administration panels to manage,” said Nelson. “The small customers prefer one suite. Larger companies are used to multi-vendor environments, but still have one system of record and that tends to be the ERP system. In very large companies the market is opening for SaaS, but ultimately it’s still about suites.” That suite approach is likely to remain dominant because it’s easier to synchronize data.
- And then there’s another layer to ponder. HP this week announced a SaaS suite that manages other SaaS provider s. A service to manage your services if you will. HP’s suite aims to ensure security policies and service level agreements are kept.
- The risk here is that SaaS gets so complicated that it starts to mimic the problems involved with on-premise software implementations.
March 16th, 2009
Salesforce.com: Pondering the next 10 years
Salesforce.com turns 10 Monday and in the last decade it has cemented its standing as a leading enterprise software vendor and leader of the software as a service and cloud computing charge. However, the next 10 years may be much more interesting.
Salesforce.com, officially launched in a San Francisco apartment March 16, 1999, finds itself at an inflection point. The company is posting solid financial results, saw fourth quarter sales jump 34 percent from a year ago and continues to poach customers who are sick of high maintenance costs. And the company is the first of its ilk to hit the $1 billion revenue mark.
The big question: Where does the company go from here? It has developed Force.com a platform for on-demand applications and a marketplace for software, but is largely a SaaS customer relationship management software firm (its ticker is “CRM”). Salesforce.com is increasingly targeting large enterprises—the playground of Oracle and SAP, two companies with a lot more sales resources. Here’s a look at my five top unresolved issues for Salesforce.com in the years ahead:
February 26th, 2009
Oracle and the great innovation debate
Does Oracle innovate or just suck maintenance revenue out of your budget like a vampire?
It’s a question that has been asked a lot this week and there’s a nice back and forth about the topic among Dennis Howlett, Vinnie Mirchandani, Paul Greenberg, Josh Greenbaum and Bob Warfield. Oracle spokeswoman Karen Tillman has also chimed in a good bit (guess where she falls on this pendulum). Vinnie, who got a plug by Salesforce chief Marc Benioff on the company’s earnings conference call, has the recap of the week.
I’m not going to pretend to have a definitive answer on whether Oracle innovates. Frankly, I’m not playing with the products enough to know–although we do run on Oracle systems internally.
Oracle apps: an innovation free zone since 2006?
Meanwhile, you can debate innovation by product. Is Beehive innovative? Social CRM? PeopleSoft? You could spend months nit-picking about innovation when there are hundreds of products to peruse.
What I do know is that Oracle’s business model is innovative for the software industry. Remember when Larry Ellison set out with his “I’m going to consolidate the industry” spiel? Most of us thought he was nuts. A bunch of acquisitions later Oracle is still thriving.
Ellison’s model by itself wasn’t innovative (it’s really a clone of Cisco’s approach) by itself. But for the software industry Oracle’s model was quite innovative. The working theory at the time was you acquire a software company and all the talent splits. Years later we realize that Oracle has managed to assimilate these purchases and keep customers.
My working theory on that former point is that expectations were so low about Oracle’s acquisition of PeopleSoft that it was able to position itself for the rest of its purchases. Oracle’s takeover of PeopleSoft was predicted to be a disaster in the making. Ellison hired Charles Phillips to keep customers and the sky didn’t fall after all.
From there, Oracle acquired more companies–Siebel, BEA and others–and hit replay.
That context on the model really frames the innovation debate. Oracle is so massive that it’s almost impossible to tally up all the little innovations. Perhaps some Oracle new feature would be a lot more buzzworthy at a startup. Twitter in Web 2.0 land is innovative. To Oracle secure Twitter functionality linked to corporate data is a feature. Simply put, Oracle’s innovation, which revolves around processes and a lot of corporate stuff, isn’t nearly as sexy–or easy to decipher.
My bottom line, which is going to look like a total cop-out, is that Oracle innovates in some places but could probably do a lot better. And if customers demand more innovation Oracle is quite capable of delivering–or at least acquiring a company that can.
Also see:
Oracle CRM - Innovation Free or Innovative?
Salesforce.com: High maintenance costs are pushing customers to us
February 10th, 2009
NetSuite fourth quarter better than expected
NetSuite, an enterprise software as a service company, reported a fourth quarter profit excluding charges–its first ever.
The company reported a net loss of $4.5 million, or 7 cents a share, on revenue of $41.4 million, up 30 percent from a year ago. Excluding noncash charges, NetSuite had a profit of $534,000, or a penny a share. Wall Street was expecting a loss of a penny a share.
For the year, NetSuite reported revenue of $152.5, up 40 percent from 2007, with a loss of $15.9 million, or 26 cents a share (statement).
By the numbers:
- Revenue from the Americas was $123.4 million with international sales of $29.1 million.
- NetSuite added 350 new customers and ended with 6,600 active companies.
- The company ended the year with $123.6 million, compared to $169.4 million a year ago.
- Accounts receivables were $26.7 million as of Dec. 31, up from $18.7 million at the end of 2007.
In a statement, NetSuite CEO Zach Nelson said the quarter was its “best to date.”
February 9th, 2009
Calculating Risk: Panning for gold in Goldman's 'gut'
All five investment banks that existed a year ago are gone.
These are firms which put their own capital and the capital of big institutional and individual investors at risk, to merge or acquire companies. And were supposed to be experts at identifying, evaluating and acting on risks, before they took their shareholders or themselves down.
The risks were largely ignored, as they tried to make killings on that and trading in all forms of complex securities, including the now much-maligned batch known as mortgage-backed securities. Pools of mortgages sliced up into different pies of stuff known as “collateralized debt obligations.” No one wanted to believe the most obvious risk: That housing prices can go down, not just up.
Bear Stearns, bought before it failed by J.P. Morgan Chase. Lehman Brothers, allowed to disappear. Merrill Lynch, bought on the cusp of failure by Bank of America (causing it to go wobbly). Morgan Stanley and Goldman Sachs, turned into depository institutions, aka bank holding companies.
But even the most gold-plated of those bankers have had to fight to survive. And are not out of the woods, by a long shot.
The one with “gold” in its name is Goldman Sachs. ZDNet Undercover looked to find out whether Goldman deserves its reputation as having the most “golden gut” of all the investment banks. And, found (a) the reputation had foundation, but that (b) it’s not enough to stave off a wholesale shrinkage of its business and its bottom line, when an entire industry has bet on ever-rising housing prices. And been, collectively, wrong.
Goldman Sachs avoided commercial risk evaluation software and systems. In its examination, titled “Calculated risk: How Goldman Sachs stepped back when others didn’t,’’ ZDNet Undercover found that Goldman Sachs – using sophisticated house-built systems for analyzing the risks it faced in the complex securities it was investing in — succeeded early on in the pricking of the real estate bubble by betting against indices of securities that were derivatives of home loans and accumulating insurance against defaults. In effect, it passed along its exposure to the collapse of risky mortgages to Merrill Lynch, the investment manager, and AIG, the international insurance agency.
But it was a very short-lived victory. In the third quarter of 2007, Goldman, by sensing in its bones that a collapse was possible, earned a $1 billion profit, by betting against mortgage-backed securities. Merrill Lynch took a $2.2 billion loss on an $8.4 billion writedown. Citigroup wrote off $5.9 billion, then another $8 billion plus.
“We didn’t get everything right, and there are more than a few decisions we’d like to take back,’’ chief executive Lloyd Blankfein told attendees of a Merrill Lynch financial services conference in November.
Goldman’s “net revenue” from trading in mortgage-backed securities and other complex instruments was $31.2 billion for all of 2007. Last year, it contracted to $9.1 billion. Most stunningly, that trading turned negative in the fourth quarter. Its revenue was minus $4.5 billion. And that’s the top line for business activity. No surprise at all that Goldman reported its first-ever loss on the bottom line, at $2.1 billion for the quarter.
Now, let’s see whether Goldman Sachs can report a profit for the first quarter of its new year, or if the slide continues.
Jeff Zucker, having done so well with an American version of “The Office,” is probably about to engage Simon Nye to begin penning a series for NBC entitled “Bankers Behaving Badly.”
American lenders never seem to learn from the past. The nation’s savings and loans went nuts in the ‘80s, financing condos for tenants who did not exist. There were crooks, too, flipping properties with alacrity, thanks to friendly title agents and property value assessors, who made money by being in cahoots.
In this epoch, the problem was group-think. Every bank wanted to party as long as every other bank was partying. No matter what the government or public thought. Things would have to work out, because these were the smartest folks on the planet. Even on his way out, Merrill Lynch CEO John Thain, a Goldman Sachs alumnus, wondered how Bank of America could possibly survive without him. He who had the smarts to renovate his office for $1.2 million, while his company was losing billions. Now, Thain will be remembered for that, not moving the New York Stock Exchange in the 21st Century or, as he would like, rescuing Merrill Lynch from passing into oblivion.
His former colleagues at Goldman must have grimaced. They had shown that, even in this age of automated trading and automated risk analysis, the most important factor in succeeding in a financial nightmare was … good judgment. The willingness to identify when markets have turned. To generate the numbers. But look honestly at the numbers – and behind the numbers.
Then, make the call first. Goldman Sachs uses risk analysis systems to support what looks to the outside world as a seemingly intangible thing known in popular terms as a ‘golden gut.’ Go here to see how that gut is fed.
February 5th, 2009
SAP's Apotheker takes on shoddy consultants, certifications
In an animated–and sometimes tense–conversation with bloggers, SAP co-CEO Leo Apotheker said the software giant would step over a systems integrator if it would save an IT project. That comment, which was in response to multiple questions about the triangle between consultants, SAP and customers, illustrates how the enterprise application vendor is trying to end the days where it’s a whipping boy for failed implementations.
“I don’t give a s**t if it’s Accenture or IBM. I care about the customer. I find it shocking people are walking around talking to customers and have no experience on [SAP]. [Consultants] get hired of people and have no clue. It’s annoying but that’s a fact. Let’s start by certifying people,” said Apotheker. “If we believe [a project] takes 500 days and another partner says it’s 5,000 days I’ll do it for 500 and a fixed fee.”
Despite that declaration, Apotheker (right credit Michael Krigsman) said he “can’t boil the ocean” and the sometimes unhappy triad of customer, SAP and systems integrator can be complicated. The chat with Apotheker, which lasted about 45 minutes or illustrated a bit of a conundrum for me. On the surface, it would seem like a no brainer that Apotheker puts the customer first. What company doesn’t say that? However, Apotheker’s statement is news in the world of SAP implementations, which need a lot of things to go right between the customer, integrator and software vendor to work.
February 5th, 2009
Systems integrators: The model has to change
SAP’s launch of Business Suite 7 raised a few interesting questions for systems integrators–Accenture, PriceWaterhouse, IBM. What happens if SAP’s easy upgrade pitch actually turns out to be reality? And if so why would you need a systems integrator?
Now I take SAP’s pitch with a heavy grain of salt. The only time a company will be able to upgrade to Business Suite is when it has ERP 6.0 installed with minimal customization and clean data.
Roche CIO Jennifer Allerton addressed the system integrator-SAP tug-of-war that could ensue if ERP applications suddenly get easier to implement.
Allerton pushed Roche to cut its 20 versions of SAP to one process and instance globally. For Allerton, the move to Business Suite 7 is easier. Why? The heavy lifting is done.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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