Irregular Enterprise

November 5th, 2009

Gartner wins in ZL lawsuit: but is it a pyrrhic victory?

Posted by Dennis Howlett @ 9:49 am

Categories: Uncategorized

Tags: Lawsuit, Gartner Inc., ZL, Dennis Howlett

Just in. ZL lost in its lawsuit over Gartner Magic Quadrants. It has issued this statement:

“ZL believes that Gartner’s overwhelming influence on large corporations’ purchasing decisions, and its inaccurate ratings, including its bias in favor of large vendors, combine to pose major competitive hurdles that hurt smaller innovative vendors across all technology sectors.  The harm falls not only on new and innovative companies like ZL, but on the enterprise customers who receive faulty purchasing advice, and as a result overspend on inferior technology.

While we are disappointed that the court has dismissed our lawsuit as filed, we are pleased that it has given us leave to amend our complaint, over Gartner opposition. We believe the market should take note that the defense on which Gartner prevailed was its argument that its reports contain “pure opinions,” namely, opinions which are not based on objective facts.  In ZL’s view, that is directly contrary to the statements Gartner makes to its customers when selling its allegedly sound research. ZL intends to amend its complaint and refile within 30 days.”

It looks as though this one has at least one more round to go.

November 5th, 2009

Twitter and web forgery

Posted by Dennis Howlett @ 6:35 am

Categories: Uncategorized

Tags: Web, Password, Twitter Inc., Robert Scoble, Security, Dennis Howlett

Last evening as I was winding down after a long journey imagine my surprise when I started to receive a tsunami of @ replies on my Twitter account. Apparently I was direct messaging a stack of people I don’t know with a link to something that starts http://videos.twitter… except it wasn’t me. The image above is what you see when the link is clicked (and no, I’m not going to give the link.) This is NOT fun.

Fortunately, Robert Scoble had picked up on what was gong on and sent the message:

@Scobleizer: Don’t click links sent to u in DM @dahowlett & many others are being hit ESP ones that start http://video

At the time I wasn’t near my iMac or laptop so couldn’t realistically review the problem. There are limitations to Tweetie on the iPhone. I did send a Tweet message to @ev screaming HELP!!!!

@dahowlett Holy crap. This hacking thing is teh suck. I’m getting bombed. Anyone who gets DM from ‘me’ with http://video. IT’S NOT ME @ev? HELP!!!

In time honored fashion I didn’t get a reply from anyone at Twitter. Given the nature of the service I didn’t expect to. I’m not the only one - see the image below taken from Scoble’s account:

Fortunately I’ve got a number of good pals who contacted me with various suggestions as to how the problem might be solved. The favorite seemed to be a password change. I’ve no idea how the hack occurred, especially given I used a 10 character alpha-numeric password that Twitter graded as ‘good’ but it is yet another example how this popular service can catch people out.

Scoble and I may not see eye to eye on a number of topics but I was grateful that he warned people about what’s going on. I called him up to see if he could shed light on the problem. Unfortunately he couldn’t and, as you can see from his Tweetstream, it doesn’t seem to have been addressed publicly by Twitter. Trending articles don’t mention it either. However, I did notice that Twitrobot’s account has been suspended.

One very helpful suggestion was to ensure the password you use for Twitter is unique to that service. That’s something I’d done anyway so it seems that at least one service I use has either been hacked or is being used for less than honorable things. I’ve since revoked access to several other services.

According to Dan Goodin at The Register, the problem could lie inside OAuth:

“Unless you revoke these [Twitter add-on app] tokens when you change your password, a malicious user will still have access to your twitter account,” said [Terence] Eden, who tackles customer usability issues for a large telecommunications company. “Twitter doesn’t make that wonderfully clear.

Whatever the problem, it amply demonstrates what can happen when a vendor doesn’t police the use of an open API. This is something I’ve talked about elsewhere, much to the derision of vendors who would like to think I ‘don’t get it.’ I trust they’re eating their words. Security matters and a laissez faire attitude to APIs will surely destroy reputation faster than Luke Skywalker’s light saber.

November 5th, 2009

Enterprise 2.0 - the non-debate

Posted by Dennis Howlett @ 4:02 am

Categories: Uncategorized

Tags: Benefit, Enterprise 2.0, Dennis Howlett

If I’d paid the full whack $2,495 to attend the Enterprise 2.0 conference I’d be demanding at least a partial refund. It seems the ‘Enterprise 2.0 - what a crock’ debate was less than a damp squib and more like a feeble whimper. Here’s the back story:

In August I wrote:

Therein lies the Big Lie. Enterprise 2.0 pre-supposes that you can upend hierarchies for the benefit of all. Yet none of that thinking has a credible use case you can generalize back to business types - except: knowledge based businesses such as legal, accounting, architects etc. Even then - where are the use cases? I’d like to know.

Susan Scrupski asked me if I was going to attend Enterprise 2.0 and would I participate on the panel. Given what I had already said and after I stopped laughing, the answer was an emphatic no. Why would I waste my time listening to a bunch of talking heads trot out the same claptrap I’ve been hearing the last several years? It seems the panel didn’t disappoint my lowly expectations. This is what one attendee said of the debate:

They delivered some interesting, but disappointingly similar-sounding, defenses of how technologies like blogs, wikis, and social networks can benefit big companies. The panelists said that one of the hurdles to convincing enterprise-scale organizations that these new tools are worth their money is the difficulty in quantifying the business benefits. It’s hard to calculate an exact return on investment when it comes to better collaboration: “When somebody figures that out, they’ll make a million,” said Greg Lowe, social media architect and program manager at Alcatel

On the Twitter back channel, Nenshad Bardoliwalla told me:

Your presence here at #e2conf is very palpable.  They had a whole panel to answer your question on value, and failed MISERABLY.

Very flattering Nenshad but is that The Ghost of Christmas Future?

Why am I not surprised? I’ve argued for years that the notion of anything that has ’social’ attached to its moniker is about as welcome as breaking wind in a spacesuit. I’ve also argued that I’ve never heard anyone ask for some Enterprise 2.0 though I’ve heard plenty ask for ERP, CRM etc. Most recently, the new buzz phrase ’social business design’ has hit the streets. Here’s one definition:

Social Business Design is the intentional creation of dynamic and socially calibrated systems, process, and culture.

Its goal: helping organizations improve value exchange among constituents.

Good luck with that one.

Perhaps the panel would have done better had they taken a leaf out of Andrew McAfee’s book. In his presentation about Enterprise 2.0 no-no’s, he says:

Like too many words in the English language, ’social’ has taken on a handful of different meanings. Though most would probably agree that technically it’s an accurate word when used to describe various enterprise solutions, the implications are not always desirable.

“I have never come across a word that has more negative connotations to a busy pragmatic manager,” said McAfee, explaining that he’s seen many-a-boss assume that ’social’ tools wouldn’t help anything but employees talk too much and goof off.

Though McAfee didn’t suggest a new or better word to use (collaboration? communities?)  he finished the presentation with an interesting image choice to illustrate how some managers interpret the use of ’social’ solutions: two dirty hippies hugging it out at Woodstock, surrounded by litter and despair.

[My emphasis added]

At this point I must give Andy McAfee full credit for acknowledging the bleeding obvious. Isn’t that what I’ve been saying for years? The problem for those trying to pimp this stuff is they’re now stuck with two things: ’social’ intermingled at every turn because no-one can think of anything better and 2.0 which roots them at a moment in time. It’s a classic example of bandwagon marketing that looks sexy yet has gone nuts in the process. Crowdsourcing at its worst.

I find it amazing that despite the relentless spin on this topic, it seems the challenges of changing culture take the hand wavers by complete surprise. The only conclusion I can reach is that none of these people has done any significant work inside organizations or if they have then they haven’t a clue about how business is organized, how the moving parts operate, how business cultures develop or what motivates people to work. If true then they are either charlatans or dim witted.

What I find staggering is that despite the panel’s general acknowledgment that ‘it is early days’ they have no clear answers for solving the problems that Enterprise 2.0 evokes. If this is the best that industry can put forward then forget it. There are far bigger problems to solve like correctly managing the workforce in times of economic crisis, smoothing out lumpy supply chains, beating down on data center costs or just getting ERP to deliver the benefits that were intended and which have consumed billions of IT spend dollars.

For those interested in such things: here’s a blow by blow account of the Enterprise 2.0 debate from Timo Elliott. I was nodding off to sleep after the first couple of answers.

UPDATE: at least one attendee was less than wowed:

I spoke to a few large companies (that will remain nameless) in private that were brutally honest with me about how disjointed their departments are and they honestly don’t believe that their organizations are not going to make this change, how can they?  I feel like the E2.0 panel I’m watching right now is so watered down that it’s almost pointless; it’s just not reality.

November 2nd, 2009

Figuring the value of software

Posted by Dennis Howlett @ 7:00 am

Categories: Uncategorized

Tags: Software, Software-as-a-service, SuccessFactors Inc., SAP AG, Phil Wainewright, Software As A Service (SaaS), Managed Hosting, Cloud Computing, Emerging Technologies, Dennis Howlett

Phil Wainewright’s discussion about the cost of running highly scalable SaaS applications like SuccessFactors comes at the right time. He says:

Speaking in the opening keynote of SIIA OnDemand in San Jose this morning, SuccessFactors CEO Lars Dalgaard let slip a statistic that set several attendees a-twittering. He revealed that the SaaS provider’s multi-tenant application infrastructure supports its 2,850+ customers and 5.4+ million users on just 150 servers.

There’s a bit of information missing here. Are we talking servers as in blades or servers as in racks? Either way it allowed Phil to segue nicely into a SaaS economics 101 argument coupled with the usual swipe at on-premise deployment costs. It’s a fair point and one that isn’t lost on the traditional enterprise players. But it also opens the way to a refinement of that discussion. One that relates to value.

While at SAP TechEd, I met with Thomas Otter, long time SAP solutions architect and now Gartner analyst. We were discussing the SuccessFactors deal at Siemens that should see SuccessFactors deployed to some 420,000 users. By any analysis that’s a HUGE deployment and arguably only possible via SaaS architectures. I am more interested in the sell side economics and asked Thomas what sort of value HR related applications have in the wider market.

He correctly pointed out that HR isn’t viewed as business critical in the same way as ERP but then I countered by suggesting that talent management might be regarded as business critical at a time when it is not only important to staff at the correct levels but ensure you have the right staff. Thomas agreed but also noted that recruitment software selling is tough in current market conditions and, by implication, might have a relatively low cost per user.

As we danced around this topic I wondered what this means for software vendors. Now that Phil has provided us with some facts on SuccessFactors user numbers, we can parse those back to the company’s results. Full year guidance from the company suggests revenue of around $150 million for the year. Taking all customers noted by the company’s CEO in Phil’s quote, that means average annualized deal value of around $52,600. At the user level that equates to a mere $28 per user per annum.

Compare that with the anecdotally quoted average per user cost of an SAP or Oracle customer running ERP: $4,000. And that’s just the license. You can argue as Jim Hagemann Snabe, an executive board member at SAP does that SAP demonstrates its scalability and resilience by being the operational back office for companies like Apple and its AppStore/iTunes. I liked the stat which says SAP runs 75% of mainstream beer production and 65% of the world’s chocolate production. And it is true that for some industries, the fact SAP has to be running with minimal downtime is business critical. But given the stark difference in cost between an admittedly narrow set of functionality such as talent management and ERP, are we honestly supposed to believe that there is a difference equating to a factor of x143? And all that before considering infrastructure, data center etc costs?

The bulk of what sells as ERP is based on accounting. Jim Snabe even referred to Pacioli’s 15 century book-keeping model during his keynote. By now these software should be commodity applications at the functional level. They should be costing the customer no more than a few hundred bucks per user. Especially given that companies like SAP are trying hard to get customers to adopt standard implementations with less or no customizations to the core functionality. But no. All the on-premise vendors continue to assume that a premium applies. That is true all the way through from SAP/Oracle down to those players who sell into the SME market. But wait a minute. We already have SaaS pricing with Business ByDesign ($149/user/month pretty much all you can eat, maintenance and infrastructure included)…but look what that does for Suite pricing?

Financial analysts fear the transition to SaaS will push SAP in particular (but why not Oracle, Infor, Microsoft?) down a path of self immolation. Not any time soon. The trailing service and support revenues from customers is baked into the deals. But here we question value delivered. Mature shops can think in terms of $5,000 amortized cost per support call. Ouch!

So just where is the value of software going to end up being priced? Or does it matter? One view of the SaaS world is it doesn’t matter because the number of deals to be done is so huge, the market so large that there is plenty enough to be mined at bucket shop prices. Monster deals such as Siemens/SuccessFactors should not surprise. Reaching a critical mass of market awareness IS a problem for all but the top handful of vendors. Hence the need for SaaS vendors to spend 60-70% of revenue on marketing activities to achiev e high run rates at break even.

Pricing as my good friend Vinnie likes to point out is a dark art. But with the attention now focused on value and pointers being offered by SuccessFactors, Salesforce.com, Workday, Intacct and others, you have to wonder how long premium on-premise pricing can hold up. If you take that line then the vendors won’t need to self immolate, the market alternatives will simply bowl them over.

Image courtesy of Zorger

October 30th, 2009

Is BI ready to meet the real world?

Posted by Dennis Howlett @ 7:14 am

Categories: business analytics

Tags: Business Intelligence, Decision-making, SAP AG, Marge Breya, Tools & Techniques, Sales Strategy, Pricing, Management, Sales, Marketing

Courtesy of Timo Elliott: http://timoelliott.com/blog/2009/10/sap-teched-vienna-09-opening-keynote-change-integration-and-innovation.html

One of my personal highlights at SAPTechEd this week was time spent with Marge Breya, EVP and general manager intelligence platform group, Netweaver. During her keynote, Marge talked about the next generation of business intelligence and gave a demonstration of Polestar. During the demo, Marge showed how it can mash up communications with finely sliced information that allows execs to make more informed decisions. It was impressive and made more so by the fact Marge runs her own demos with live data rather than the disguised PowerPoint stuff others prefer.

Afterwards, a group of us met to hear more about what Marge’s group are thinking about. Marge kicked off by saying that when the company’s preliminary Q3 results came in, she was able to quickly discover how a certain region had achieved sales that ran significantly counter to the remainder of the company. All good so far. But then Marge started to talk about how an understanding of what this group had done might be turned into a best practice. I struggle with this idea.

Marge makes no secret of the fact she’s a ‘data person’ i.e. that she likes to base any decisions on facts she can see and upon which she can rely. She argues that because SAP is able to quickly expose a far richer set of data than was possible using traditional data cubes, this allows decisions to be pushed further down the decision tree. That seems intuitively correct but it disguises many aspects of buying decisions in particular that are not readily captured and which cannot be generalized across all types of sale. Marge acknowledged that for example it is useful to know why one sales person prefers to hunt for volume deals while another prefers to go after big fish.

What fascinates me are buying decision making processes. Marge thought that by contextually understanding areas of success it might be possible to develop new best practices that would allow a company to replicate success in different parts of the business. “If you get to 70% of that success then you’re making a very big contribution to value.” Agreed. Except for one small but important problem.

Technology buyers often behave in irrational ways. In London for example I met with SAP buyers who were primarily influenced by SAP’s brand rather than functional completeness for what they need. At a personal level I’ve been a Nokia phone buyer for more years than I can remember. That only changed when the brand promise evaporated for me as I wrestled with the N96. Marge found that an odd argument yet I can think of numerous examples where irrational behaviors guide business decisions. From my side I believe it is important to understand the operational motivation behind irrational factors that drive decisions and then see if there are ways to tap into those factors. That’s far more complicated and error prone than simply crunching numbers and acquiring the tacit knowledge people are prepared to share in a wiki or blog.

The flip side is that where irrational behaviors have less influence, then outcomes can be better. As an example, I met with Consol, a South African glass packaging maker that has been using Business Objects SAP tools to work out where its IT support time and cost deltas lay. That analysis has allowed the company to release 18% savings back to IT innovation. On that basis, the use of SAP (or any other) technology becomes a no brainer and Consol is now looking at ways to drive adoption deep into its business.

The question then comes how SAP and its competitors will find ways that help business reduce decision making risk and uncertainty. The social computing crowd will jump up and say ‘Look at what we can offer in terms of social business design.’ Fair comment except we are at the very early stages of understanding the capture and dissemination methods for tacit information let alone able to deploy the interpretive and pattern matching skills needed. To that point I wasn’t convinced Marge has a clear answer. The good news is that the company is actively looking at this problem. I will be interested to hear their conclusions.

October 30th, 2009

SOMESSO: social computing meets financial services

Posted by Dennis Howlett @ 5:16 am

Categories: Social computing, Social software

Tags: Financial Service, Social Computing, Fidor, Social Networking, Online Communications, Marketing, Advertising & Promotion, Dennis Howlett

Next Monday and Tuesday I will be attending SOMESSO in Zurich. This is an event that covers the intersection between the financial services industry and social computing. According to the blurbs:

Day 1 is reserved for corporate workshops for Finance and Banking professionals (Finance Masterclass) on the topic Web 2.0 and its application to business collaboration

On Day 2 you will hear top notch keynotes and presentations from today’s leading experts at the conference.

Financial services is where I started my career and a business sector in which I have a long term interest. If financial services can find good ways to leverage social computing then that will indicate social computing in general has moved a very long way down the track towards mainstream acceptance.

It’s not unusual to see financial services organizations as early technology adopters. However, social computing carries many potential risks and can be impacted by regulatory concerns. Compound that with the mess that banking and insurance has been in the last few years and it is hardly a surprise that this area of computing has been largely ignored.

It will be interesting to hear the discussions around what can and cannot be achieved in areas like collaboration and community. The Google Wave and Gravity demo I videoed at SAP TechEd provides one example of where this ’stuff’ can go. What might social computing bring to the analysis of risk? How might collaboration close the gap and solve the problems that exist between front and back office trading operations? Is there a place for new kinds of community based banking? Fidor thinks so. How is social computing changing access to funds in parts of the world that would traditionally found it difficult to raise money? On this last point, I am looking forward to hearing more about the Kiva story. I’m expecting a fascinating learning day.

There’s still time to book for those interested in this topic.

Disclosure: I’m driving the online presence and SOMESSO is covering my travel.

October 28th, 2009

SAP Q3: sales down, profit up

Posted by Dennis Howlett @ 2:05 am

Categories: ERP, Enterprise applications

Tags: SAP AG, Sales Strategy, Tools & Techniques, Operational Accounting, Sales Force Management, Sales, Management, Finance, Dennis Howlett

SAP’s Q3 results demonstrate continuing softening in the enterprise software sales market. Revenues were down year on year by 31% to €525 million ($787 mill) from €763 million ($1.144 bn) in the same period 2008. Software and software related service revenues declined 3% or €57 million ($85 mill) year on year. In a pre-prepared statement, the company said it is tracking software and software related service revenues down 6-8% for the full year. It is perhaps an indication of the lack of clarity in seeing the market forward that in July, SAP thought this number would track down 4-6%.

SAP is close to achieving its planned 3,000 headcount reduction for 2009 by year end. This together with other savings measures means SAP has improved operating margins from 22.2% to 24.2%. However, the scale of decline on the top line means that net income fell from €614 million ($921 mill) to €606 million ($909 mill). Talking to SAP insiders, it is anticipated that there will be further restructuring in early 2010.

In a prepared statement that company said:

“Despite the continued tough spending environment, we are pleased to see further progress in the evolution of our volume business as a result of smaller deals,” said Léo Apotheker, CEO of SAP. “In addition, we are driving more multi-year agreements, where customers buy and consume software over many periods, which we believe is a positive transition for both SAP and our customers. We have the benefit of many years of experience in facilitating the purchase of our software in this manner, including the success we had in signing multi-year, Global Enterprise Agreements with our largest customers. We have now started to leverage this approach with a bigger group of customers. And, most importantly, our solutions are built on a highly flexible and modular architecture allowing us to easily adopt this model.”

SAP has been offering its largest customers an ‘all you can eat’ model which, for a fixed price, allows those customers access to all SAP tools and technologies. This is a form of subscription based model in that SAP recognizes revenue over the life of the agreement. It gives SAP revenue certainty over long periods, typically five years. The flip side is that customers have cost certainty plus the opportunity to consume technology at a pace that suits them without the constraints of long sales negotiation cycles. The extent to which this is a buyer win is not entirely clear. Senior managers I have spoken with say that SAP can only make these arrangements work successfully by ensuring that customers have quality access to the technologies, consultants and product roadmap such that customers can plan for adoption.

Apotheker is fielding a Q&A at 11am CET and an analyst call at 3pm CET.

October 27th, 2009

SAP regaining its mojo?

Posted by Dennis Howlett @ 8:35 am

Categories: ERP, Enterprise applications

Tags: Blade, SAP AG, Operational Planning, Blade Servers, Utility Computing, Roi/Tco, Servers, Business Operations, Hardware, Finance

Earlier today at SAP TechEd Vienna, Jim Hageman Snabe, SAP senior vice president in charge of products said: “Business ByDesign will be multi-tenant.” It was almost a throw away line in a broad conversation discussing SAP’s slow conversion to all things SaaS and cloud computing. I thought I was hearing things until Jim confirmed this is the case. I asked whether this means the end of the much criticized mega-tenant model where tenants are not shared on server blades. Apparently not: “We can accommodate both. Right now we can get around 10 customers on each blade if that’s acceptable.” This translates to something like 250 users per blade.

When SAP first introduced ByDesign in the winter of 2007, it could get 50 concurrent users per blade. By the Spring of this year, the concurrent user number had reached 100 so this current number represents a significant engineering achievement albeit helped by the continuing operation of Moore’s Law. Even so, Jim was keen to ensure that ByDesign delivery expectations are not overstated. “We got burnt by being overly ambitious and won’t repeat that mistake. We’re still working on getting the TCO right. I have an interim milestone for the end of the year which looks good right now but I can’t commit to a specific date in 2010.”

In other news, SAP confirmed it will be using in-memory database technology to deliver ByDesign’s analytics. This is the first step in a broader move towards making in-mem databases the center of application development. Jim quoted the example of a complex business planning scenario that would normally take 20 minutes to execute being run in 7 seconds. That level of performance improvement is welcome but in-mem gives the potential to do much more.

“Once you insert the in-memory database into the application itself then you can start to do things that today are impossible for example you can ask almost unlimited ‘what-if’ questions about what’s happening in the business,” said Jim. This is in contrast to what happens today where large enterprise has to build large data cubes that give a limited view based on pre-defined queries.

For those of us interested in SAP TCO, the company believes there are significant potential savings in code development and maintenance: “We think [code cost] savings of 40% are possible,” said Jim.

Later in the day, SAP surprised us by offering the stage to Lars Rasmussen, software engineering manager with Google and one of the team behind Google Wave. Lars provided a demonstration  of Wave and then handed over to SAP which showed a demonstration of a collaboration scenario in financial services that uses a business process modeling gadget operating inside Wave as a way of fast track developing new processes that can then be punched out to the SAP Netweaver execution platform.

While the demo, code named Gravity, is nowhere near ready for prime time, it shows how consumer style services can co-exist comfortably with the enterprise world. In talking with developers, it seems a number of SAP business process experts are finding collaborative uses for Wave that hold promise for bringing the development of process models much closer to end users. But whether corporate IT departments are ready to let loose cloud services that talk to buttoned down SAP systems is another matter. For its part, Google is aware that it needs to develop services inside Wave that reflect enterprise needs: “We are working on having the ability to restrict people’s rights inside a Wave to say ‘read only’ or no ‘delete,’” said Lars.

October 23rd, 2009

The maintenance renewal landscape

Posted by Dennis Howlett @ 6:00 am

Categories: Uncategorized

Tags: Revenue, SAP AG, Maintenance Fee, Maintenance Revenue, Data Centers, Enterprise Resource Planning (ERP), Team Management, Operational Accounting, Storage, Hardware

A small and therefore statistically dubious quarterly CIO survey undertaken by Kash Rangan’s team at Bank of America Merrill Lynch published earlier this month makes revealing reading. On the general spending front, it should be no surprise that the survey believes CIO’s are under spending relative to plan in 2009 albeit 2010 expectations are perhaps slightly firmer. The real interest to me though was 13 pages into the report where Ranagan’s team provide an analysis of success in negotiating better maintenance prices.

I’ve extracted the numbers for Oracle and SAP as these are the two companies where we see the greatest friction between buyers and sellers. The report included data for Microsoft and VMWare.

I was particularly interested in relative success rates between the two companies. It should be no surprise that success at Oracle increased dramatically between Q1 and Q2 as Oracle’s year end is May 31st. As is well known, you always stand a better chance of getting a better deal as sales people seek to close out the year. I was slightly flummoxed by the Q1 comparison because this came after SAP’s year end and so the same pressures should not have applied. Without more data it is difficult to assess the reason or for that matter whether it is a particularly accurate reflection of reality. What is more interesting though is that these respondents appear to be getting a consistent 58-60% success rate from both companies.

That’s a surprise. The way the two companies spin their maintenance story to the street, you’d think they were paving the roads to their HQ’s in maintenance gold.

As I said at the top of this post and which BOA/ML caution, the sample is small so one can’t be certain the trends found in this data are reflective of the wider world. However, in a report from Peter Goldmacher’s team at Cowen published in September (PDF), part of which was reproduced by Vinnie Mirchandani, it was said that:

“We believe that application software vendor maintenance fees are at risk. Our research indicates that companies continue to tighten their belts around IT spending, and ERP upgrades are not a priority. This is not a macro issue that we expect to diminish as the economy strengthens. We believe ERP upgrades, the primary motivation to pay maintenance fees, are on the wane because it’s a mature market. Vendor investments in R&D are on the decline, innovation is lagging and redeployment costs are multiples of the license fee. As a result, customers are increasingly questioning the value of paying annual maintenance fees of 20% of the cost of the original license for the occasional use of technical support. We believe that as the value proposition around maintenance fees diminishes, there is significant opportunity for third party service providers to offer low cost tech support. While there are only a small number of these third party providers today, we believe that as Apps sales continue to decline, there is a significant over capacity of consultants with ERP expertise looking for opportunities to leverage their skills. We believe these dynamics will result in the creation of a number of businesses designed to chip away at the exorbitant revenues and margins associated with vendor maintenance fees.”

[my emphasis added]

On yesterday’s Enterprise Advocates webinar, we pointed out that maintenance is only one (albeit important) part of the TCO equation and that data center economics along with SI costs are equally worthy of review. However, BOA/Cowen’s analysis should give the vendors pause for thought and encourage buyers to think positively about getting more balance into their vendor relationships.

Maintenance revenue is a huge contributor to bottom line profit. Both companies know it and are anxious to protect that revenue stream. However, it is that very reliance on super profitable revenue that renders them vulnerable. I have long said that it is unsustainable as a growing line item set against mature products and mature implementations.

SAP did not pre-announce Q3 results which are due October 28th, just as TechEd Vienna is in full swing. One can only assume they’ve no nasty surprises since SAP is pretty good at breaking bad news early and that hasn’t happened this time around. That’s in sharp contrast to last year’s Q3 train wreck. That still leaves a tricky couple of months during which we’ll see whether SAP is resilient to the pressures of change. If the lively Q&A on yesterday’s webinar is anything to go by, there is plenty for both buyers and sellers to consider.

October 22nd, 2009

SAP and Siemens: kiss and make up?

Posted by Dennis Howlett @ 8:35 am

Categories: Uncategorized

Tags: Siemens AG, SAP AG, Purchasing & Procurement, Business Operations, Dennis Howlett

The other week news broke that Siemens planned to can its estimated €40 million plus annual maintenance agreement with SAP. What a difference a few weeks makes. According to a press release issued by SAP:

SAP…today announced that Siemens AG, a global leader in electronics and electrical engineering, has expanded its strategic relationship with SAP through its selection of the SAP® Supplier Relationship Management (SAP SRM) application for Siemens’ worldwide e-procurement operations. Also announced was the completion of Siemens’ contract renewal for SAP maintenance support services for all SAP solutions based on SAP’s maintenance standards for large customers for a duration of three years.

[my emphasis added]

Colleague Vinnie Mirchandani was on the case with his old Gartner buddy Helmuth Guembel:

He [Helmuth] hears Siemens got the deal at under euro 20 million a year compared to the euro 35 million they were paying earlier. They also got perks such as MaxAttention, extended maintenance on some Siemens specific  enhancements thrown in and also got some shelfware off maintenance.

SAP will, of course, publicly deny this and Siemens will, of course, publicly not confirm it. And they are very justified in not sharing the gory details.

SAP cannot be happy seeing these issues raked over in public. I already know Siemens does not intend for this to become a media issue and SAP doesn’t want to say much beyond the press release although they question whether Helmuth got it right. That’s completely understandable if frustrating. As Vinnie says: ‘he said, she said.’

Fact of the matter remains that those of us who support the buyer in the buy/sell relationship hear about discontent day in and day out. The language at times is anything but ‘family friendly.’ RiminiStreet and other third party maintenance providers would not have a reason to exist if the main vendors were more flexible in their arrangements. Whatever really happened, Siemens must have got something substantial out of the negotiations otherwise SAP would not have gone to the trouble of making the point. That should send a strong signal to buyers: think before you sign up for another 1,3,5 year deal.

At 9am PT today, Vinnie, Ray Wang, Frank Scavo and myself will be sharing a webinar session discussing SAP maintenance TCO. It won’t be easy for SAP to hear what we have to say but then this is only one company within the enterprise arena. We are an equal opportunity flamethrower so in future sessions we will be addressing similar issues around Oracle, Infor and so on.